Capital is more like stored labour. The first ever capital was just a starp stick or spear. Someone spent labour and it resulted in a more productive way to hunt animals. This almost immediately would’ve resulted in inequality as the spear hunter caught more game. It’s not that the capital was taking anything from the labourer, it’s actually that capital and labour work really well together and humans are more productive with capital.

So where are you going in Australia?

“No idea mate. Figure I’ll sort it out when i get there.”

Then no.

What size of feather?

Well the labour theory of value is where ‘surplus value’ comes from and is the theoretical underpinning of a lot of your argument.

Why didn’t we work together? Maybe we were on different sides of the planet or didn’t enjoy working together for many reasons. The point wasn’t that we weren’t working together. This was a hypothetical scenario to demonstrate that in this specific scenario the excess profits were the result of deploying capital. Even in communist societies part of the output that is generated is not wholly due to labour but due to the allocation of capital by the communist regime. For example in the USSR the mechanization of labour resulted in standard of living increases because labour without capital is of very low value. Capital without labour is also of very low value. A factory without workers would not work very well at all either. It’s the combined utilization of all the factors of production (Total factor productivity) that determines how much income can be generated in the economy. The larger the TFP the higher the wages. Economies with free markets have higher total favor productivity as the individual production decisions are dispersed among many business owners and workers rather than centralized in the hands of a bureaucratic elite.

Well let’s say you and I start off on a new planet and we both have $10,000 to spend and the aliens of this planet will buy whatever we produce. You and I decide to compete with each other for business in the hole-digging business. You buy a new spade, and also some furnishings for your house and a new TV. I on the other hand stretch my budget and buy a backho and sacrifice some personal luxuries at home.

The going rate for a new hole is $100. We get down to business but despite you working 15 hour days, you’re only able to dig one hole but I am able to produce 4 holes in one day while only working 8 hours. This means I make $100,000 a year while you only make $25,000 a year.

In this hypothetical scenario why am I making more money than you? What is the source of the inequality?

It can’t be that i am exploiting people because we are individual workers in business for ourselves. What’s happening is that some of my profits are yes a result of my labour, but part of the profits that I receive are a return on the capital that i invested in the back-ho.

Listen, i am not trying to say the world is a fair place. There’s a whole colonial system that was set up and abused, inherited wealth and a history of real legal oppression that still persists today. I’d even say that the rich don’t pay enough in taxes and we should push up the capital gains tax rate and close loopholes. But what I won’t say is that the labour theory of value makes any sense at all. It’s pretty discredited among economists and only exists in Marxist literature (which predates the marginal revolution where a lot of our understanding about economics comes from).

Even developing countries or even communist countries need to throw out the labour theory of value in order to maximize their economic output. For example in the Solow-Swan growth model, one of the predictions is that capital is more effectively utilized with labour that doesn’t currently have a lot of capital. Think about this, all output is a mix of capital and labour. If you are a person without a shovel the small amount of money that a shovel costs would make a huge difference in your output. Think about that! Using a neoclassical model you can demonstrate value in redistribution of wealth. Why would you cling to old outdated economics models when the new ones can still prove your point?

The labour share of income is 70% which is the majority of the money a business makes.

Capitalism enables people to become rich yes, but many workers do quite well, amassing large retirement accounts and saving their hard-earned money until they too can invest it in a business. The most wealthy and productive societies with the highest wages all of major aspects of their economies controlled by free markets. It’s not a coincidence.

It’s a double coincidence of wants. The workers aren’t able to provide any of the equipment or capital for the business. They would also rather have a steady predictable paycheque rather than jointly own a risky venture. Meanwhile the investor has capital they are willing to risk and are able to provide a steady source of income. The workers can’t make profit on their own without the capital.

Right, but the owner brings something to the table: capital. That capital is then risked. Don’t you think that capital owners should be compensated for providing the resources that is used in the production of commodities?

Ordinary people who labour save their money. Are they not allowed to invest that money after they earn it? What are we supposed to do with the money that we save up that’s not used for consumption?

It’s not that i don’t agree ona subjective level, it’s that surplus value’s axioms don’t hold true, which makes it bad at explaining economic phenomenon and even worse at making predictions. If a commodity’s value was derived from how much labour went into it, then commodities that had more imbued labour would be inherently more expensive, but this is not the case in reality. Commodities that are easily produced with very little labour per unit (for example a hand-woven basket) can sell for a very low price, whereas a commodity that doesn’t have much labour per unit at all (for example an app downloaded from an online store) can have a high price.

Similarly surplus value assumes that the difference in price between the exchange value of a commodity and the labour value of its inputs are due to exploitation, but this ignores other factors of production such as land and capital. Surplus value fails to account for the very common phenomenon of capitalists starting some venture, paying employees a salary but running into some issue or another, watching the value of their stock fall to zero and declaring bankruptcy. In such cases how could you claim there was any surplus value at all?

Then you shouldn’t go around saying it’s “empirically true” because at best there is no evidence.

The way they measure economic freedom is based on how free you are to start a business and things like that.

I’m sure you’ll get there. Just keep educating yourself.

Surplus value is not even close to being an accepted economic theory.

Oh I’m sorry i didn’t realize there was empirical evidence for socialism. Please send me a link to some of these successful socialist societies.

Oxford English Dictionary defines a capitalism as :

1. ​a person who supports capitalism

2. a person who owns or controls a lot of wealth and uses it to produce more wealth

You wouldn’t be any better off on a socialist system. The people at the top of the party would control everything and the working class would be even poorer than they are now. You’re just licking the left boot instead of the right one.

You seem to be really good at coming up with excuses why you can’t access the data or why the data isn’t admissible for this or that reason. And awfully good at coming up with reasons why you cannot produce any data. Too much so IMO for someone that makes the claim of others of being intellectually dishonest and that they cannot think for themselves.

But it’s okay. Why don’t we just agree to disagree? That was my original point. Some people have centrists views on the economy where they believe in socially progressive causes, free markets and strong institutions. That this view is both rational and supported by data. That disagreements are based not on misinterpretation of facts but on differences in values.

This is a study by an independent researcher from the University of North Dakota. The economic freedom index is published by the Fraser institute. There is no alternative index at this time. Here is a link beyond the paywall. Here’s a few others as well:

https://link.springer.com/article/10.1007/s10902-015-9616-x

https://link.springer.com/article/10.1007/s11482-017-9543-6

You’re welcome to share your own studies on economic freedom and happiness btw. . I’m “not thinking” yet i am the only one sharing scientific literature.