I really can’t imagine their savings being enough to guy expensive equipment, unless they’re really loading up the price on their product to make big profits. Some of those savings would also be spent over a financial year on maintenance, unexpected downtime, price increases on the materials they use and so on. Apart from that what happens if a company runs at a loss for a year because of poor management?

We went over all this four days ago:

Consider for a moment society as a black box, with no insight into how anything is distributed inside of it. There's a certain amount of capital in use, and another amount available to be used for new things; and a certain amount of labor in use, and another amount available to be used for new things. To get a new thing done, that society needs to get some of that reserve capital out and apply some of that reserve labor to it.

Now let's peek inside that black box. As we have it now, that reserve labor is poor unemployed people, and that reserve capital is rich people's savings. To get anything new done, someone has to borrow that reserve capital from the rich, and pay some of it to the unemployed poor for their reserve of labor, but not pay too much of it to the poor workers because they need enough left over from the produce of this new activity to pay back what they borrowed from the rich owners plus interest.

There could instead be a society where that reserve labor is leisure time that all people have on their hands because they can all meet all of their needs with less labor than their maximal output (because their jobs pay them so well and their fixed expenses like rent are so low), and that reserve capital is the savings that all those people have because they're all capable of earning more than they need to get by (because their jobs pay them so well and their fixed expenses like rent are so low). So to get anything new done, you just need to get enough people to agree to pool their time and money together to make it happen.

There's the same amount of labor and capital in society in either case, and the same amount needs to be unused in reserve in order to make new ventures possible in either case. It's just the distribution of it that's different between the two scenarios.

So if there is enough reserve capital and enough reserve labor to enter into new ventures, but we don't have that idyllic scenario where everyone has leisure time and money saved up, both of which they can contribute to new ventures that they like, then that's entirely because something about the distribution of spare time and spare money is screwed up somehow. If we really can afford to enter into new ventures, then necessarily we have enough spare time and money to do that, so necessarily we could afford to have that idyllic society. And since we don't have that idyllic society, there's a lot of poor and overworked people for no reason other than that some people who get to make those decisions decided they would rather have even more leisure time and extra money at the expense of everyone else.

Or possibly it is the case that there actually isn't enough reserve capital and enough reserve labor in society altogether to really be able to afford to enter into new ventures, but we're nevertheless entering into them anyway, because some people get to make the decisions on what money gets spent on and what gets worked on, so the things they want made and done get made and done, while other things that many many other people desperately need made or done don't get made or done because those many many other people don't get any say in the direction that society's resources get used. — Pfhorrest

Saying it twice doesn’t make it true I’m afraid. It seems to me, and a few others, that there’s a big hole
in your theory that you won’t address or can’t see.

There could instead be a society where that reserve labor is leisure time that all people have on their hands because they can all meet all of their needs with less labor than their maximal output (because their jobs pay them so well and their fixed expenses like rent are so low), and that reserve capital is the savings that all those people have because they're all capable of earning more than they need to get by (because their jobs pay them so well and their fixed expenses like rent are so low). So to get anything new done, you just need to get enough people to agree to pool their time and money together to make it happen. — Pfhorrest

From this I take it that:

1: they’ll be able to work less hours

2: they’ll have higher wages

3: their outgoings will be less

4: they’ll be able to save a larger portion of their wages,

5: they’ll have excess money, capital, because they get more than they need

But we don’t know what that capital amounts to. If it’s excessive then someone else is paying the price.

What would you consider a reasonable mark up on products sold to produce this capital?

I repeat it because you seem to have missed the point in its entirety.

someone else is paying the price — Brett

Right now someone is already paying the price: the workers and consumers (who are the same class of people). Their losses go to the owners' profits.

Without (in the process of constructing this hypothetical scenario) changing the prices of anything, just who owns the businesses, those profits can be redirected (in the hypothetical world) to the new (relative to our reality) owners: the same people who are the workers and consumers.

So instead of having to ask a rich person to lend them money from the profits those owners have saved, people -- who are all owners themselves now, in this hypothetical scenario -- can spend their own money from those same profits that they've been saving, to start new businesses or improve existing ones or whatever else they might otherwise have needed to borrow for.

we don’t know what that capital amounts to — Brett

We know exactly what that capital amounts to: the same thing is currently amounts to. All that's different in the hypothetical scenario is who holds that capital.

What would you consider a reasonable mark up on products — Brett

This is an irrelevant question that shows exactly how you miss the point. It's nobody's place to be saying exactly what markup is or isn't reasonable. Let the market bear whatever price it will bear. Just make sure that ownership of the means of production in that marketplace is widely distributed. Then whatever profits can be made from whatever prices the market will bear go to lining everyone's pockets instead of just a few rich people.

(But note also that if the people in general are wealthier, the market will be able to bear a higher price... which is good, so long as the profits from that are coming right back around to the same class of people).

If the price is set by the market, the consumer, then it’s going to be as low as they can get it. Competition will also determine the price. If the price is low then how much is the factory going to make in profit, bearing in mind that the workers/owners are on good wages and working less hours? So the so called capital the workers build up is determined by the markup. So the question about mark up is not irrelevant. If the price is too high then the buyers, owners of other factories, lose the value of their wages. They have less to put away as capital.

Imagine you own a steel factory. You import your iron ore from another factory. The price of iron ore starts climbing. What do you do? Suck it up and watch your profit/capital shrink, or pass it on with an increase in price on the steel you sell?

Another point: would you lend your capital as a collective to another factory?

Competition will also determine the price. — Brett

Competition is a central feature of the capitalist market economy based on profit. The struggle is to buy raw materials at the lowest possible price, pay workers the least possible amount, sell at the highest possible price, and if at all possible, monopolize the market in [whatever it is a company makes] with the end being the largest possible profit.

In a capitalist economy everybody is competing against everybody else. It may be a very "exciting" system to operate in, but it tends to be very wasteful. A few people come out on top with a lot, and a lot of people end up on the bottom with little. Capitalism doesn't 'specify this result as a requirement' it is just the natural result of a total shake-down system.

Socialism (broadly defined) replaces the total shake down system of doing business with a cooperative, planned, non-competitive system. The phrase "cooperative, planned, non-competitive" might sound soft-headed and idyllic or paradisical, but it is actually hard headed, technologically sophisticated, and (very important) possible.

VALUE, PRICE, AND PROFIT by Karl Marx is a short, popular-oriented book which explains how the capitalist system operates. You can get it here--FREE. https://www.marxists.org/archive/marx/works/download/pdf/value-price-profit.pdf

Competition is a central feature of the capitalist market economy based on profit. — Bitter Crank

In the world Pfhorrest is imagining I imagine there will be more than one factory producing steel. After all we wouldn’t want a monopoly would we? How are prices determined in this world? Is everyone forced to sell at the same price?

If the price is set by the market, the consumer, then it’s going to be as low as they can get it. Competition will also determine the price. — Brett

That is already the case now, and I'm not proposing changing that.

If the price is low then how much is the factory going to make in profit, bearing in mind that the workers/owners are on good wages and working less hours? — Brett

The factory will make excatly as much in profit as it does already, because nothing that would affect its profit is changed in the hypothetical scenario. The workers have higher incomes because they get paid that profit instead of someone else besides the workers. (And they have lower expenses because they own their homes etc outright and aren't paying a landlord or bank to borrow that capital from them). And they can work less because they get paid more (and have lower expenses), so they can trade some of that extra money for extra time instead. (Someone else will have to take up the slack of their time, and they will get the difference in their money in exchange, and it all balances out).

The only thing changed between the real world and the hypothetical world is who owns what. (Well, and what kinds of contracts are enforcable, but that is the means to the end of changing who owns what, and keeping it from changing back to what we have now again).

Another point: would you lend your capital as a collective to another factory? — Brett

I would invest my capital in companies besides my own, yes. I wouldn't just lend it for free out of the goodness of my heart, but I'd buy a stake in them. I'd buy lots of little stakes in lots of other people's companies, because that's smart investing. And I'd hope lots of people would buy little shares of my company too, finding it a good investment, and looking to diversify their risk.

Or rather, I'd probably just do as I do already and invest in an index fund that in turn passively allocates its holdings in proportion to market capitalization and so tracks overall market performance. And I'd hope everyone else would do likewise, because that's smart investing. So everyone would end up owning lots of little pieces of each other's businesses, and profiting together from their joint economic activity, as well as the profits of their own company, and their wages from their work.

If the price is low then how much is the factory going to make in profit, bearing in mind that the workers/owners are on good wages and working less hours? — Brett

The factory will make excatly as much in profit as it does already, because nothing that would affect its profit is changed in the hypothetical scenario. — Pfhorrest

If prices fall, for whatever reason, then the owners/workers lose their profit margin and therefor the capital they have for investment shrinks. They’re caught in a position of not having the money to trade out of it, or reinvest in new equipment or whatever may be needed to stop the fall in profits. This time it’s not the capitalist who takes the loss on the chin but the collective. What should they do? Do they take a wage reduction, or work more hours to produce more product or borrow money to trade out of it?

And they have lower expenses because they own their homes etc outright — Pfhorrest

Where did they get the money to buy there homes outright?

Imagine you own a steel factory. You import your iron ore from another factory. The price of iron ore starts climbing. What do you do? Suck it up and watch your profit/capital shrink, or pass it on with an increase in price on the steel you sell? — Brett

How does your theory address this situation?

If prices fall, for whatever reason, then the owners/workers lose their profit margin and therefor the capital they have for investment shrinks. They’re caught in a position of not having the money to trade out of it, or reinvest in new equipment or whatever may be needed to stop the fall in profits. This time it’s not the capitalist who takes the loss on the chin but the collective. What should they do? Do they take a wage reduction, or work more hours to produce more product or borrow money to trade out of it? — Brett

How does your theory address this situation? — Brett

That is exactly the choice that owners of businesses today face, and there's no difference in my hypothetical world, except that the equivalent of "borrow money" would be "sell other investments for money". Or alternately, if they don't want to compete in that business anymore, sell off their investment in that company and use it to start something else, perhaps combined with some other sold-off investments. Because they shouldn't have all of their capital in just one business, but spread around. You did see this post right above yours right?

Where did they get the money to buy there homes outright? — Brett

You're once again presuming that we start in a situation where everything is owned by someone else, and people have to come up with the money to buy it for themselves from nothing. The point of this thought experiment is to imagine a world where that isn't already the case, where ownership is already widely distributed, and how things would function there.

Or alternately, if they don't want to compete in that business anymore, sell off their investment in that company and use it to start something else, — Pfhorrest

Why would someone buy a failing business and if they did it wouldn’t be for the price you want.

That is exactly the choice that owners of businesses today face, and there's no difference in my hypothetical world, except that the equivalent of "borrow money" would be "sell other investments for money". — Pfhorrest

Well assuming you had other investments. There’s a lot of investing going on here with very little capital.

The difference now is that the CEO might plan a new direction. He/she might go to the bank with a plan to diversify and seek a loan big enough to carry out that plan over five years. In your new world you couldn’t do that. So you can’t trade out of it, unless you slash costs and wages, but you can’t do that because it’s a collective.

Where did they get the money to buy there homes outright?
— Brett

You're once again presuming that we start in a situation where everything is owned by someone else, and people have to come up with the money to buy it for themselves from nothing. The point of this thought experiment is to imagine a world where that isn't already the case, where ownership is already widely distributed, and how things would function there. — Pfhorrest

So it’s only a theory and wouldn’t actually work in the real world unless someone could snap their fingers and say “ Behold, I give you widely distributed ownership”. Like God creating the world.

So it’s only a theory and wouldn’t actually work in the real world unless someone could snap their fingers and say “ Behold, I give you widely distributed ownership”. Like God creating the world. — Brett

No, you’re just asking questions about how things would work in a world that was like that, so I’m discussing a hypothetical world that is already like that. You can’t then ask how people in a world that’s already like that got to the state that people in such a hypothetical world are already in. They were born into that state, because that’s the normal state of people in their world. E.g everyone just inherited around $400k, and everyone’s annual income is around $50k. Because that’s just how things would be if the present wealth and income were only distributed more equally, with no other changes.

I’ve already earlier discussed how I think we could gradually transition to a world like that from a world like ours, but you’re not asking about that process, just about how a world like that would function once we had one.

Why would someone buy a failing business — Brett

Your competitors would be obvious candidates, since they evidently can operate a business like that more profitably than you can.

Well assuming you had other investments. There’s a lot of investing going on here with very little capital. — Brett

There’s the same amount of capital as in the real world, just spread over more hands.

The difference now is that the CEO might plan a new direction. He/she might go to the bank with a plan to diversify and seek a loan big enough to carry out that plan over five years. In your new world you couldn’t do that. — Brett

No, but you can ask for investment either from the existing owners or new investors, either of whom would have to sell off some other investments of theirs to fund that. Basically, you can try to convince people that it’s worth risking their money on this instead of something else.

The main difference is that instead of one executive convincing another executive to lend a bunch of other people’s money (bank deposits) at another bunch of other people’s expense (interest paid out of profits, that gets passed on to customers and taken out of wages), you’ve got the joint owners of the company trying to convince each other and other potential partners that it’s a worthwhile venture to invest in.

In other words, it’s more democratic. Socialism is often described as economic democracy.

No, you’re just asking questions about how things would work in a world that was like that, so I’m discussing a hypothetical world that is already like that. You can’t then ask how people in a world that’s already like that got to the state that people in such a hypothetical world are already in. They were born into that state, because that’s the normal state of people in their world. — Pfhorrest

Okay, I understand where you’re coming from there. But I guess it’s clear what I think of it and to continue would just be a lot of back and forward that would end up nowhere.

On the face of it, I would not be surprised if to become wealthy from a poor start requires one to be hard-working, intelligent, ambitious, ruthless, greedy, and lucky.

On the face of it, I would not be surprised if to inherit wealth is much easier, and requires merely the luck of birth and the common sense not to antagonise the previous generation.

Think about it and you wont need authority to guarantee its right, youll see it for yourself. Abolition of rent, and particularly interest, being such integral parts of the present economy would obviously bring enormous changes. — Janus

No kidding.

Enormous changes would mean we would no longer have the same economy. It's not diificult to understand. — Janus

Is this really your argument? That we wouldn't have the "same" economy? Because you didn't say the "same," you said the "economy we have" -- which can imply our growth rates, distribution of wealth, general well being, productivity, etc. etc. Forgive me for believing you weren't just stating truisms.

There's no reason to believe we can't have a functional economy without rent and interest. True, that hypothetical economy -- by definition -- will not be the same as our present economy, which does have rent and interest. I'm glad you figured that out for yourself. Well done. Let's now move on to adult questions.

The only thing changed between the real world and the hypothetical world is who owns what. — Pfhorrest

Yes. The capitalist system is one based on a relationship between employer and employee. A socialist system would be one where the "employees" (the workers) own and run things themselves. Very simple.

One needs to look no further than the structure and operation of corporations to see how undemocratic and exploitative it is. This is the nature of the game. A few people (the major shareholders, the board of directors, and the CEO/executives) are the people making the decisions about what to produce, how to produce it, where to produce it, and what to do with the profits from all of this work.

For those who say it's impossible or lack the imagination to picture an alternative, they already exist in the real world -- and they're very successful indeed.

Let's now move on to adult questions. — Xtrix

I'm loath to respond if someone resorts to lame put-down attempts, but I will say this; I haven't anywhere said that it would not be possible to have an economy without rent or interest. But it would be a very different economy than the one we currently have; which in its complexity is also fragile. No one has come up with any feasible way to transition comfortably from a financial growth economy to whatever a non-growth economy might look like.

If the population continues to grow then the economy must grow with it or prosperity will decline, and there will be a lot of "collateral damage: meaning a lot of famine, disease and death. We in the affluent west could take some decline, but the poorer people's of the world aspire to our kind of level of prosperity. If you don't see the conundrum then I'll conclude you are mired in fantasies, unless you can come up with a plausible plan of action for humanity's future trajectory.

This doesn't answer your question, but personally, I don't think it's necessary to contemplate the philosophies of the so called "1%". What i mean by this is people in the 1% are essentially normal people who have vast amounts of power and money that corrupts them.

I would then ask you "do you think it is wise to follow the philosophies of these people?". Although, i'm not saying that all of these people in this category are corrupted, but that money and power may have an influence on these people that make them act in a less-than-virtuous ways.

You ever wonder why you constantly see rich and powerful in participating in scandalous activities? I would assume it is due to all the power that is influencing their thoughts and actions and makes them think they can get away with these things. There's also the fact that these people want to stay in their 1% position and will act in such ways to oppress the other 99%, in order to stay in their position.

I guess the point of this post is that their philosophies probably aren't the best ways to produce a better and happier life. Their lives just seem better and happier due to societies impression that obtaining wealth and power is the definition of success and personal fulfillment. However, I don't believe that this is the case. I would think that people who have learned that wealth and power are not needed for personal fulfillment would have the best life philosophies on how to reach personal success.

Although, this is just my opinion and is not necessarily the "right" way to think about it.

On the face of it, I would not be surprised if to inherit wealth is much easier, and requires merely the luck of birth and the common sense not to antagonise the previous generation. — unenlightened

But if you split up the kingdom each generation, the royalty should eventually become paupers. Even if the oldest is the only one allowed to inherit, lazy bums will eventually spend all the money. Plus the occasional economic disaster levels things.

When you think about it, there are all sorts of entropic forces rotting wealth. What forces it to go the other way? Isn't it that in a free society, there's nothing to stop people who just put their whole souls into acquisition?

transition comfortably from a financial growth economy to whatever a non-growth economy might look like — Janus

I never said anything about a "non-growth" economy. Rent and interest don't drive growth, they just extract wealth from those who already lack it for the benefit of those who already have it. Growth is driven by working more efficiently, i.e. by technology. And technology can continue to advance in a world without rent and interest.

But if you split up the kingdom each generation, the royalty should eventually become paupers. — frank

That's assuming that the wealth of the "kingdom" isn't growing faster than the "population" of it. If the wealth is compounding at around a 5% rate annually, and every couple has 2.5 kids every generation, and a generation is 20 years, then each new generation would be (1.05^20)/(2.5/2) ≈ 212% ≈ over twice as wealthy as the previous generation. So as long as they don't waste more than about half of their inherited wealth per generation, the family will keep getting richer indefinitely.

Squanderers are pretty common. Every generation has a few.

One needs to look no further than the structure and operation of corporations to see how undemocratic and exploitative it is. This is the nature of the game. A few people (the major shareholders, the board of directors, and the CEO/executives) are the people making the decisions about what to produce, how to produce it, where to produce it, and what to do with the profits from all of this work. — Xtrix

Yep, and these guys make $$$ when business goes well. If only the everyday employee could get some skin in the game.

But what happens when things go poorly? You don't just lose your pay and get fired; the company collapses and you could be on the hook for insane amounts of money - those debts don't just disappear into thin air when the company declares bankruptcy. Now you've got 18 year old employees dealing with bankruptcy lawyers.

I haven't anywhere said that it would not be possible to have an economy without rent or interest. — Janus

You’re just begging the question if you’re implying that we do depend on rent and interest, i.e. there is no possible way to have a society without it.

And contractual slavery has been a common institution in the past. We got rid of it and society didn’t collapse.
— Pfhorrest

There is no way to have the economy we have without rent and interest, and no foreseeable way to transition to an economy without it; that's what I'm saying. — Janus

So the first statement means: there's no way to have an economy with rent and interest without having rest and interest. Excellent insight.

Again, apologies for assuming you weren't stating the most banal of truisms.

If you don't see the conundrum then I'll conclude you are mired in fantasies, unless you can come up with a plausible plan of action for humanity's future trajectory. — Janus

There are plenty of plausible alternatives, for those not mired in capitalist fantasies.

One needs to look no further than the structure and operation of corporations to see how undemocratic and exploitative it is. This is the nature of the game. A few people (the major shareholders, the board of directors, and the CEO/executives) are the people making the decisions about what to produce, how to produce it, where to produce it, and what to do with the profits from all of this work.
— Xtrix

Yep, and these guys make $$$ when business goes well. If only the everyday employee could get some skin in the game.

But what happens when things go poorly? You don't just lose your pay and get fired; the company collapses and you could be on the hook for insane amounts of money - those debts don't just disappear into thin air when the company declares bankruptcy. Now you've got 18 year old employees dealing with bankruptcy lawyers. — BitconnectCarlos

What are you talking about? It's not some "skin in the game," it's a business that the workers control outright. Businesses make profits and declare bankruptcy all the time, regardless of who's running it. What's the difference?

Again, this is done in the real world. Co-ops are a good example.