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Capital And Credit


Armen

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From various points of view the opinion has been expressed that all

questions of money are so complicated as to be well-nigh impossible to

grasp in clear and transparent thoughts. A similar view can be

maintained regarding many questions of modern social life. But we

should consider the consequences that must follow if men allow their

social dealings to be guided by indefinite thoughts; for such thoughts

do not merely signify a confusion in theoretic knowledge, they are

potent forces in life; their vague character lives on in the

institutions that arise under their influence, which in turn result in

social conditions making life impossible ...

 

If we try to go the root of the social question, we are bound to see

that even the most material demands can be grappled with only by

proceeding to the thoughts that underlie the co-operation of men and

women in a community. For example, people closely connected with the

land have indicated how, under the influence of modern economic

forces, the buying and selling of land has made land into a commodity,

and they are of the opinion that this is harmful to society. Yet

opinions such as these do not lead to practical results, for men in

other spheres of life do not admit that they are justified ... We must

take into account how the purely capitalistic tendency affects the

valuation of land. Capital creates the laws of its own increase, which

in certain spheres no longer accord with an increase on sound lines.

This is specially evident in the case of land. Certain conditions may

well make it necessary for a district to be fruitful in a particular

way-they may be founded on spiritual and cultural peculiarities. But

their fulfilment might result in a smaller interest on capital than

investment elsewhere. As a consequence of the purely capitalistic

tendency the land will then be exploited, not according to these

spiritual or cultural points of view, but in such a way that the

resulting interest on capital may equal that in other undertakings.

And in this way values that may be very necessary to a real

civilization are left undeveloped.

 

It is easy to jump to the conclusion: The capitalistic orientation of

economic life has these results, and must therefore be abandoned ...

But one who recognizes how modern life works through division of

labour and of social function will rather have to consider how to

exclude from social life the disadvantages which arise as a by-product

of this capitalistic tendency ... The ideal is to work for a structure

of society whereby the criterion of increase in capital will no longer

be the only power to which production is subject-it should rather be

the symptom, which shows that the economic life, by taking into

account all the requirements of man's bodily and spiritual nature, is

rightly formed and ordered ...

 

Now it is just in so far as they can be bought and sold for sums of

capital in which their specific nature finds no expression, that

economic values become commodities. But the commodity nature is only

suited to those goods or values which are directly consumed by man.

For the valuation of these, man has an immediate standard in his

bodily and spiritual needs. There is no such standard in the case of

land, nor in the case of means of production. The valuation of these

depends on many factors, which only become apparent when one takes

into account the social structure as a whole ...

 

Where ‘supply and demand’ are the determining factors, there the

egoistic type of value is the only one that can come into reckon ing.

The ‘market’ relationship must be superseded by associations

regulating the exchange and production of goods by an intelligent

observation of human needs. Such associations can replace mere supply

and demand by contracts and negotiations between groups of producers

and consumers, and between different groups of producers ...

 

Work done in confidence of the return achievements of others

constitutes the giving of *credit* in social life. As there was once a

transition from barter to the money system, so there has recently been

a progressive transformation to a basis of credit. Life makes it

necessary today for one man to work with means entrusted to him by

another, or by a community, having confidence in his power to achieve

a result. But under the capitalistic method the credit system involves

a complete loss of the real and satisfying human relationship of a man

to the conditions of his life and work. Credit is given when there is

prospect of an increase of capital that seems to justify it; and work

is always done subject to the view that the confidence or credit

received will have to appear justified in the capitalistic sense. And

what is the result? Human beings are subjected to the power of

dealings in capital which take place in a sphere of finance remote

from life. And the moment they become fully conscious of this fact,

they feel it to be unworthy of their humanity ...

 

A healthy system of giving credit presupposes a social structure which

enables economic values to be estimated by their relation to the

satisfaction of men's bodily and spiritual needs. Men's economic

dealings will take their form from this. Production will be considered

from the point of view of needs, no longer by an abstract scale of

capital and wages.

 

Economic life in a threefold society is built up by the cooperation of

*associations* arising out of the needs of producers and the interests

of consumers. In their mutual dealings, impulses from the spiritual

sphere and sphere of rights will play a decisive part. These

associations will not be bound to a purely capitalistic standpoint,

for one association will be in direct mutual dealings with another,

and thus the one-sided interests of one branch of production will be

regulated and balanced by those of the other. The responsibility for

the giving and taking of credit will thus devolve to the associations.

This will not impair the scope and activity of individuals with

special faculties; on the contrary, only this method will give

individual faculties full scope: the individual is responsible to his

association for achieving the best possible results. The association

is responsible to other associations for using these individual

achievements to good purpose. The individual's desire for gain will no

longer be imposing production on the life of the community; production

will be regulated by the needs of the community ...

 

All kinds of dealings are possible between the new associations and

old forms of business — there is no question of the old having to be

destroyed and replaced by the new. The new simply takes its place and

will have to justify itself and prove its inherent power, while the

old will dwindle away ... The essential thing is that the threefold

idea will stimulate a real social intelligence in the men and women of

the community. The individual will in a very definite sense be

contributing to the achievements of the whole community ... The

individual faculties of men, working in harmony with the human

relationships founded in the sphere of rights, and with the

production, circulation and consumption that are regulated by the

economic associations, will result in the greatest possible

efficiency. Increase of capital, and a proper adjustment of work and

return for work, will appear as a final consequence ...

 

Whether a man rejects this idea or makes it his own will depend on his

summoning the will and energy to work his way through into the sphere

of causes. If he does so, he will cease considering external

institutions alone; his attention will be guided to the human beings

who make the institutions. Division of labour separates men; the

forces that come from the three spheres of social life, once these are

made independent, will draw them together again ... This inevitable

demand of the time is shown in a vivid light by such concrete facts as

the continued intensification of the credit system ... In the long run,

credit cannot work healthily unless the giver of credit feels himself

responsible for all that is brought about through his giving credit.

The receiver of credit, through the associations, must give him

grounds to justify his taking this responsibility. For a healthy

national economy, it is not merely important that credit should

further the spirit of enterprise as such, but that the right methods

and institutions should exist to enable the spirit of enterprise to

work in a socially useful way.

 

The social thoughts that start from the threefold idea do not aim to

replace free business dealings governed by supply and demand by a

system of rations and regulations. Their aim is to realize the true

relative values of commodities, with the underlying idea that the

product of one man's labour should be equivalent in value to all the

other commodities that he needs for his consumption during the time he

spends in producing it.

 

Under the capitalistic system, demand may determine whether someone

will undertake the production of a certain commodity. But demand alone

can never determine whether it will be possible to produce it at a

price corresponding to its value in the sense defined above. This can

only be determined through methods and institutions by which society

in all its aspects will bring about a sensible valuation of the

different commodities. Anyone who doubts that this is worth striving

for is lacking in vision. For he does not see that, under the mere

rule of supply and demand, human needs whose satisfaction would uplift

the civilized life of the community are being starved. And he has no

feeling for the necessity of trying to include the satisfaction of

such needs among the practical incentives of an organised community.

The essential aim of the threefold society is to create a just balance

between human needs and the value of the products of human work.

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I usually have a problem when reading viewpoints that are Keynesian or socialistic in their effrontery. However, the qualm I have with this is that it assumes, as a good neo-classical, that value issomething objective and thereby able to be measured, whereas we know through Austrian economics that all value is subjective and cannot be quantified.
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The point I was making was about value and its subjectivity.

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The article makes a disticntion between the value of immediate human needs (which are valued by the criteria of their immediate need) and are a commodity and things like land and means of production that should be valued differently.

 

The value of immediate needs cannot be subjective because they are vital.

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The article makes a disticntion between the value of immediate human needs (which are valued by the criteria of their immediate need) and are a commodity and things like land and means of production that should be valued differently.

 

The value of immediate needs cannot be subjective because they are vital.

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All values are subjective. We cannot for sure delineate what these values are for every individual. Economics is value free, as in, it does not make value judgements, such as this one has more value for people than that. We cannot determine that, as the thought processes of individuals are subjective. Conventional economics as that practiced by the Chicago school, or even socialists with its postulates, theorems, and methodologies is rife with value judgements.

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Since all actions consist of using material objects in a manner to reach a desired end, man assigns value to these objects. The value of any object to an individual depends foremost on the ends that the object can be employed toward. If an object is necessary for the attainment of an end high on an actor's value scale, he will accordingly assign a high value to it. The object's value also depends on the availability of other objects that can be used to reach the same end. For example, an actor may assign an extremely high value to an apple tree if it's the only food available and he desires to eat, but the value will likely decrease if he is able to obtain deer.

 

Man subjectively defines the ends he wishes to obtain, and therefore the value of any given object is subjective to him. This is the answer to a question that long plagued economic thought: where the value of objects comes from. In an advanced free market, the interaction of individuals results in a price system. Every individual, working with material objects to obtain desired ends, must arrange himself to satisfy the wants of others through trade if he wishes his own wants to be satisfied. Prices tell him how much he must exchange for other objects, and his own actions in the market affect these prices. Prices, then, are entirely dependent on the subjective value that every individual in the division of labor assigns to objects.

 

http://www.mises.org/fullstory.aspx?contro...the+environment

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Since all actions consist of using material objects in a manner to reach a desired end, man assigns value to these objects. The value of any object to an individual depends foremost on the ends that the object can be employed toward. If an object is necessary for the attainment of an end high on an actor's value scale, he will accordingly assign a high value to it. The object's value also depends on the availability of other objects that can be used to reach the same end. For example, an actor may assign an extremely high value to an apple tree if it's the only food available and he desires to eat, but the value will likely decrease if he is able to obtain deer.

 

Man subjectively defines the ends he wishes to obtain, and therefore the value of any given object is subjective to him. This is the answer to a question that long plagued economic thought: where the value of objects comes from. In an advanced free market, the interaction of individuals results in a price system. Every individual, working with material objects to obtain desired ends, must arrange himself to satisfy the wants of others through trade if he wishes his own wants to be satisfied. Prices tell him how much he must exchange for other objects, and his own actions in the market affect these prices. Prices, then, are entirely dependent on the subjective value that every individual in the division of labor assigns to objects.

 

http://www.mises.org/fullstory.aspx?contro...the+environment

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Very good article, thanks. It is the classical explanation but in very simple and understandable terms. For now I want to draw your attention to the separation that Jacob Halbrooks naturally put between human's different needs... Although in the same context of market economy, he does not view these needs in the same category. And it is natural although at present we tend not to notice it because of the established market mechanizms.

 

My numbering and underline in the quote below...

 

In the real world, human action can only manifest itself through material objects; man must utilize the resources that nature gives in order to employ means. 1. If man desires to live, he must obtain food, shelter, and other physical necessities. 2. If he wishes to have tools in order to make his future actions more productive, he must combine his labor with the earth while sacrificing present consumption. 3.On the most fundamental level, to exist in this universe, man must occupy space.

 

I will presnet the alternative views later.

Edited by Armen
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