Total Posts:11|Showing Posts:1-11
Jump to topic:

Unearned Income Paradox

DisKamper
Posts: 63
Add as Friend
Challenge to a Debate
Send a Message
8/14/2015 5:07:47 AM
Posted: 1 year ago
I think there is a way to show that no economic system can satisfy all three of these requirements:
1) Unrestricted exchange of goods and services.
2) All income is a result of working.
3) Provides incentives for innovation.

Here is a semi-proof: Consider a person who invents an idea for a robot that produces something that can be sold. Someone else makes the robot. Another person owns the robot, after having purchased it from the maker and/or inventor, depending on the economic system (presumably the owner has enough money to purchase the robot). There are four logical options for who should benefit from what the robot produces.

A) The inventor. However, this fails requirement 1 since the inventor should be able to sell his robot to the owner.
B) The maker. This also fails requirement 1 for the same reason. It also fails 3 since the inventor is not rewarded.
C) The owner. This fails 2 since unlike the inventor or the maker, the owner is able to earn income despite doing no work.
D) The government. This fails 3 since the inventor is given no reward for his invention. (Note that this does not necessarily fail 1 since it may be the case that no one ever owned the robot- the government owned it).

The robot's earnings could be split somehow among the 4 parties. Note that giving any portion of the robot's earnings to the inventor or maker will fail requirement 1. The only remaining option is to split money between the government and owner. This, however, fails requirement 2.

Thus it appears that these 3 requirements are not compatible. At best 2 can be chosen at once. Of course, most will argue that 2 is not a needed requirement and some may even dispute 1. Yet, at least to me, they seem to be good requirements for an economic system when taken individually.

Is there a flaw somewhere here? Or is this just the depressing reality of things?
Chang29
Posts: 732
Add as Friend
Challenge to a Debate
Send a Message
8/14/2015 6:20:31 AM
Posted: 1 year ago
Assumptions 2 and 3, are not requirements for economies to function. Labor to produce a good or service does not affect the subjective value to the purchaser of a product. If the subjective value of a good is higher than currency, at that moment in time, a mutually beneficial exchange occurs. The input costs are not relevant to purchasers, only producers are concerned about earning a profit. Labor is only one part of input costs of a product.

In the example, the robot is an innovative method to increase productivity, and reduce input cost, just as a farmer plows with a tractor and not a mule. If mules were still used in the fields, and farm productivity would be much lower.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
ax123man
Posts: 317
Add as Friend
Challenge to a Debate
Send a Message
8/14/2015 10:46:38 AM
Posted: 1 year ago
How much is the robot worth if only one of them exists and it can produce all the current goods in the world? The robot's sale value is reflected in what it can produce. So everyone gets the benefit of the goods the robot creates even though only the owner of the robot owns those goods.

And Chang29 is correct. Don't fall into the trap of Marx's labor theory of value.
DisKamper
Posts: 63
Add as Friend
Challenge to a Debate
Send a Message
8/15/2015 4:27:35 AM
Posted: 1 year ago
Assumptions 2 and 3, are not requirements for economies to function.
Of course not, and history shows that, but they are nice to have. Without 3 we wouldn't create new technology. 2 ensures that people have to work to make money- basically that there is no free lunch, so to speak (although this is probably the most dispensable of the 3).

Labor to produce a good or service does not affect the subjective value to the purchaser of a product. If the subjective value of a good is higher than currency, at that moment in time, a mutually beneficial exchange occurs. The input costs are not relevant to purchasers, only producers are concerned about earning a profit. Labor is only one part of input costs of a product.

And Chang29 is correct. Don't fall into the trap of Marx's labor theory of value.

Yes, I agree. I don't think I'm falling into the LTV trap. Whatever the robot produces is certainly valuable- even though the input labor costs may be 0. Here we can assume 100% of the input is capital. The question is who gets to take the robot's product. The answer isn't as intuitively obvious as if the input was all labor.

Indeed this is more a critique of Marxist thought than an endorsement of it. Unearned income is necessary to keep incentives for innovation and free exchange.

How much is the robot worth if only one of them exists and it can produce all the current goods in the world? The robot's sale value is reflected in what it can produce. So everyone gets the benefit of the goods the robot creates even though only the owner of the robot owns those goods.

The robot's sale value would be exorbitant if it could produce everything (and to make things more interesting let's say it could perform all services too). I suppose the owner would sell products for just below the price needed to make products without the robot. Prices would be lower- which is nice- but no one would have a job. No one would want to borrow money since they can't pay it back. Would there even be a way to make money? The owner- who paid a huge price to acquire the robot- certainly isn't a "winner" either. The inventor and/or maker- they are the real winners.
Chang29
Posts: 732
Add as Friend
Challenge to a Debate
Send a Message
8/16/2015 1:34:08 AM
Posted: 1 year ago
At 8/15/2015 4:27:35 AM, DisKamper wrote:
Assumptions 2 and 3, are not requirements for economies to function.
Of course not, and history shows that, but they are nice to have. Without 3 we wouldn't create new technology. 2 ensures that people have to work to make money- basically that there is no free lunch, so to speak (although this is probably the most dispensable of the 3).

Labor for just the sake of a Job is not desirable, Adavances in technology increases productivity, changing required employment skill sets.

Labor to produce a good or service does not affect the subjective value to the purchaser of a product. If the subjective value of a good is higher than currency, at that moment in time, a mutually beneficial exchange occurs. The input costs are not relevant to purchasers, only producers are concerned about earning a profit. Labor is only one part of input costs of a product.

And Chang29 is correct. Don't fall into the trap of Marx's labor theory of value.

Yes, I agree. I don't think I'm falling into the LTV trap. Whatever the robot produces is certainly valuable- even though the input labor costs may be 0. Here we can assume 100% of the input is capital. The question is who gets to take the robot's product. The answer isn't as intuitively obvious as if the input was all labor.

Inputs have no influence on subjective value. The costs that a producer has accumulated are of no concern to a buyer. The only concern is if a product has higher subjective value than currency.


Indeed this is more a critique of Marxist thought than an endorsement of it. Unearned income is necessary to keep incentives for innovation and free exchange.

How much is the robot worth if only one of them exists and it can produce all the current goods in the world? The robot's sale value is reflected in what it can produce. So everyone gets the benefit of the goods the robot creates even though only the owner of the robot owns those goods.

The robot's sale value would be exorbitant if it could produce everything (and to make things more interesting let's say it could perform all services too). I suppose the owner would sell products for just below the price needed to make products without the robot. Prices would be lower- which is nice- but no one would have a job. No one would want to borrow money since they can't pay it back. Would there even be a way to make money? The owner- who paid a huge price to acquire the robot- certainly isn't a "winner" either. The inventor and/or maker- they are the real winners.

The robot's sale value would be zero. If the robot provided all goods and services, markind would not have economic problems. Therefore, ownership would not be an issue, the robot fills all desires in unlimited quantities, nirvana. Without scarcity, goods have a value of zero, e.g. sand to a nomad in a desert, sea water to a sailor on an ocean, and currency to a banker in fractional reserve banking. Goods without scarcity have no value.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
DisKamper
Posts: 63
Add as Friend
Challenge to a Debate
Send a Message
8/16/2015 3:48:52 AM
Posted: 1 year ago
At 8/16/2015 1:34:08 AM, Chang29 wrote:
At 8/15/2015 4:27:35 AM, DisKamper wrote:
Assumptions 2 and 3, are not requirements for economies to function.
Of course not, and history shows that, but they are nice to have. Without 3 we wouldn't create new technology. 2 ensures that people have to work to make money- basically that there is no free lunch, so to speak (although this is probably the most dispensable of the 3).

Labor for just the sake of a Job is not desirable, Adavances in technology increases productivity, changing required employment skill sets.

Labor to produce a good or service does not affect the subjective value to the purchaser of a product. If the subjective value of a good is higher than currency, at that moment in time, a mutually beneficial exchange occurs. The input costs are not relevant to purchasers, only producers are concerned about earning a profit. Labor is only one part of input costs of a product.

And Chang29 is correct. Don't fall into the trap of Marx's labor theory of value.

Yes, I agree. I don't think I'm falling into the LTV trap. Whatever the robot produces is certainly valuable- even though the input labor costs may be 0. Here we can assume 100% of the input is capital. The question is who gets to take the robot's product. The answer isn't as intuitively obvious as if the input was all labor.

Inputs have no influence on subjective value. The costs that a producer has accumulated are of no concern to a buyer. The only concern is if a product has higher subjective value than currency.

Yes, true, but where the inputs come from determine where the customer's payment goes. If 100% of input is labor, then everything goes to the laborers, right (unless there's some kind of market inefficiency)? In practice, some goes to the workers, and some goes to the owners since they both provide inputs in the production process. I'm certainly not saying inputs have a direct impact on price of goods (although it matters if competition is involved). Rather, inputs impact how money flows from the hands of consumers to the people involved in production.

Indeed this is more a critique of Marxist thought than an endorsement of it. Unearned income is necessary to keep incentives for innovation and free exchange.

How much is the robot worth if only one of them exists and it can produce all the current goods in the world? The robot's sale value is reflected in what it can produce. So everyone gets the benefit of the goods the robot creates even though only the owner of the robot owns those goods.

The robot's sale value would be exorbitant if it could produce everything (and to make things more interesting let's say it could perform all services too). I suppose the owner would sell products for just below the price needed to make products without the robot. Prices would be lower- which is nice- but no one would have a job. No one would want to borrow money since they can't pay it back. Would there even be a way to make money? The owner- who paid a huge price to acquire the robot- certainly isn't a "winner" either. The inventor and/or maker- they are the real winners.

The robot's sale value would be zero. If the robot provided all goods and services, markind would not have economic problems. Therefore, ownership would not be an issue, the robot fills all desires in unlimited quantities, nirvana. Without scarcity, goods have a value of zero, e.g. sand to a nomad in a desert, sea water to a sailor on an ocean, and currency to a banker in fractional reserve banking. Goods without scarcity have no value.

I assumed that the scenario was that the robot could produce goods at the rate of current worldwide production. If the scenario is actually that the robot can produce things infinitely fast, then things are a bit different.

The robot's sale value obviously can't be zero; we must not be on the same page. The owner could simply restrict the robot's production to make the robot's goods have a positive price! Indeed, if the demand curve was p=D(q) (as a function of quantity), where q is quantity and p is price, then the owner's income I is simply:
I=D(q)*q
The optimal quantity is simply found by setting the derivative of income to 0.
0=D'(q)*q+D(q)
Assuming a downward sloping demand curve, there are some positive finite values for p and q which optimize I. Assuming the optimal price is below current market prices, the owner simply sets the price to this value. If not, the owner simply sets the price of goods to just below current costs for production. The price for the robot cannot be zero- that not only doesn't make sense, I don't think it is mathematically valid either.
DisKamper
Posts: 63
Add as Friend
Challenge to a Debate
Send a Message
8/16/2015 4:10:00 AM
Posted: 1 year ago
At 8/16/2015 1:34:08 AM, Chang29 wrote:
At 8/15/2015 4:27:35 AM, DisKamper wrote:
Assumptions 2 and 3, are not requirements for economies to function.
Of course not, and history shows that, but they are nice to have. Without 3 we wouldn't create new technology. 2 ensures that people have to work to make money- basically that there is no free lunch, so to speak (although this is probably the most dispensable of the 3).

Labor for just the sake of a Job is not desirable, Adavances in technology increases productivity, changing required employment skill sets.

Yes, I agree. We don't need labor just for the sake of it. What I am saying with number 2 is that it would be nice if people couldn't get money by not doing any work. I don't think it makes intuitive sense for someone not doing any work to make more money than someone doing work. It's not about the person making more money having more valuable skills- that's different. On the other hand, there are certainly ways to rationalize it- namely that if everyone started out on an equal playing field then everyone's opportunities to get to a certain wealth level would only depend on how much work each person did and the choices they made. If a system were not meritocratic like this- then how much a person made would be based on unavoidable luck- factors like family connections, location of birth, etc.
Chang29
Posts: 732
Add as Friend
Challenge to a Debate
Send a Message
8/16/2015 7:58:44 AM
Posted: 1 year ago
At 8/16/2015 3:48:52 AM, DisKamper wrote:
At 8/16/2015 1:34:08 AM, Chang29 wrote:
At 8/15/2015 4:27:35 AM, DisKamper wrote:
Assumptions 2 and 3, are not requirements for economies to function.
Of course not, and history shows that, but they are nice to have. Without 3 we wouldn't create new technology. 2 ensures that people have to work to make money- basically that there is no free lunch, so to speak (although this is probably the most dispensable of the 3).

Labor for just the sake of a Job is not desirable, Adavances in technology increases productivity, changing required employment skill sets.

Labor to produce a good or service does not affect the subjective value to the purchaser of a product. If the subjective value of a good is higher than currency, at that moment in time, a mutually beneficial exchange occurs. The input costs are not relevant to purchasers, only producers are concerned about earning a profit. Labor is only one part of input costs of a product.

And Chang29 is correct. Don't fall into the trap of Marx's labor theory of value.

Yes, I agree. I don't think I'm falling into the LTV trap. Whatever the robot produces is certainly valuable- even though the input labor costs may be 0. Here we can assume 100% of the input is capital. The question is who gets to take the robot's product. The answer isn't as intuitively obvious as if the input was all labor.

Inputs have no influence on subjective value. The costs that a producer has accumulated are of no concern to a buyer. The only concern is if a product has higher subjective value than currency.

Yes, true, but where the inputs come from determine where the customer's payment goes. If 100% of input is labor, then everything goes to the laborers, right (unless there's some kind of market inefficiency)? In practice, some goes to the workers, and some goes to the owners since they both provide inputs in the production process. I'm certainly not saying inputs have a direct impact on price of goods (although it matters if competition is involved). Rather, inputs impact how money flows from the hands of consumers to the people involved in production.

The money flows to workers just as in any other market. Entrepreneurs and individuals determine a labor price, it become an input cost.


Indeed this is more a critique of Marxist thought than an endorsement of it. Unearned income is necessary to keep incentives for innovation and free exchange.

How much is the robot worth if only one of them exists and it can produce all the current goods in the world? The robot's sale value is reflected in what it can produce. So everyone gets the benefit of the goods the robot creates even though only the owner of the robot owns those goods.

The robot's sale value would be exorbitant if it could produce everything (and to make things more interesting let's say it could perform all services too). I suppose the owner would sell products for just below the price needed to make products without the robot. Prices would be lower- which is nice- but no one would have a job. No one would want to borrow money since they can't pay it back. Would there even be a way to make money? The owner- who paid a huge price to acquire the robot- certainly isn't a "winner" either. The inventor and/or maker- they are the real winners.

The robot's sale value would be zero. If the robot provided all goods and services, markind would not have economic problems. Therefore, ownership would not be an issue, the robot fills all desires in unlimited quantities, nirvana. Without scarcity, goods have a value of zero, e.g. sand to a nomad in a desert, sea water to a sailor on an ocean, and currency to a banker in fractional reserve banking. Goods without scarcity have no value.

I assumed that the scenario was that the robot could produce goods at the rate of current worldwide production. If the scenario is actually that the robot can produce things infinitely fast, then things are a bit different.

The robot's sale value obviously can't be zero; we must not be on the same page. The owner could simply restrict the robot's production to make the robot's goods have a positive price! Indeed, if the demand curve was p=D(q) (as a function of quantity), where q is quantity and p is price, then the owner's income I is simply:
I=D(q)*q
The optimal quantity is simply found by setting the derivative of income to 0.
0=D'(q)*q+D(q)
Assuming a downward sloping demand curve, there are some positive finite values for p and q which optimize I. Assuming the optimal price is below current market prices, the owner simply sets the price to this value. If not, the owner simply sets the price of goods to just below current costs for production. The price for the robot cannot be zero- that not only doesn't make sense, I don't think it is mathematically valid either.

Restricting output of a monopolistic machine for profit would be highly immoral.

The price of this machine has nothing to do with the inputs to create it or the labor it replaces, expected revuenue from sale of the end products drive the price, just as you explained.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
Chang29
Posts: 732
Add as Friend
Challenge to a Debate
Send a Message
8/16/2015 8:06:29 AM
Posted: 1 year ago
At 8/16/2015 4:10:00 AM, DisKamper wrote:
At 8/16/2015 1:34:08 AM, Chang29 wrote:
At 8/15/2015 4:27:35 AM, DisKamper wrote:
Assumptions 2 and 3, are not requirements for economies to function.
Of course not, and history shows that, but they are nice to have. Without 3 we wouldn't create new technology. 2 ensures that people have to work to make money- basically that there is no free lunch, so to speak (although this is probably the most dispensable of the 3).

Labor for just the sake of a Job is not desirable, Adavances in technology increases productivity, changing required employment skill sets.

Yes, I agree. We don't need labor just for the sake of it. What I am saying with number 2 is that it would be nice if people couldn't get money by not doing any work. I don't think it makes intuitive sense for someone not doing any work to make more money than someone doing work. It's not about the person making more money having more valuable skills- that's different. On the other hand, there are certainly ways to rationalize it- namely that if everyone started out on an equal playing field then everyone's opportunities to get to a certain wealth level would only depend on how much work each person did and the choices they made. If a system were not meritocratic like this- then how much a person made would be based on unavoidable luck- factors like family connections, location of birth, etc.

A system where each individual is rewarded for how they serve their fellow man. Ideas like free markets, open borders, individual liberty, and Individual responsible are all ways to achieve a society like that.
A free market anti-capitalist

If it can be de-centralized, it will be de-centralized.
DisKamper
Posts: 63
Add as Friend
Challenge to a Debate
Send a Message
8/16/2015 5:47:38 PM
Posted: 1 year ago
How much is the robot worth if only one of them exists and it can produce all the current goods in the world? The robot's sale value is reflected in what it can produce. So everyone gets the benefit of the goods the robot creates even though only the owner of the robot owns those goods.

The robot's sale value would be exorbitant if it could produce everything (and to make things more interesting let's say it could perform all services too). I suppose the owner would sell products for just below the price needed to make products without the robot. Prices would be lower- which is nice- but no one would have a job. No one would want to borrow money since they can't pay it back. Would there even be a way to make money? The owner- who paid a huge price to acquire the robot- certainly isn't a "winner" either. The inventor and/or maker- they are the real winners.

The robot's sale value would be zero. If the robot provided all goods and services, markind would not have economic problems. Therefore, ownership would not be an issue, the robot fills all desires in unlimited quantities, nirvana. Without scarcity, goods have a value of zero, e.g. sand to a nomad in a desert, sea water to a sailor on an ocean, and currency to a banker in fractional reserve banking. Goods without scarcity have no value.

I assumed that the scenario was that the robot could produce goods at the rate of current worldwide production. If the scenario is actually that the robot can produce things infinitely fast, then things are a bit different.

The robot's sale value obviously can't be zero; we must not be on the same page. The owner could simply restrict the robot's production to make the robot's goods have a positive price! Indeed, if the demand curve was p=D(q) (as a function of quantity), where q is quantity and p is price, then the owner's income I is simply:
I=D(q)*q
The optimal quantity is simply found by setting the derivative of income to 0.
0=D'(q)*q+D(q)
Assuming a downward sloping demand curve, there are some positive finite values for p and q which optimize I. Assuming the optimal price is below current market prices, the owner simply sets the price to this value. If not, the owner simply sets the price of goods to just below current costs for production. The price for the robot cannot be zero- that not only doesn't make sense, I don't think it is mathematically valid either.

Restricting output of a monopolistic machine for profit would be highly immoral.

That's how free market capitalism works. Doing anything but restricting output would be irrational since it would reduce profits.
DisKamper
Posts: 63
Add as Friend
Challenge to a Debate
Send a Message
8/16/2015 5:49:17 PM
Posted: 1 year ago
At 8/16/2015 8:06:29 AM, Chang29 wrote:
At 8/16/2015 4:10:00 AM, DisKamper wrote:
At 8/16/2015 1:34:08 AM, Chang29 wrote:
At 8/15/2015 4:27:35 AM, DisKamper wrote:
Assumptions 2 and 3, are not requirements for economies to function.
Of course not, and history shows that, but they are nice to have. Without 3 we wouldn't create new technology. 2 ensures that people have to work to make money- basically that there is no free lunch, so to speak (although this is probably the most dispensable of the 3).

Labor for just the sake of a Job is not desirable, Adavances in technology increases productivity, changing required employment skill sets.

Yes, I agree. We don't need labor just for the sake of it. What I am saying with number 2 is that it would be nice if people couldn't get money by not doing any work. I don't think it makes intuitive sense for someone not doing any work to make more money than someone doing work. It's not about the person making more money having more valuable skills- that's different. On the other hand, there are certainly ways to rationalize it- namely that if everyone started out on an equal playing field then everyone's opportunities to get to a certain wealth level would only depend on how much work each person did and the choices they made. If a system were not meritocratic like this- then how much a person made would be based on unavoidable luck- factors like family connections, location of birth, etc.

A system where each individual is rewarded for how they serve their fellow man. Ideas like free markets, open borders, individual liberty, and Individual responsible are all ways to achieve a society like that.

Yes, I agree, which is why I say 2 is not as important as 1 and 3 since it is not necessarily needed to create a meritocratic society.