Front Matter

Capitalism: A Treatise on Economics

George Reisman

CAPITALISM

CAPITALISM

A Treatise on Economics

Prepublication, Interim Edition

George Reisman

TJS Books, Laguna Hills, California

Copyright © 2024, 1996 by George Reisman.

All rights reserved. No part of this book may be reproduced in any manner without written permission, except in the case of brief quotations embodied in reviews.

Mail order copies of this book may be purchased from the publisher online at www.capitalism.net. All inquiries should be addressed to TJS Books, PO Box 2934, Laguna Hills, CA 92654-2934 or to TJS.Books@capitalism.net. Phone: (877)-843-3573. Fax: (949)-831-1783. Bookstores, please call (877)-843-3573 to order. Photocopying of excerpts from TJS Books editions is licensed through the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923. Call 978-750-8400 for information.

ISBN: 978-1-931089-60-9

Library of Congress Control Number: 2009900111 Manufactured in the United States of America

28 27 26 25 24 /9 8 7 6

To Ludwig von Mises, my teacher, and Edith Packer, my wife.

CONTENTS IN BRIEF

PREFACE xxxix INTRODUCTION 1

PART ONE

THE FOUNDATIONS OF ECONOMICS

CHAPTER 1.ECONOMICS AND CAPITALISM 15 CHAPTER 2.WEALTH AND ITS ROLE IN HUMAN LIFE 39 CHAPTER 3.NATURAL RESOURCES AND THE ENVIRONMENT 63

PART TWO

THE DIVISION OF LABOR AND CAPITALISM

CHAPTER 4.THE DIVISION OF LABOR AND PRODUCTION 123 CHAPTER 5.THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM I 135 CHAPTER 6.THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM II:

THE PRICE SYSTEM AND ECONOMIC COORDINATION 172 CHAPTER 7.THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM III:

PRICE CONTROLS AND ECONOMIC CHAOS 219 CHAPTER 8.THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM IV:

SOCIALISM, ECONOMIC CHAOS, AND TOTALITARIAN DICTATORSHIP 267 CHAPTER 9.THE INFLUENCE OF THE DIVISION OF LABOR ON THE INSTITUTIONS

OF CAPITALISM 296 CHAPTER 10.MONOPOLY VERSUS FREEDOM OF COMPETITION 375 CHAPTER 11.THE DIVISION OF LABOR AND THE CONCEPT OF PRODUCTIVE ACTIVITY 441

PART THREE

THE PROCESS OF ECONOMIC PROGRESS

CHAPTER 12.MONEY AND SPENDING 503 CHAPTER 13.PRODUCTIONISM, SAY’S LAW, AND UNEMPLOYMENT 542 CHAPTER 14.THE PRODUCTIVITY THEORY OF WAGES 603

viii CAPITALISM

CHAPTER 15.AGGREGATE PRODUCTION, AGGREGATE SPENDING, AND THE

ROLE OF SAVING IN SPENDING 673 CHAPTER 16.THE NET-CONSUMPTION/NET-INVESTMENT THEORY OF PROFIT AND INTEREST 719 CHAPTER 17.APPLICATIONS OF THE INVARIABLEMONEY/NET-CONSUMPTION ANALYSIS 809 CHAPTER 18.KEYNESIANISM: A CRITIQUE 863 CHAPTER 19.GOLD VERSUS INFLATION 895

EPILOGUE

CHAPTER 20.TOWARD THE ESTABLISHMENT OF LAISSEZ-FAIRE CAPITALISM 969 A BIBLIOGRAPHY OF WRITINGS IN DEFENSE OF CAPITALISM 991 INDEX 999

CONTENTS

LIST OF FIGURES xxxv LIST OF TABLES xxxvii PREFACE xxxix Notes l INTRODUCTION

1. Procapitalist Economic Thought, Past and Present 1 2. Pseudoeconomic Thought 6

Marshallian Neoclassical Economics: The Monopoly Doctrine and Keynesianism 7

Mathematical Economics 8 3. Overview of This Book 9 Notes 11

PART ONE

THE FOUNDATIONS OF ECONOMICS

CHAPTER 1.ECONOMICS AND CAPITALISM

PART A.THE NATURE AND IMPORTANCE OF ECONOMICS

1. Economics, the Division of Labor, and the Survival of Material Civilization 15 2. Further Major Applications of Economics 16

Solving Politico-Economic Problems 16

Understanding History 17

Implications for Ethics and Personal Understanding 17

Economics and Business 18

Economics and the Defense of Individual Rights 18 PART B.CAPITALISM

1. The Philosophical Foundations of Capitalism and Economic Activity 19 2. Capitalism and Freedom 21

Freedom and Government 21

Freedom as the Foundation of Security 22

x CAPITALISM

The Indivisibility of Economic and Political Freedom 23 The Rational Versus the Anarchic Concept of Freedom 23 The Decline of Freedom in the United States 26 The Growth of Corruption as the Result of the Decline of Freedom 26 3. Capitalism and the Origin of Economic Institutions 27 4. Capitalism and the Economic History of the United States 28 5. Why Economics and Capitalism Are Controversial 31 The Assault on Economic Activity and Capitalism 31 The Prevailing Prescientific Worldview in the Realm of Economics 32 Economics Versus Unscientific Personal Observations 32 Economics Versus Altruism 33 Economics Versus Irrational Self-Interest 34 Economics Versus Irrationalism 35 6. Economics and Capitalism: Science and Value 36 Notes 37 CHAPTER 2.WEALTH AND ITS ROLE IN HUMAN LIFE

1. Wealth and Goods 39 2. Economics and Wealth 41 3. The Limitless Need and Desire for Wealth 42 Human Reason and the Scope and Perfectibility of Need Satisfactions 43 Progress and Happiness 45 The Objectivity of Economic Progress: A Critique of the Doctrines of Cultural Relativism and Conspicuous Consumption 46 The Objective Value of a Division-of-Labor, Capitalist Society 48 4. The Law of Diminishing Marginal Utility and the Limitless Need for Wealth 49 5. Applications of the Law of Diminishing Marginal Utility 51 Resolution of the Value Paradox 51 Determination of Value by Cost of Production 52 Determination of Consumer Spending Patterns 52 Say’s Law 53

CONTENTS xi

6.“Scarcity” and the Transformation of Its Nature Under Capitalism 54 7.Time Preference and the Scarcity of Capital 55 The Foundations of Time Preference 55 The Scarcity of Capital 56 A Word on Capital Accumulation and the Rate of Return 58 Time Preference, Rationality, and Freedom 58 8.Wealth and Labor 58 The Scarcity of Labor and Its Ineradicability 59 Notes 61 CHAPTER 3.NATURAL RESOURCES AND THE ENVIRONMENT

PART A.NATURAL RESOURCES

1.The Limitless Potential of Natural Resources 63 The Energy Crisis 66 2.The Law of Diminishing Returns 67 The Law of Diminishing Returns and the Limitless Potential of Natural Resources 69 Diminishing Returns and the Need for Economic Progress 70 3.Conservationism: A Critique 71 PART B.THE ECOLOGICAL ASSAULT ON ECONOMIC PROGRESS

1.The Hostility to Economic Progress 76 2.The Claims of the Environmental Movement and Its Pathology of Fear and Hatred 76 The Actual Nature of Industrial Civilization 76 The Environmental Movement’s Dread of Industrial Civilization 78 The Toxicity of Environmentalism and the Alleged Intrinsic Value of Nature 80 The Alleged Pollution of Water and Air and Destruction of Species 83 The Alleged Threat from Toxic Chemicals, Including Acid Rain and Ozone Depletion 85 The Dishonesty of the Environmentalists’ Claims 86 The Alleged Threat of “Global Warming” 87 Why Economic Activity Necessarily Tends to Improve the Environment 90 3.The Collectivist Bias of Environmentalism 91 Environmentalism and Irrational Product Liability 95

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Environmentalism and the Externalities Doctrine 96 4. The Economic and Philosophic Significance of Environmentalism 98 5. Environmentalism, the Intellectuals, and Socialism 99 6. Environmentalism and Irrationalism 106 The Loss of the Concept of Economic Progress 106 Irrational Skepticism 106 The Destructive Role of Contemporary Education 107 The Cultural Devaluation of Man 112 Notes 115

PART TWO

THE DIVISION OF LABOR AND CAPITALISM

CHAPTER 4.THE DIVISION OF LABOR AND PRODUCTION

1. The Division of Labor and the Productivity of Labor 123 The Multiplication of Knowledge 123 The Benefit from Geniuses 124 Concentration on the Individual’s Advantages 125 Geographical Specialization 125 Economies of Learning and Motion 126 The Use of Machinery 127 2. The Division of Labor and Society 128 3. Rebuttal of the Critique of the Division of Labor 129 4. Universal Aspects of Production 130 Notes 133 CHAPTER 5.THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM I

PART A.THE NATURE OF THE DEPENDENCIES

1. Dependence of the Division of Labor on Private Ownership of the Means of Production 135 Socialism and Collectivism Versus Economic Planning 136 Capitalist Planning and the Price System 137 2. The Dependence of the Division of Labor on Saving and Capital Accumulation 139

CONTENTS xiii

3. The Dependence of the Division of Labor on Exchange and Money 141 4. The Dependence of the Division of Labor on Economic Competition 144 5. The Dependence of the Division of Labor on the Freedom of Economic Inequality 145 Egalitarianism and the Abolition of Cost: The Example of Socialized Medicine 148 Government Intervention, Democracy, and the Destruction of the Individual’s Causal Role 150 Summary 150 PART B.ELEMENTS OF PRICE THEORY: DEMAND, SUPPLY, AND COST OF PRODUCTION

1. The Meaning of Demand and Supply 152 2. The Law of Demand 155 The Concept of Elasticity of Demand 158 Seeming Exceptions to the Law of Demand 161 The Derivation of Supply Curves 162 Limitations of Geometrical Analysis 165 Confusions Between Supply and Cost 167 The Circularity of Contemporary Economics’ Concept of Demand 169 Notes 169 CHAPTER 6.THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM II:

THE PRICE SYSTEM AND ECONOMIC COORDINATION

PART A.UNIFORMITY PRINCIPLES

1. The Uniformity-of-Profit Principle and Its Applications 172 Keeping the Various Branches of Industry in Proper Balance 173 The Power of the Consumers to Determine the Relative Size of the Various Industries 174 The Impetus to Continuous Economic Progress 176 Profits and the Repeal of Price Controls 180 The Effect of Business Tax Exemptions and Their Elimination 183 Additional Bases for the Uniformity-of-Profit Principle 183 Permanent Inequalities in the Rate of Profit 185 2. The Tendency Toward a Uniform Price for the Same Good Throughout the World 187 Why the Arab Oil Embargo Would Not Have Been a Threat to a Free Economy 188 Tariffs, Transportation Costs, and the Case for Unilateral Free Trade 190

xiv CAPITALISM

3. The Tendency Toward Uniform Prices Over Time: The Function of Commodity Speculation 191

Rebuttal of the Charge That the Oil Shortages of the 1970s Were “Manufactured” by the Oil Companies 192 4. The Tendency Toward Uniform Wage Rates for Workers of the Same Degree of Ability 194

Equal Pay for Equal Work: Capitalism Versus Racism 196 5. Prices and Costs of Production 200 PART B.ALLOCATION PRINCIPLES

1. The General Pricing of Goods and Services in Limited Supply 201 2. The Pricing and Distribution of Consumers’ Goods in Limited Supply 202 3. The Pricing and Distribution of Factors of Production in Limited Supply 206 4. The Free Market’s Efficiency in Responding to Economic Change 209

A Rational Response to the Arab Oil Embargo 211 5. The Economic Harmonies of Cost Calculations in a Free Market 212

More on the Response to the Oil Embargo 213 Appendix to Chapter 6: The Myth of “Planned Obsolescence” 214 Notes 217 CHAPTER 7.THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM III:

PRICE CONTROLS AND ECONOMIC CHAOS

PART A.PRICE CONTROLS AND SHORTAGES

1. Price Controls and Inflation 219

Price Controls No Remedy for Inflation 219

Inflation Plus Price Controls 220 2. Shortages 221 3. Price Controls and the Reduction of Supply 222 a. The Supply of Goods Produced 222 b. The Supply of Goods in a Local Market 222

The Natural Gas Crisis of 1977 222

The Agricultural Export Crisis of 1972–73 223

Price Controls as a Cause of War 223 c. The Supply of Goods Held in Storage 223

Hoarding and Speculation Not Responsible for Shortages 224

CONTENTS xv

Rebuttal of the Accusation That Producers Withhold Supplies to “Get Their Price” 224 Price Controls and the “Storage” of Natural Resources in the Ground 225 d. The Supply of Particular Types of Labor and Particular Products of a Factor of Production 226 e. Price Controls and the Prohibition of Supply 226 The Destruction of the Utilities and the Other Regulated Industries 227 4. Ignorance and Evasions Concerning Shortages and Price Controls 228 Inflation and the Appearance of High Profits 228 The Destructionist Mentality 230 A Defense of Inventory Repricing 231 The Campaign Against the Profits of the Oil Companies 231 How the U.S. Government, Not the Oil Companies, Caused the Oil Shortage 234 The Conspiracy Theory of Shortages 237 Rebuttal of the Charge That Private Firms “Control” Prices 238 PART B.FURTHER EFFECTS OF PRICE CONTROLS AND SHORTAGES

1. Consumer Impotence and Hatred Between Buyers and Sellers 239 How Repeal of Rent Controls Would Restore Harmony Between Landlords and Tenants 240 2. The Impetus to Higher Costs 241 The Administrative Chaos of Price Controls 243 3. Chaos in the Personal Distribution of Consumers’ Goods 243 4. Chaos in the Geographical Distribution of Goods Among Local Markets 244 5. Chaos in the Distribution of Factors of Production Among Their Various Uses 245 Hoarding 246 6. Shortages and the Spillover of Demand 247 Why Partial Price Controls Are Contrary to Purpose 247 How Price Controls Actually Raise Prices 248 The Absurdity of the Claim That Price Controls “Save Money” 248 Applications to Rent Controls 249 How Repeal of Our Price Controls on Oil Reduced the Price Received by the Arabs 254 PART C.UNIVERSAL PRICE CONTROLS AND THEIR CONSEQUENCES

1. The Tendency Toward Universal Price Controls 256

xvi CAPITALISM

2. Universal Price Controls and Universal Shortages 257

Excess Demand and Controlled Incomes 257 3. The Destruction of Production Through Shortages 258

The Prosperity Delusion of Price Controls: The World War II “Boom” 262 4. Socialism on the Nazi Pattern 263 Notes 264 CHAPTER 8.THE DEPENDENCE OF THE DIVISION OF LABOR ON CAPITALISM IV:

SOCIALISM, ECONOMIC CHAOS, AND TOTALITARIAN DICTATORSHIP

PART A.THE CHAOS OF SOCIALISM

1. Socialism 267 2. The Essential Economic Identity Between Socialism and Universal Price Controls 267 3. The Myth of Socialist Planning—The Anarchy of Socialist Production 269

The Soviet Quota System 273

Shortages of Labor and Consumers’ Goods Under Socialism 274 4. Further Economic Flaws of Socialism: Monopoly, Stagnation, Exploitation,

Progressive Impoverishment 275 5. Socialism’s Last Gasp: The Attempt to Establish a Socialist Price System and

Why It Is Impossible 279 PART B.THE TYRANNY OF SOCIALISM

1. The Tyranny of Socialism 282 2. The Necessity of Evil Means to Achieve Socialism 282 3. The Necessity of Terror Under Socialism 283 4. The Necessity of Forced Labor Under Socialism 286

Forced Labor in the Soviet Union 287

The Imposition of Forced Labor in the United States 287 5. Socialism as a System of Aristocratic Privilege and a Court Society 288 6. From Forced Labor to Mass Murder Under Socialism 290 7. From Socialism to Capitalism: How to Privatize Communist Countries 290 Notes 294

CONTENTS xvii

CHAPTER 9.THE INFLUENCE OF THE DIVISION OF LABOR ON THE INSTITUTIONS

OF CAPITALISM

PART A.PRIVATE OWNERSHIP OF THE MEANS OF PRODUCTION

1. The General Benefit from Private Ownership of the Means of Production 296 The Benefit of Capital to the Buyers of Products 296 The Benefit of Capital to the Sellers of Labor 298 The Direct Relationship Between the General Benefit from Capital and Respect for the

Property Rights of Capitalists 298 2. The Capitalists’ Special Benefit from Private Ownership of the Means of Production 300 Implications for Redistributionism 300 Destructive Consequences of Government Ownership 303 Profit Management Versus Bureaucratic Management 304 The “Successful” Nationalizations of Oil Deposits: A Rebuttal 305 3. The General Benefit from the Institution of Inheritance 306 The Destructive Consequences of Inheritance Taxes 307 4. The General Benefit from Reducing Taxes on the “Rich” 308 5. Private Ownership of Land and Land Rent 310 How Private Ownership of Land Reduces Land Rent 313 Land Rent and Environmentalism 316 The Violent Appropriation Doctrine 317 The Demand for Land Reform 319 6. Private Property and Territorial Sovereignty 322 A Defense of Foreign “Exploitation” of Natural Resources 323 PART B.ECONOMIC INEQUALITY

1. Economic Inequality Under Capitalism 326 2. Critique of the Marxian Doctrine on Economic Inequality 330 Economic Inequality and the Law of Diminishing Marginal Utility 332 Economic Inequality and the Normal Curve 336 3. The “Equality of Opportunity” Doctrine: A Critique 337

xviii CAPITALISM

Education and the Freedom of Opportunity 342 Everyone’s Interest in the Freedom of Opportunity 342 PART C.ECONOMIC COMPETITION

1. The Nature of Economic Competition 343 2. The Short-Run Loss Periods 345 The Enemies of Competition as the True Advocates of the Law of the Jungle 348 3. Economic Competition and Economic Security 348 4. The Law of Comparative Advantage 350 International Competition and Free Labor Markets 351 Comparative Advantage Versus the Infant-Industries Argument 354 How the Less Able Can Outcompete the More Able in a Free Labor Market 355 5. The Pyramid-of-Ability Principle 357 Freedom of Competition and the General Gain from the Existence of Others 357 6. The Population Question 358 Worldwide Free Trade 360 Free Trade and the Economic Superiority of the United States Over Western Europe 361 International Free Trade and Domestic Laissez Faire 361 The Birth Rate 362 7. Free Immigration 362 Refutation of the Arguments Against Free Immigration 363 Free Immigration and International Wage Rates 366 Capital Export 366 8. The Harmony of Interests in the Face of Competition for Limited Money Revenues 367 Notes 371 CHAPTER 10.MONOPOLY VERSUS FREEDOM OF COMPETITION

1. The Meaning of Freedom and of Freedom of Competition 375 High Capital Requirements as an Indicator of Low Prices and the Intensity of Competition 376 2. The Political Concept of Monopoly and Its Application 376 Monopoly Based on Exclusive Government Franchises 377

CONTENTS xix

Licensing Law Monopoly 378 Tariff Monopoly 380 The Monopolistic Protection of the Inefficient Many Against the Competition of the

More Efficient Few 381 Monopoly Based on Minimum-Wage and Prounion Legislation: The Exclusion of the

Less Able and the Disadvantaged 382 Government-Owned and Government-Subsidized Enterprises as Monopoly 385 The Antitrust Laws as Promonopoly Legislation 387 Socialism as the Ultimate Form of Monopoly 387 3. Further Implications of the Political Concept of Monopoly: High Costs Rather Than High Profits 387 Patents and Copyrights, Trademarks and Brandnames, Not Monopolies 388 All Monopoly Based on Government Intervention; Significance of Monopoly 389 4. The Economic Concept of Monopoly 389 5. The Alleged Tendency Toward the Formation of a Single Giant Firm Controlling the

Entire Economic System: A Rebuttal 392 Incompatibility With the Division of Labor—Socialism as the Only Instance of Unlimited

Concentration of Capital 392 Inherent Limits to the Concentration of Capital Under Capitalism 393 Government Intervention as Limiting the Formation of New Firms 394 The Incentives for Uneconomic Mergers Provided by the Tax System 395 In Defense of “Insider Trading” 395 6. Economically Sound Mergers 396 The Trust Movement 397 7. The Predatory-Pricing Doctrine 399 More Than One Firm in an Industry as the Normal Case 402 “Predatory Pricing” in Reverse: The Myth of Japanese “Dumping” 403 The Chain-Store Variant of the Predatory-Pricing Doctrine 403 Contract Pricing 405 The Predatory-Pricing Doctrine and the Inversion of Economic History 406 The Myth of Predation With Respect to Suppliers 406 The Myth of Standard Oil and the South Improvement Company 407

xx CAPITALISM

8. Marginal Revenue and the Alleged “Monopolistic Restriction” of Supply 408 Competitors’ and Potential Competitors’ Costs—Ultimately, Legal Freedom of Entry—as

Setting the Upper Limit to Prices in a Free Market 411 Ricardo and Böhm-Bawerk on Cost of Production Versus the Elasticity of Demand 414 Pricing Under Patents and Copyrights 417 Contract Pricing and Radical Privatization 420 Private Streets 421 Eminent Domain 421 9. Cartels 423 Cartels and Government Intervention 424 10. “Monopoly” and the Platonic Competition of Contemporary Economics 425 The Doctrine of Pure and Perfect Competition 430 Implications of Marginal-Cost Pricing 432 The Alleged Lack of “Price Competition” 434 11. A Further Word on Cost of Production and Prices 437 Notes 438 CHAPTER 11.THE DIVISION OF LABOR AND THE CONCEPT OF PRODUCTIVE ACTIVITY

PART A.THE ROLE OF MONEYMAKING IN PRODUCTIVE ACTIVITY

1. The Division of Labor and Productive Activity 441 The Doctrine That Only Manual Labor Is Productive 441 2. Productive Activity and Moneymaking 442 Consumptive Production 443 3. Productive Expenditure and Consumption Expenditure 444 4. Capital Goods and Consumers’ Goods 445 Classification of Capital Goods and Consumers’ Goods Not Based on Physical Characteristics 445 Government a Consumer 446 Producers’ Labor and Consumers’ Labor 446 Producers’ Loans and Consumers’ Loans 447 Government Borrowing 447 Capital Goods and Consumers’ Goods Internally Produced; Other Revenues 447

CONTENTS xxi

Capital and Wealth 448 Capital Value and Investment 448 Productive Expenditure and Capital Value 450 Common Confusions About Capital Goods 450 Answers to Misconceptions of the Concepts Presented 452 Adam Smith on “Productive and Unproductive Labor” 456 5. Critique of the Concept of Imputed Income 456 6. Critique of the Opportunity-Cost Doctrine 459 PART B.THE PRODUCTIVE ROLE OF BUSINESSMEN AND CAPITALISTS

1. The Productive Functions of Businessmen and Capitalists 462 Creation of Division of Labor 462 Coordination of the Division of Labor 463 Improvements in the Efficiency of the Division of Labor 464 2. The Productive Role of Financial Markets and Financial Institutions 464 The Specific Productive Role of the Stock Market 466 3. The Productive Role of Retailing and Wholesaling 467 4. The Productive Role of Advertising 471 PART C.BUSINESSMEN AND CAPITALISTS: CLASSICAL ECONOMICS VERSUS

THE MARXIAN EXPLOITATION THEORY

1. The Association Between Classical Economics and the Marxian Exploitation Theory 473 2. Correcting the Errors of Adam Smith: A Classical-Based Critique of the Conceptual

Framework of the Exploitation Theory 475 Smith’s Confusion Between Labor and Wage Earning 475 The Conceptual Framework of the Exploitation Theory 476 Smith’s Failure to See the Productive Role of Businessmen and Capitalists and of the

Private Ownership of Land 477 The Primacy-of-Wages Doctrine 477 A Rebuttal to Smith and Marx Based on Classical Economics: Profits, Not Wages, as the Original and Primary Form of Income 478 Further Rebuttal: Profits Attributable to the Labor of Businessmen and Capitalists Despite

Their Variation With the Size of the Capital Invested 480 A Radical Reinterpretation of “Labor’s Right to the Whole Produce” 482

xxii CAPITALISM

Implications for the Incomes of “Passive” Capitalists 483 Acceptance of the Conceptual Framework of the Exploitation Theory by Its Critics 484 3. Necessary Revisions in Classical Economics 485 4. The Labor Theory of Value of Classical Economics 486 Harmonization of the Labor Theory of Value With Supply and Demand and the Productive

Role of Businessmen and Capitalists 486 Other Classical Doctrines and the Rise in Real Wages 487 Classical Economics’ Limitations on the Labor Theory of Value 487 The Actual Significance of Quantity of Labor in Classical Economics 491 5. The “Iron Law of Wages” of Classical Economics 491 Diminishing Returns and the Malthusian Influence 492 Ricardo’s Reservations 492 Adam Smith’s Mistaken Belief in the Arbitrary Power of Employers Over Wage Rates 493 Ricardo’s Confusions Concerning the “Iron Law of Wages” 494 The Actual Meaning Ricardo Attached to “A Fall in Wages” 495 Classical Economics’ Mistaken Denial of the Ability to Tax Wage Earners 497 6. Marxian Distortions of Classical Economics; The Final Demolition of the Exploitation Theory 497 Notes 498

PART THREE

THE PROCESS OF ECONOMIC PROGRESS

CHAPTER 12.MONEY AND SPENDING

1. The Quantity Theory of Money 503 The Quantity Theory of Money as the Explanation of Rising Prices 505 2. The Origin and Evolution of Money and the Contemporary Monetary System 506 The Potential Spontaneous Remonetization of the Precious Metals 510 The Government and the Banking System 511 3. The Quantity of Money and the Demand for Money 517 Changes in the Quantity of Money as the Cause of Changes in the Demand for Money 519 4. The Demand for Money: A Critique of the “Balance of Payments” Doctrine 526 The Balance of Payments Doctrine and Fiat Money 528

CONTENTS xxiii

The Balance of Payments Doctrine Under an International Precious Metal Standard 531

Inflation as the Cause of a Gold Outflow 533

Unilateral Free Trade and the Balance of Trade 535 5. Invariable Money 536

Invariable Money and the Velocity of Circulation 537

The Contribution of the Concept of Invariable Money to Economic Theory 538 Notes 540 CHAPTER 13.PRODUCTIONISM, SAY’S LAW, AND UNEMPLOYMENT

PART A. PRODUCTIONISM 542

Productionism Versus the AntiEconomics of Consumptionism 543 1. Depressions and Alleged “Overproduction” 544 2. Machinery and Unemployment 546 3. Alleged Inherent Group Conflicts Over Employment 548 4. Make-Work Schemes and Spread-the-Work Schemes 549 5. War and Government Spending 550 6. Population Growth and Demand 553 7. Imperialism and Foreign Trade 553 8. Parasitism as an Alleged Source of Gain to Its Victims 554 9. Advertising as Allegedly Fraudulent but Economically Beneficial 555 10. Misconception of the Value of Technological Progress 556 11. Increases in Production and Alleged Deflation 558 12. Consumptionism and Socialism 559 PART B.SAY’S (JAMES MILL’S) LAW

1. Monetary Demand and Real Demand 559 2. The Referents of Say’s Law and Its Confirmation by Cases Apparently Contradicting It 561 3. Partial, Relative Overproduction 564

Say’s Law and Competition 568 4. Say’s Law and the Average Rate of Profit 569

Production and the Fallacy of Composition 573 5. Falling Prices Caused by Increased Production Are Not Deflation 573

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The Anticipation of Falling Prices 574 Economic Progress and the Prospective Advantage of Future Investments Over

Present Investments 576 Falling Prices and Accumulated Stocks 578 Falling Prices Resulting from a Larger Supply of Labor 579 PART C.UNEMPLOYMENT

1. The Free Market Versus the Causes of Mass Unemployment 580 Full Employment, Profitability, and Real Wages 583 Government Interference 588 2. Unemployment and the 1929 Depression 589 3. Unemployment, the New Deal, and World War II 590 Why Inflation Cannot Achieve Full Employment 591 Inflation Plus Price and Wage Controls 592 World War II as the Cause of Impoverishment in the United States 592 Prosperity Based on the Return of Peace 593 A Rational FullEmployment Policy 594 Appendix to Chapter 13: Inventories and Depressions 594 Inventories and Capital 595 “Excess” Inventories, Malinvestment, and the Deficiency of Inventories 597 Inflation and Credit Expansion as the Cause of Malinvestment in Inventories 598 Why “Excess” Inventories and Monetary Contraction Are Associated 598 Notes 599 CHAPTER 14.THE PRODUCTIVITY THEORY OF WAGES

PART A.THE MARXIAN EXPLOITATION THEORY

1. The Influence of the Exploitation Theory 603 2. Marx’s Distortions of the Labor Theory of Value 604 Implications for Value Added and Income Formation 605 3. Marx’s Version of the Iron Law of Wages 607 The Rate of Exploitation Formula 608 4. Implications of the Exploitation Theory 610

CONTENTS xxv

PART B.THE PRODUCTIVITY THEORY OF WAGES

1. The Irrelevance of Worker Need and Employer Greed in the Determination of Wages 613 2. Determination of Real Wages by the Productivity of Labor 618 3. The Foundations of the Productivity of Labor and Real Wages: Capital Accumulation and Its Causes 622 Saving as a Source of Capital Accumulation 622 Technological Progress as a Source of Capital Accumulation 629 The Reciprocal Relationship Between Capital Accumulation and Technological Progress 631 The Economic Degree of Capitalism, the Wage “Share,” and Real Wages 632 Other Factors, Above All Economic Freedom and Respect for Property Rights, as Sources of Capital Accumulation 634 The Undermining of Capital Accumulation and Real Wages by Government Intervention 636 The Nonsacrificial Character of Capital Accumulation Under Capitalism 639 Appendix to Section 3: An Analytical Refinement Concerning the Rate of Economic Progress 641 4. The Productivity Theory of Wages and the Interpretation of Modern Economic History 642 The Cause of Low Wages and Poor Working Conditions in the Past 642 How Real Wages Rose and the Standard of Living Improved 644 5. A Rise in the Productivity of Labor as the Only Possible Cause of a Sustained, Significant

Rise in Real Wages 646 The Futility of Raising Money Wage Rates by Means of an Increase in the Quantity of Money or Decrease in the Supply of Labor 646 The Futility of a Rise in the Demand for Labor Coming at the Expense of the Demand for Capital Goods 647 The Futility of Raising the Demand for Labor by Means of Taxation 648 The Limited Scope for Raising Real Wages Through a Rise in the Demand for Labor 650 6. Critique of Labor and Social Legislation 653 Redistributionism 653 Labor Unions 655 Minimum-Wage Laws 659 Maximum-Hours Legislation 660 Child-Labor Legislation 661 Forced Improvements in Working Conditions 662

xxvi CAPITALISM

7. The Employment of Women and Minorities 663 8. The Productivity Theory of Wages and the Wages-Fund Doctrine 664 9. The Productivity Theory of Wages Versus the Marginal-Productivity Theory of Wages 666 The Productivity Theory of Wages and the Effect of Diminishing Returns 667 Notes 669 CHAPTER 15.AGGREGATE PRODUCTION, AGGREGATE SPENDING, AND THE ROLE

OF SAVING IN SPENDING

Spending Not a Measure of Output 673 Shortcomings of Price Indexes 674 1. Gross National Product and the Issue of “Double Counting”: A Is A Versus A Is A+ 674 2. The Role of Saving and Productive Expenditure in Aggregate Demand 682 The Demand for A Is the Demand for A 683 The Demand for Consumers’ Goods and the Demand for Factors of Production as

Competing Alternatives 685 Compatibility With the Austrian Theory of Value 689 Application to the Critique of the Keynesian Multiplier Doctrine 690 Saving Versus Hoarding 691 Saving as the Source of Most Spending 694 The “Macroeconomic” Dependence of the Consumers on Business 696 Saving as the Source of Increasing Aggregate Demand, Both Real and Monetary 698 Saving as the Source of Rising Consumption 698 3. Aggregate Economic Accounting on an Aristotelian Base 699 The Consumption Illusion of Contemporary National-Income Accounting 700 Gross National Revenue 706 More on the Critique of the Multiplier 707 4. Importance of Recognizing the Separate Demand for Capital Goods for the Theory of

Capital Accumulation and the Theory of National Income 709 The Inverse Relationship Between National Income and Economic Progress in an Economy

With an Invariable Money 712 Overthrow of the Keynesian Doctrines of the Balanced-Budget Multiplier and the

Conservatives’ Dilemma 714 Notes 716

CONTENTS xxvii

CHAPTER 16.THE NET-CONSUMPTION/NET-INVESTMENT THEORY OF PROFIT AND INTEREST

PART A.THE POSITIVE THEORY

1. The Nature and Problem of Aggregate Profit 719 The Treatment of Interest 720 The Rate of Profit Not Based on Demand and Supply of Capital, but on the Difference

Between the Demand for Products and the Demand for Factors of Production 721 Determinants of the Average Rate of Profit in the Economic System Different from Determinants of the Rate of Profit of the Individual Company or Industry 721 Critique of the Doctrine That the Interest Rate on Government Bonds Expresses the Pure

Rate of Return to Which Risk Premiums Are Added 722 The Path of Explanation: Net Consumption and Net Investment 723 The Problem of Aggregate Profit: Productive Expenditure and the Generation of Equivalent

Sales Revenues and Costs 723 2. Net Consumption and the Generation of an Excess of Sales Revenues Over Productive Expenditure 725 Net Consumption: Its Other Sources, Wider Meaning, and Relationship to the Saving of

Wage Earners 734 Confirming the Critique of the Exploitation Theory 735 3. The Net-Consumption Theory Further Considered 737 Why Businessmen and Capitalists Cannot Arbitrarily Increase the Rate of Net

Consumption and the Rate of Profit 737 The Net-Consumption Rate and the Gravitation of Relative Wealth and Income 737 Accumulated Capital as a Determinant of Net Consumption 739 An Explanation of High Saving Rates Out of High Incomes 741 Net Consumption and Time Preference 743 4. Net Investment as a Determinant of Aggregate Profit and the Average Rate of Profit 744 Net Investment Versus Negative Net Consumption 750 The Prolongation of Net Investment Under an Invariable Money 754 Net Investment as the Result of the Marginal Productivity of Capital Exceeding the Rate of Profit 756 Net Investment as a Self-Limiting Phenomenon 758 Capital Intensification and the Tendency Toward the Disappearance of Net Investment

Under an Invariable Money 758 The Process of Capital Intensification 759 5. The Addition to the Rate of Profit Caused by Increases in the Quantity of Money 762

xxviii CAPITALISM

The Impact of Increases in the Quantity of Money on the Net-Investment and

Net-Consumption Rates 768 Increases in the Quantity of Money and the Perpetuation of Net Investment 768 The Increase in the Quantity of Commodity Money as an Addition to Aggregate Profit 771 Summary Statement of the Determinants of the Rate of Profit 773 6. Increases in the Real Rate of Profit Dependent on Increases in the Production and Supply of Goods 774 Net Investment Without Increasing Capital Intensiveness 775 Capital-Saving Inventions 776 7. The Inherent Springs to Profitability 778 Wage Rate Rigidities and Blockage of the Springs 784 Capital Intensiveness and the Monetary Component in the Rate of Profit 784 Capital Intensiveness Under Rapid Obsolescence 786 PART B.THE NET-CONSUMPTION/NET-INVESTMENT THEORY AND ALTERNATIVE THEORIES

1. Exposition and Critique of the Productivity Theory in Its Traditional Form 787 2. Exposition and Critique of the Time-Preference Theory in Its Traditional Form 792 The Contradiction Between Böhm-Bawerk’s “First Cause” and the Doctrine of the

Purchasing-Power Premiums 794 The Discounting Approach 795 The Disappearance of the Higher Value of Present Goods at the Margin: Böhm-Bawerk’s

Abandonment of the Time-Preference Theory 797 3. The Classical Basis of the Net-Consumption Theory 797 Appendix to Section 3: Critique of Ricardo’s Doctrine of the Falling Rate of Profit 799 4. Other Proponents of the Net-Consumption/Net-Investment Theory 801 Notes 803 CHAPTER 17.APPLICATIONS OF THE INVARIABLEMONEY/NET-CONSUMPTION ANALYSIS

1. The Analytical Framework 809 2. Why Capital Accumulation and the Falling Prices Caused by Increased Production Do Not

Imply a Falling Rate of Profit 813 Confirmation of Fact That Falling Prices Caused by Increased Production Do Not Constitute

Deflation 817 More on the Relationship Between Technological Progress and the Rate of Profit 818 Ricardo’s Insights on Capital Accumulation 819

CONTENTS xxix

The Rate of Profit and the Demand for Money 820 3. Why Capital Accumulation Does Not Depend on a Continuous Lengthening of the Average Period of Production 820 The Average Period of Production and the Limits to Technological Progress as a Source of Capital Accumulation 824 4. Implications for the Doctrine of Price Premiums in the Rate of Interest 825 5. Implications for the Process of Raising Real Wages 826 6. How the Taxation of Profits Raises the Rate of Profit 826 The Influence of the Monetary System 828 7. How Government Budget Deficits Raise the Rate of Profit 829 The Need to Reduce Government Spending 830 The Government’s Responsibility for the Emphasis of Today’s Businessmen on

ShortTerm Results 831 8. Profits, the Balance of Trade, and the Need for Laissez Faire in the United States 831 9. Implications for the Theory of Saving 834 Net Saving and Increases in the Quantity of Money 834 Why the Actual Significance of Saving Lies at the Gross Level 835 Net Saving and the Rate of Profit 836 10. More on Saving and “Hoarding”: “Hoarding” as a LongRun Cause of a Rise in the

Rate of Profit 837 Implications for the Critique of Keynesianism 837 11. Critique of the Investment-Opportunity and Underconsumption/Oversaving Doctrines 838 The Basic Error of Underconsumptionism 841 How the Demand for Capital Goods and Labor Can Radically and Permanently Exceed the Demand for Consumers’ Goods 843 Consumption as the Purpose of Production and the Progressive Production of Consumers’

Goods Over Time 847 The Ratio of Demands Between Stages 851 More on the Average Period of Production 852 A Rise in the Demand for Capital Goods and Fall in the Demand for Consumers’ Goods:

The Cross-Hatching of Production 854 12. More on Why Savings Cannot Outrun the Uses for Savings 856 Capital Intensiveness and Land Values 856

xxx CAPITALISM

The Housing Outlet and Consumer Interest 857 The Automatic Adjustment of the Rate of Saving to the Need for Capital 858 Notes 859 CHAPTER 18. KEYNESIANISM: A CRITIQUE 863 1. The Essential Claims of Keynesianism 864 Neo-Keynesianism 865 2. The Unemployment Equilibrium Doctrine and Its Basis: The IS Curve and Its Elements 867 The Grounds for the MEC Doctrine 875 The Keynesian Solution: “Fiscal Policy” 876 3. Critique of the IS-LM Analysis 879 The Declining-Marginal-Efficiency-of-Capital Doctrine and the Fallacy of Context Dropping 879 The Marginal-Efficiency-of-Capital Doctrine and the Claim That the Rate of Profit Is Lower in the Recovery from a Depression Than in the Depression 881 The Unemployment Equilibrium Doctrine and the Claim That Saving and Net Investment Are at Their Maximum Possible Limits at the Very Time They Are Actually Negative 881 The Marginal-Efficiency-of-Capital Doctrine’s Reversal of the Actual Relationship Between

Net Investment and the Rate of Profit 882 The Contradiction Between the Marginal-Efficiency-of-Capital Doctrine and the

Multiplier Doctrine 883 A Fall in Wage Rates as the Requirement for the Restoration of Net Investment and

Profitability Along With Full Employment 883 Wage Rates, Total Wage Payments, and the Rate of Profit 884 Critique of the “Paradox-of-Thrift” Doctrine 884 Critique of the Saving Function 885 Critique of the “Liquidity-Preference” Doctrine 885 4. The Economic Consequences of Keynesianism 887 The Growth in Government 888 Budget Deficits, Inflation, and Deflation 888 Keynesianism and Economic Destruction 889 Why Keynesianism Is Not a Full Employment Policy 890 Keynesianism Versus the Rate of Profit: “The Euthanasia of the Rentier” and

“The Socialization of Investment” 891

CONTENTS xxxi

Notes 892 CHAPTER 19.GOLD VERSUS INFLATION

PART A.INFLATION OF THE MONEY SUPPLY VERSUS ALTERNATIVE THEORIES OF

RISING PRICES

1. The Analytical Framework of the Quantity Theory of Money 895

The Vital Demand/Supply Test for All Theories of Rising Prices 897

The Elimination of Less Supply as the Cause of an Inflationary Rise in Prices 897 2. Refutation of the “Cost-Push” Doctrine in General 907 3. Critique of the “Wage-Push” Variant 909 4. Critique of the “Profit-Push” Variant 911 5. Critique of the “Crisis-Push” Variant 913 6. Critique of the Wage-Price Spiral Variant 915 7. Critique of the “Velocity” Doctrine 915 8. Critique of the “Inflation-Psychology” Doctrine 916 9. Critique of the CreditCard Doctrine 917 10. Critique of the Consumer-Installment-Credit Doctrine 919 11. Critique of the Consumer-Greed Doctrine 920 12. The Meaning of Inflation 920 PART B.THE DEEPER ROOTS AND FURTHER EFFECTS OF INFLATION

1. The Connection Between Inflation and Government Budget Deficits 922

Budget Deficits and the Monetary Unit 924 2. The Motives and Rationale for Deficits and Inflation 925

The Welfare State 925

Inflation and War Finance 926

Inflation and the “Easy Money” Doctrine 926

Inflation as the Alleged Cure for Unemployment 926

The Underlying Influence of the Socialist Ideology 926 3. Inflation and Deficits Versus Representative Government and Economic Freedom 927 4. Inflation as the Cause of a Redistribution of Wealth and Income 928 5. Inflation and the Destruction of Capital 930

xxxii CAPITALISM

Reversal of Safety 930 Tax Effects 931 The Prosperity Delusion and Overconsumption 933 Malinvestment 935 The Withdrawal-of-Wealth Effect 936 6. Consequences of the Destruction of Capital 937 Reduction of the Real Rate of Return 937 The Gains of Debtors Less Than the Losses of Creditors 937 The Impoverishment of Wage Earners 937 The Stock Market and Inflationary Depression 938 7. Inflation as the Cause of Depressions and Deflation 938 Gold Clauses and Prospective Inflation of Paper as the Cause of Deflation in Gold 940 8. Inflation as the Cause of Mass Unemployment 941 9. The Inherent Accelerative Tendencies of Inflation 942 The Welfare-State Mentality 943 Inflation to Solve Problems Caused by Inflation 944 Recessions as Inflationary Fueling Periods 945 Indexing and the Wage and Interest Ratchets 945 The Current State of Inflation 946 Inflation and the Potential Destruction of the Division of Labor 949 PART C.GOLD

1. Freedom for Gold as the Guarantee Against the Destruction of Money 951 A Proper Gold Policy for the Government 951 2. The Case For a 100-Percent-Reserve Gold Standard 954 Falling Prices Under the 100-Percent-Reserve Gold Standard Would Not Be Deflationary 954 The 100-Percent-Reserve Gold Standard as the Guarantee Against Deflation 955 Further Virtues of the 100-Percent-Reserve Gold Standard 956 The Moral Virtue of the 100-Percent-Reserve Gold Standard 957 The Monetary Role of Silver 958 3. The 100-Percent-Reserve Gold Standard as the Means of Ending Inflation Without a Depression 959

CONTENTS xxxiii

The 100-Percent-Reserve Gold Standard, Liquidity, and the Dismantling of the Welfare State 962 Notes 963

EPILOGUE

CHAPTER 20.TOWARD THE ESTABLISHMENT OF LAISSEZ-FAIRE CAPITALISM

1. Introduction 969 The Importance of Capitalism as a Conscious Goal 969 The Capitalist Society and a Political Program for Achieving It 971 2. Privatization of Property: Importance of Fighting on Basis of Principles 972 3. The Freedom of Production and Trade 973 Appropriate Compromises 974 The Case for the Immediate Sweeping Abolition of All Violations of the Freedom of

Production and Trade 974 4. Abolition of the Welfare State 976 Elimination of Social Security/Medicare 976 Elimination of Public Welfare 977 Elimination of Public Hospitals 978 Firing Government Employees and Ending Subsidies to Business 978 Escaping from Rent Control With the Support of Tenants 980 5. Abolition of Income and Inheritance Taxes 980 6. Establishment of Gold as Money 982 7. Procapitalist Foreign Policy 982 Freedom of Immigration 984 Friendly Relations With Japan and Western Europe 985 8. Separation of State from Education, Science, and Religion 986 Abolition of Public Education 986 Separation of Government and Science 986 Separation of State and Church 987 9. A General Campaign at the Local Level 988 10. The Outlook for the Future 989 Notes 990

xxxiv CAPITALISM

A BIBLIOGRAPHY OF WRITINGS IN DEFENSE OF CAPITALISM 991 INDEX 999

FIGURES

Figure 5–1 Hypothetical Demand and Supply Curves Based on the Data of Table 5–1 153 Figure 5–2 The Austrian View of Demand and Supply 154 Figure 5–3 The Aggregate Unit Elastic Demand Curve 159 Figure 5–4Total Demand Curve With Overall Fixed Supply 163 Figure 5–5Derivation of the Upward Sloping Supply Curve From a Competing Demand Curve 164 Figure 5–6A Horizontal Supply Curve 167 Figure 5–7A Downward Sloping Supply Curve 168 Figure 12–1The Creation of Fiduciary Media 512 Figure 13–1The Consumptionist View of the Economic World 545 Figure 13–2The Productionist Aggregate Demand Curve 546 Figure 13–3Productionism and Say’s Law: Determination of Aggregate Real Demand by Supply 561 Figure 13–4The Demand For Labor 581 Figure 14–1Determination of Price by the Competition of the Buyers 615 Figure 14–2Determination of Wages by the Competition of Employers 615 Figure 14–3Employer Competition Versus Labor Shortage 616 Figure 14–4The Relative Production of Capital Goods in a Stationary Economy 624 Figure 14–5The Relative Production of Capital Goods in a Progressing Economy 625 Figure 15–1Gross Product and Productive Consumption 675 Figure 15–2The “Keynesian Cross” 700 Figure 15–3The Elements of the Balance Sheet 703 Figure 15–4The Elements of the Income Statement 703 Figure 15–5Formation of National Income in a Stationary Economy with an Invariable Money 710 Figure 15–6Formation of National Income in a Progressing Economy with an Invariable Money 711 Figure 16–1Net Consumption and the Determination of Aggregate Profit 729 Figure 16–2The Elements Determining the Average Rate of Profit 732 Figure 16–3Profits in an Economy with an Increasing Quantity of Money 765 Figure 17–1Profits in a Progressing Economy with an Invariable Money 811 Figure 17–2The Average Period of Production Under a 50% Relative Production of Capital Goods 821 Figure 17–3The Average Period of Production Under a 60% Relative Production of Capital Goods 823 Figure 18–1The Keynesian Aggregate Demand Curve and the “Unemployment Equilibrium” 868

xxxvi CAPITALISM

Figure 18–2The IS Curve 869 Figure 18–3The IS Curve Sets the Limit to Aggregate Demand 870 Figure 18–4The Derivation of the IS Curve 871 Figure 18–5The MEC Schedule 874 Figure 18–6Government Budget Deficits as an Outlet for Savings 876 Figure 18–7How Budget Deficits Are Supposed to Promote Full Employment 877 Figure 19–1Falling Production and Supply Under an Invariable Money 900 Figure 19–2The Initial Balance Sheet of a Hypothetical Average Firm Before a Rise in Prices

Resulting from Any Cause 904 Figure 19–3The Balance Sheet of a Hypothetical Average Firm Following a Rise in Prices Caused by a Halving of Supply 905 Figure 19–4The Balance Sheet of a Hypothetical Average Firm Following a Rise in Prices Caused by a Doubling of Money and Demand 906

TABLES

Table 3–1Diminishing Returns 68 Table 5–1Hypothetical Demand and Supply Schedules 152 Table 5–2Hypothetical Total and Partial Demand Schedules 162 Table 5–3Derivation of an Upward Sloping Supply Schedule From a Downward Sloping

Demand Schedule 166 Table 9–1The Absolute Advantage of the United States over Brazil 351 Table 10–1Marginal Revenue and the Alleged Incentive of a “Monopoly” Firm to

“Restrict” Its Production 409 Table 10–2The Implications of Price Equal Marginal Cost for the Recovery of Fixed Costs 428 Table 12–1Money Supply, Consumer Demand (GNP/GDP), and Velocity of Circulation in the United States, Selected Years, 1914–1993 523 Table 13–1How an Increase in Aggregate Supply Creates a Precisely Equal Increase in

Aggregate Real Demand 563 Table 13–2Say’s Law and the Process of Economic Adjustment 565 Table 13–3Production and Profitability in the Individual Industry and in the Economy as a Whole 571 Table 15–1How Contemporary Economics Double Counts the Value of a Loaf of Bread (and of

Consumers’ Goods in General) 681 Table 15–2 Productive Expenditure Minus Costs Equals Net Investment 705 Table 15–3The Optical Illusion of Consumption as the Main Form of Spending 706 Table 15–4From Gross National Revenue to National Income and Net National Product 707 Table 15–5The “Multiplier” in the GNR Framework 708 Table 15–6National Income in Figure 15–5 713 Table 15–7National Income in Figure 15–6 714 Table 16–1The Components of the Demand for Factors of Production and Products 726 Table 16–2The Components of Demand Numerically Illustrated 727 Table 16–3Productive Expenditure, Costs, and Sales Revenues —the Elements Generating

Profit in Figure 16–1 730 Table 16–4A Rise in Profits Caused by a Rise in Net Consumption and Fall in Productive Expenditure 736 Table 16–5The Emergence of Net Investment 745 Table 16–6Net Investment as a Source of Aggregate Profit 747 Table 16–7The Relationship Between Profits and Net Investment 749 Table 16–8Net Investment as the Basis for Aggregate Profit with Sales Revenues Less than Productive

Expenditure Because of Hoarding or Saving to Finance Loans and Securities Purchases 751

xxxviii CAPITALISM

Table 16–9Net Investment as the Basis for Aggregate Profit with Sales Revenues Less than Productive

Expenditure Because of Secondary Productive Expenditure 752 Table 16–10The Process of Capital Intensification or How More Capital Is Invested When the Demand for Consumers’ Goods Falls 760 Table 16–11The Effect of an Increasing Quantity of Money and Rising Volume of Spending on the Nominal Rate of Profit 766 Table 16–12Recalculation of Rate of Profit in Figure 16–2 with Money Excluded from Capital 767 Table 16–13Recalculation of Rate of Profit in Figure 16–3 with Money Excluded from Capital 768 Table 16–14The Net Investment Rate Equals the Rate of Increase in the Money Supply 770 Table 16–15The Effect of an Increasing Quantity of Money and Rising Volume of Spending on the Nominal

Rate of Profit When the Increase in the Quantity of Money is Added to the Amount of Profit 772 Table16–16Capital Intensive Methods and the Rate of Profit 781 Table 16–17Capital Intensive Industries and the Rate of Profit 782 Table 17–1Sales Revenues, Costs, and Profits in the Production of Consumers’ Goods and Capital Goods 844 Table 17–2The Demand for Factors of Production at Various Degrees of Remove from the Production of

Consumers’ Goods 845 Table 17–3The Demand for Factors of Production in Year N and Its Cumulative Contribution to the

Production of Consumers’ Goods in the Future 848 Table 17–4Comparison of the Present, Extreme Case with that of Figure 16–2 853 Table 19–1Effect of Inflation on the Nominal Rate of Profit and the Taxation of Profits 932