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Cooking the Books 1: Money for nothing

 

Towards the end of last year Roger Bootle, one of the “wise men” who advised Tory Chancellor Nigel Lawson , launched a new edition of his book with this title. According to an interview by Heather Stewart,

 

“The painful lesson he encourages the reader to learn is that it’s an illusion to think we can have ‘money for nothing’ simply by buying and selling shares or houses from each other. Day-trading in equities, or dashing up the property ladder, has winners and losers it doesn’t make society, or the world, richer ‘any more than taking in each other’s washing’” (October, 9 October).

 

A perhaps unintended admission that nothing that goes on in the City or in estate agents’ offices results in any increase in wealth, but is rather a drain on resources.

 

Wealth is something that satisfies some human want, real or imaginary. Some wealth is provided free by nature such as the air we breathe or the rays of the sun, but new wealth can only be produced in one way: by human beings applying their mental and physical energies to materials that originally came from nature, these days using machinery and equipment that had themselves been previously fashioned by human labour from materials from nature.

 

That new wealth can only result from the application of human labour was once so obvious that nobody challenged it until less than 150 years ago. It was only when the anti-capitalist implications of this obvious fact were realised by the ideological defenders of capitalism that they began to concoct another theory as to how wealth was produced.

 

One of the first to attack the labour theory of wealth production was the English academic, W. H. Mallock (1849-1923). He introduced a new “factor of production” in addition to the traditional three of Land (a gift of Nature), Labour and Capital (the product of Land and Labour): Entrepreneurship. According to him, without this fourth factor nothing would get produced as it was the entrepreneur who alone could bring the other three together; without entrepreneurs no wealth would be produced. So, it was they would were entitled to be called “the wealth producers”.

 

Naturally, entrepreneurs were delighted at this new advance in economic “understanding” and today that there are four “factors of production” is incorporated in all economics textbooks. For instance, a typical such book (in the occurrence, Economics by Ralph T. Byrns and Gerald W, Stone) states that “economists conventionally refer to four broad categories of resources: land, labour, capital and entrepreneurship” explaining:

 

“Entrepreneurs provide a special type of human resource; they combine labour, natural resources and capital to produce goods and services while incurring risk in their quest for profits. After paying wages, rent and interest for the use of other resources, entrepreneurs keep any money left over from their sales revenue. An entrepreneur’s profit is a reward for organizing production, bearing business risks, and introducing innovations that improve the quality of life”.

 

Even a GCSE level economics student should be able to see the fallacy in this (though they would be ill-advised to point it out if they want to pass their exam). Organising production, and introducing innovations, is clearly Labour, the exercise of mainly mental energy, and these days is largely done by hired, if highly trained and highly paid, wage workers no different in principle from the other workers hired by the capitalist enterprise concerned.

 

Profit is not a “reward” for anything. It is a claim on wealth arising from the fact that the means and instruments of production used to produce new wealth are private property. In other words, it’s a non-work, property income and as such a prime example of “money for nothing” that Roger Booth seems to have overlooked.