Adam Smith on Wages and Wealth

[DuncanK]

Originally posted by The Mad Monk
Can you imagine what an audit for a wealth tax would be like?

Maybe I don't see the problem with a stock transaction tax. Say you tax the transaction 1%. John Doe invested 100,000 Coke and sold 50,000 in McDonalds. His tax is 1,500. No?

[Imran Siddiqui]

Thats not to say that if the economy was sluggish and people invested in the stock market that this money would go to production of the means of production. It wouldn't and the econony would not grow.

Actually it probably would. Why do you think a large portion of Bush's tax cut is the dividend tax cut? The economy is sluggish, but business doesn't have the money to invest in things. That is where the stock market comes in. Business have more money to burn, they spend more and the rest of the economy begins to grow.

Maybe I don't see the problem with a stock transaction tax. Say you tax the transaction 1%. John Doe invested 100,000 Coke and sold 50,000 in McDonalds. His tax is 1,500. No?

There is more to wealth than stock portfolios.

[Case]

Originally posted by DuncanK
I found a passage in the Wealth of Nations that I was looking for to add to a discussion on wealth tax.
*snip*
We should have a good wealth tax that directs resources into greater production.

The problem with Adam Smith is that The Wealth of Nations is like the bible. Because it laid the foundation for modern economics, you can read generally think up any economic policy safe in the knowledge that you can find a passage from WoN which supports it

Adam Smith strongly supported a maximum rate of interest in order to discourage speculation - would you agree to that as well?
[most modern economists wouldn't on the grounds that high rates of interest are likely to stop speculation]

Incidently, define 'a good wealth tax that directs resources into greater production'. How do you determine what's good and what's bad?

[disclaimer]I actually agree with placing some limits and controls on the market, but I'm just being onery [/disclaimer]

[DuncanK]

Originally posted by Imran Siddiqui

Quote:

Thats not to say that if the economy was sluggish and people invested in the stock market that this money would go to production of the means of production. It wouldn't and the econony would not grow.

Actually it probably would. Why do you think a large portion of Bush's tax cut is the dividend tax cut? The economy is sluggish, but business doesn't have the money to invest in things. That is where the stock market comes in. Business have more money to burn, they spend more and the rest of the economy begins to grow.

No, again. The investment in the means of production is in competition with the money that people invest in purely for speculative purposes. Now if capitalist come up with some new product that they have confidence in, sell their stocks and produce that product you will have growth. That is totally independent of a tax cut. There is plenty of liquididty in the economy already for expansion.

[DuncanK]

Originally posted by Case


The problem with Adam Smith is that The Wealth of Nations is like the bible. Because it laid the foundation for modern economics, you can read generally think up any economic policy safe in the knowledge that you can find a passage from WoN which supports it

Adam Smith strongly supported a maximum rate of interest in order to discourage speculation - would you agree to that as well?
[most modern economists wouldn't on the grounds that high rates of interest are likely to stop speculation]

We had high interest rates in the 80s and still the stock market boomed. So no I don't think high interest rates would work. The thing is that when interest rates are high people won't borrow to invest in the means of production. So they go to the stock market.

Originally posted by Case

Incidently, define 'a good wealth tax that directs resources into greater production'. How do you determine what's good and what's bad?

We are talking about a tax on stock transaction. Also I was going to propose a tax on land (not on the improvement on land).
Other people have proposed luxury tax. I'm not sure if I support a luxury tax.

[Sten Sture]

A transaction tax on stocks would be a massive, massive disaster unless it was so small that it was nearly invisible. One of the great things about the capital markets now is the ease of flowing from what you don't want to what you do. Transaction costs now on regular institutional trades are a couple of cents per share - you don't want portfolio people worried about transactions costs - you want them worried about the quality of the underlying investment. Buy and hold strategies looking to avoid capital gains taxes distorted our markets for years, and the partial unwinding of that distortion had a lot to do with the bubble.


Luxury goods do not stop the multiplier any more than food does or any other non-productive asset. If I buy a $2mm yacht somebody else gets the $2mm and does something with it.

[Willem]

Originally posted by DuncanK


This clearly shows that Adam Smith knew that there were types of wealth that did squat for the economy. We have these types of wealth today, namely the stock market.

Tell that to the millions of people who are counting on their mutual funds to provide for them in their retirement.

[DuncanK]

Originally posted by Case
How do you determine what's good and what's bad?

Sorry Case, I didn't answer this. The purpose would be to provide and adequate tax base, increase production and wages.

[DuncanK]

Originally posted by Sten Sture
A transaction tax on stocks would be a massive, massive disaster unless it was so small that it was nearly invisible. One of the great things about the capital markets now is the ease of flowing from what you don't want to what you do. Transaction costs now on regular institutional trades are a couple of cents per share - you don't want portfolio people worried about transactions costs - you want them worried about the quality of the underlying investment. Buy and hold strategies looking to avoid capital gains taxes distorted our markets for years, and the partial unwinding of that distortion had a lot to do with the bubble.

We don't need it to be invisible because then it wouldn't have any effect, but we don't need it big enough to be problematic either. I think in general though that if the result is less money tied up in financial markets that a crash would not be as damaging. Looking at 1929 there was a great deal invested in the stock market compared to the overall wealth. That's why it was so devestating.

[DuncanK]

Originally posted by Willem


Tell that to the millions of people who are counting on their mutual funds to provide for them in their retirement.

Well selling this is another story, but the common person would not pay more tax. Other taxes would be reduced or eliminated.

[Saras]

--Looking at 1929 there was a great deal invested in the stock market compared to the overall wealth"

Stocks are just a legal construct to represent productive assets in a uniform fashion so that capital is allocated efficiently. What you speak about capmarkets is utter rubish.

[DuncanK]

Originally posted by Saras
--Looking at 1929 there was a great deal invested in the stock market compared to the overall wealth"

Stocks are just a legal construct to represent productive assets in a uniform fashion so that capital is allocated efficiently. What you speak about capmarkets is utter rubish.

I'm sorry if I offended you or your stock market.

When you say capital is allocated you should say it is stored there. When you say it represents productive assets you should say that it is potentially a productive asset. Stocks are not productive assets. They only store value. They can be used to build the means of production if you sell them.

edit: the stock market could crash or boom tomorrow but the amount of productive assets will not change in the short run.

[Saras]

You didn't offend anyone, you just don't have a clue

[DuncanK]

The point of this thread was to establish the existence of nonproductive wealth as an objective fact. That's why I pointed out that England had more wealth than the US during the 18th century but the US economy grew faster and wages grew faster in the US. I wanted to establish nonproductive wealth as an objective fact so that we could discuss how we could improve the economy by turning nonproductive wealth into productive wealth.

Here is some examples of nonproductive wealth that I hope we can all agree on; gold, silver, land, money, collectables etc...

All of these things store wealth but are not involved in the means of production except for land. Land is used, but investment in it doesn't help the economy unless the land is improved.

About financial investments. Some of you insist on defending the honor of the stock market as though it were your mother. Let me just say this and then we can agree to disagree. When you purchase stock you are not investing in the means of production you are just buying something intangable that you hope will be worth more money in the future. The person that you buy the stock from can then spend your money on the means of production, consumption, or they can speculate with the money. That is they can buy more stock, gold, land, or something else that they hope will be worth more money in the future. Only in the case that they invest in the means of production (or consumption) will this improve the eocnomy. When they do something else it is what is called a leakage from the economy. When leakages occur nonproductive wealth increases. Leakages do occur and speculative wealth increases, that is an objective fact.

Now, let's discuss moving wealth to investment in the means of production. Maybe some of you think this is a bad thing. Why? Let's try not to keep going back to the debate over the productive or nonproductive nature of stocks.

[Imran Siddiqui]

the stock market could crash or boom tomorrow but the amount of productive assets will not change in the short run.

Short run? SHORT RUN?! Are you basing all your economic ramblings on short run theories?! That's totally absurd!

When you purchase stock you are not investing in the means of production you are just buying something intangable that you hope will be worth more money in the future.

Jesus! You buy stocks in COMPANIES, who then turn and use that money to expand production. You are investing in the means of production because without stocks, a great about of production would be lost because companies would not have the money that would be required for that production.

[Myrddin]

Except that BUYING stock does not give any money to the company - investing in new issues does

Except that companies do not do new issues because it is more tax efficient to issue debt

So buy bonds if you want your capital to be invested productively

[Imran Siddiqui]

Except that BUYING stock does not give any money to the company

It does if you buy it from the company directly (ie, when stocks first come on the market). Like you said, new issues. And there are companies that do new issues. They don't all stay away from them .

--

Furthermore, isn't GDP a value showing goods and SERVICES? I don't know about you, Duncan, but I think that brokers provide a service.

[DuncanK]

Originally posted by Myrddin
Except that BUYING stock does not give any money to the company - investing in new issues does

Except that companies do not do new issues because it is more tax efficient to issue debt

So buy bonds if you want your capital to be invested productively

True, which brings us to when we have more people investing in bonds. This will create more money for companies to borrow to make investments in the means of production. This will also lower interest rates at the same time. How much lower can interest rates go? Maybe we have to do something on the demand side to keep interest rates from going to low. If we don't do that we may just face a liquidity trap. Maybe cutting out income tax will create that demand. I'm not sure yet that's why I started this thread

[DuncanK]

Originally posted by Imran Siddiqui
Furthermore, isn't GDP a value showing goods and SERVICES? I don't know about you, Duncan, but I think that brokers provide a service.

edit: I'm not going to argue with you about this anymore on this thread.

I will on another thread though

[Japher]

In Book 1, Chapter 8 he compares England to America. He says that England is by far the wealthier nation, but wages in America are higher because the wealth is used towards the production of goods and services.

This clearly shows that Adam Smith knew that there were types of wealth that did squat for the economy. We have these types of wealth today, namely the stock market. We should follow this advice and prevent wealth from accumulating where it will not be productive. We should have a good wealth tax that directs resources into greater production.

and

Let's try not to keep going back to the debate over the productive or nonproductive nature of stocks.

Then don't attack it.

Investing in the means of production is obviously a good thing. Bonds, stocks, T-Bills, etc... Almost any investment vehicle that exist does host that. Do you ever wonder what really makes these investments not only increase in value but survive? I will tell you... Production Values... Even with stocks. This is why, when investing in stocks, many people look at P/E and P/S ratios, they show how much production that company is performing.

Except that BUYING stock does not give any money to the company - investing in new issues does

Nope... and IPOs are bad investments.

Except that companies do not do new issues because it is more tax efficient to issue debt

No? They just split in order to increase their market cap., lower stock value, and attrack new investors because it looks good on paper.

So buy bonds if you want your capital to be invested productively

Do you not consider a bond as investing in a deficit and not in production values? I think so.

[Sten Sture]

Originally posted by Saras
You didn't offend anyone, you just don't have a clue

Where do you even start with a thread like this???

[DuncanK]

Originally posted by Imran Siddiqui
Furthermore, isn't GDP a value showing goods and SERVICES? I don't know about you, Duncan, but I think that brokers provide a service.

Well the income tax seems so popular that I might as well debate the stock market with you right wingers.

If I through a brick through your window (and I'm not going to do that ), and you pay some one to fix the window GNP has been increased. But did I help the economy by throwing a brick through your window?

[DuncanK]

Originally posted by Japher
Investing in the means of production is obviously a good thing. Bonds, stocks, T-Bills, etc... Almost any investment vehicle that exist does host that. Do you ever wonder what really makes these investments not only increase in value but survive? I will tell you... Production Values... Even with stocks. This is why, when investing in stocks, many people look at P/E and P/S ratios, they show how much production that company is performing.

It's very simple. You are confusing yourself.

If I buy a some stock from you you only invest that money in the means of production by coincidence. And so in that sense investing in stocks is investing some money in the means of production. In the same way if I buy some gold from you you will invest that money in the means of production by coincidence. Now are you saying that an investment in gold is an investment in the means of production?

[Imran Siddiqui]

I buy some gold from you you will invest that money in the means of production by coincidence.

Are you sure you are not confused?

If you buy stocks, someone else recieves that money. According to the marginal rate of consumption and marginal rate of savings, some of that money will be consumed and the rest saved.

It isn't coincidence. That money WILL be used.

you pay some one to fix the window GNP has been increased. But did I help the economy by throwing a brick through your window?

Maybe, maybe not. It depends on how the money was going to be used by you compared to how the money was going to be used by the window repair company.

So, it depends.

[DuncanK]

Originally posted by Imran Siddiqui

Quote:

I buy some gold from you you will invest that money in the means of production by coincidence.

Are you sure you are not confused?

If you buy stocks, someone else recieves that money. According to the marginal rate of consumption and marginal rate of savings, some of that money will be consumed and the rest saved.

It isn't coincidence. That money WILL be used.

It is coincidence, because each time it's different. Sometimes the money is used to increase the means of production and sometimes it's not. The fact that the marginal rate of savings increases does not neccessarily mean that the savings will result in a greater production of anything. In fact it will probably result in less production, because of a decrease in demand.

Originally posted by Imran Siddiqui

Quote:

you pay some one to fix the window GNP has been increased. But did I help the economy by throwing a brick through your window?

Maybe, maybe not. It depends on how the money was going to be used by you compared to how the money was going to be used by the window repair company.

So, it depends.

This would actually crowd out some other productive service. True it would be added to GNP, but not in a good way.

[Imran Siddiqui]

It is coincidence, because each time it's different.

I think you are misusing the word 'coincidence' and don't even realize it.

Just because it is different doesn't make it a coincidence. Does it happen at exactly the same time?

Sometimes the money is used to increase the means of production and sometimes it's not.

Tell me how sometimes it is not, while taking mpc and mps into account.

True it would be added to GNP, but not in a good way.

And GDP as well, after all it is a service.

[DuncanK]

Originally posted by Imran Siddiqui

Quote:

It is coincidence, because each time it's different.

I think you are misusing the word 'coincidence' and don't even realize it.

Just because it is different doesn't make it a coincidence. Does it happen at exactly the same time?

Quote:

Sometimes the money is used to increase the means of production and sometimes it's not.

Tell me how sometimes it is not, while taking mpc and mps into account.
And GDP as well, after all it is a service.

I'm not sure what you mean when you say 'taking mpc and mps into account,' but if mps increases its likely that the trading volumn will increase in the market. This will raise prices. There will be more money in the market.

Now unless there is a new growth market emerging there will not be an increase in business investment. Business investment would actually decrease. So the boom in the market would be followed by a possible recession. And then ofcourse, people would start selling their stocks causing a market crash. And then you would see mps increase and worse economic times to come etc....

[DuncanK]

Originally posted by Imran Siddiqui

Quote:

It is coincidence, because each time it's different.

I think you are misusing the word 'coincidence' and don't even realize it.

Just because it is different doesn't make it a coincidence. Does it happen at exactly the same time?

Ok, let's just say that when people sell their stock they usually make another personal investment with the proceeds. This may be stocks, bonds, gold, land, etc... It depends on the economic conditions. Sometimes they start up a new business with the proceeds. And in this case the purchase of stock would be going into the means of production. But in the other cases it would not be (unless of course the stock purchase was first issue).

[Japher]

DuncanK a communist does not even bother to take the time to argue against capitalism... Are you a bonds salesman? Is that what your doing?

Investing, IMO, is definitly better than saving. Yet to argue over investment vehicles is always going to be ambiguous at best. Different people make different fortunes at different times with different investment vehicles.

Now unless there is a new growth market emerging there will not be an increase in business investment. Business investment would actually decrease. So the boom in the market would be followed by a possible recession. And then ofcourse, people would start selling their stocks causing a market crash. And then you would see mps increase and worse economic times to come etc....

Duh. Yet, even I can tell you that the worse type of economy is a stagnant one. All markets move with flow, there are highs and lows. The trick is to balance the flow, or in my case take advantage of it.

For the most part, if you don't understand the vehicle then you probably shouldn't drive. You can have your bonds, but I suggest that you stay away from stocks, seeing as you are completely confused on how they work.

Toodles

[DuncanK]

Originally posted by Japher
DuncanK a communist does not even bother to take the time to argue against capitalism... Are you a bonds salesman? Is that what your doing?

No, I don't sell bonds. We haven't even talked about bonds that much. If there were a wealth tax I think I would support a tax on bonds also. I don't support flooding the bond market either. I want to increase the direct investment in the means of production. More capital in the bond market wont necessarily do that. There is a thing called a liquidity trap. Anyway, if the interest rate is too high the Fed can just lower it.

As far as arguing about capitalism and communism, I mostly like talking about economics. You will be convinced of the shortfalls of capitalism when Bush ****s up the economy