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Thursday, 1 June 2017

Capital, Labour and Donald Trump

In the long history of political economy [the science that existed before Economics was invented] the starting-point for understanding the economy was recognition that there were three 'factors of production', three inputs that were necessary to achieve any output that was useful to [or desired by] the human race.

'Land' stands for all the resources of planet earth: the surface of the earth and everything that is on it, under it or capable of capture above it [such as birds].

'Capital' is all the output of past periods of time, that people hold back from consumption so that it can be used to facilitate production in future. This came to include tools, equipment and machinery and the buildings that house them, breeding stocks of animals, stores of seeds for future crops, and [after the invention of money] a stock of money that some people accumulated with which to employ people over time to produce output in the future. Those people became known as 'capitalists' because they became the controllers of a large proportion of the capital the any nation carried forward from each period into the next.

'Labour' is the capacity of humans to work physically and mentally to extract the materials of the earth [and, in the case of capitalists, to organise the activities of other humans] so that the product of successive years could increase: subject to the risks that can arise from climate, geology and human behaviour to disrupt a smooth process of wealth creation.

After the creation of human society and political entities, some of the risk that were assumed to exist for humans in a 'state of nature' were lessened by the system of law and order. Other risks, such as subjection to tyranny and the possibility of destruction in war, were inherent in society.

From the very beginning of political entities, the people who gained control of communities, of cities and of states recognised that they could achieve a good lifestyle for themselves, and acquire the means of influencing and dominating others, by controlling and exploiting exchanges between the common people. Governors facilitated trade by creating money; then creamed off taxes from markets where exchanges took place. In early stages of social sophistication it was recognised that if some people concentrated on activities in which they had special skills or experience, or access to knowledge that was denied to other people, they could specialise in a small range of production, maximise their output and exchange some of their produce with specialists in other fields. Thus specialisation and exchange developed together, and produced economic expansion; and if the government facilitated this process there would be even more available in taxes to make for a luxurious court and a powerful military resource.

By 1700 there was a considerable literature on political economy, especially in northern and western Europe; and among the writers there was a general assumption that a 'good' government facilitated production. It was also recognised that due to climatic and other factors, no country produced everything that would satisfy the wishes - the wants - of the people and their rulers. So international trade [or the development of colonies in different climatic and geological zones of the earth] should be facilitated: provided it increased the aggregate wealth of the nation. International exchanges that led to a loss of wealth to a country were to be prevented wherever possible; except where a short-term dependence on some import facilitated an accumulation of capital that would, over a series of future periods ensure an even greater national product.

These might seem to be arcane points in terms of the second decade of the twenty-first century: except that, just last year, a man was elected to the presidency of the United States who accepted pretty well the pure understanding of political economy that I have just summarised. This leaves open the question: was the invention of Economics - foreshadowed in Adam Smith's 1776 Inquiry into the Nature and Causes of the Wealth of Nations - an intellectual aberration that has dogged humanity for 250 years?

That is a question to which I will return; not least, as relief from the depressing daily news about the UK General Election.

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