The way the economy works at its most basic level...

[kentuck]

Suppose a thousand new people move into a town. These are all potential customers for the businesses that are in this town. But, in order for these new people to buy the products that are made by the businesses in this town, there has to be more production.

Who is responsible for more production so these customers can buy the products that they want to buy? The owners of the business would need to hire more people to make the products for the new customers.

Unless one believes that the "small business man" does all of this production by himself, then nothing could be created without the worker. Likewise, the customer is of no use to the local economy if there are no products to buy.

Granted, the "small business man" can hire more people to make more products to sell to the new customers so long as the new customers have the means to purchase the products. Each of these is dependent on the other. The small business owner is dependent on labor to make the product. The laborer is dependent upon the business owner for the job. They are all dependent on the customer buying the product, otherwise, the business fails, the worker loses his job, the customer goes without, and they all suffer. One is not superior to the other, contrary to what we have been led to believe our entire lives.

If one cannot survive without the other, then neither of them is superior to the other. Historically, the person that "invested" the capital for the business gets the larger cut. However, his capital would be worthless if it was not put to use. Then the question should be, what would be the fair cut for the business man over the worker? If the worker, also the customer, does not make enough to buy the products that are made in his town, then the business goes under and workers are laid off, and everyone loses. That is the challenge of modern capitalism.

.

[HiPointDem]

1. but where does the profit come from? if the 'entrepreneur' 'invests' $1000 in production, &

that includes the cost of materials and labor, and the laborers must buy that production out of their wages -- where is the profit?

in a totally closed loop (like a small town) there can't be any profit unless it comes from putting other producers out of business -- a zero-sum game.

[kentuck]

3. The profit is in the pricing of the product.

If the business man cannot make more profit than it costs to make the product, labor included, then he will not survive. If the laborer does not make enough to buy the products, then the business will go under also. Everyone is a customer of some product or other. It is basic supply and demand. If the price is too high, the demand will go down. If the price is too low, there is not enough profit to pay the workers. If other businesses are making the same product, then competition should keep the pricing at a competitive level. Or a very bright and somewhat greedy businessman may indulge in vertical integration and squeeze every penny he can out of his customers and has the capacity to raise or lower prices at will, in a type of monopolistic capitalism.

[HiPointDem]

8. you don't get my point. in a closed loop system like our hypothetical small town, profit is not

possible.

the "entrepreneur" takes $1000 to buy materials from suppliers and pay labor. suppliers and labor use the $$ they receive to buy the product from the "entrepreneur. closed loop, no profit. He can't get more back than he put in.

[hughee99]

24. Yes, in a "closed loop" if there is a fixed amount of money in the town,

the more money a business owner or investor has in their pocket, the less money consumers have to buy their products. The owner/investor has several "business" ways (not counting giving it away) to get more money to the consumers: They can either reduce the profit margin by either lowering prices or pay their workers more, they can expand the business (which in a closed loop, you can only do so much), or you can personally spend/invest it to put it back in the economy. If a business owner (or owners) had all the money in the town, the business would lose money since no one could afford to buy their products, and they they'd have to lay off the workers. As a business owner, you can make some profit, but only to the point were people are no longer able to afford your product, at which time every dollar in your pocket that you don't put back into the economy hurts your business.

I tried to make your statement sound clearer, but I fear I did the exact opposite.

[HiPointDem]

25. There is no profit margin. There is no profit unless you kill off the other people one by one.

[hughee99]

26. There could be a temporary margin, depending on the amount of money in the loop.

If you started a business in a closed-loop where all 1000 citizens had, say, $1 million dollars (for the sake of round numbers), you could start a business where you would end up with $500 million dollars (instead of your original $1 million, being a citizen of the town), and the rest of the town's residents had $500 million to split between the other 999 of them. As you accumulate more of the townpeople's money, business will decrease. The overall pie will not increase, but you, personally, will have a larger share of it. In the end, though, you are correct. The only way to operate a SUSTAINING business in this scenario is to operate at no profit margin. Even if you kill off the other people, you'll be killing your customers (and your workers) eventually leaving you in an empty town with no customers and all the money, and that won't work for sustaining a business either.

[HiPointDem]

27. "The only way to operate a SUSTAINING business in this scenario is to operate at no profit"

Precisely.

"Even if you kill off the other people, you'll be killing your customers (and your workers) eventually leaving you in an empty town with no customers and all the money"

Precisely.

Another way, as Marx noted, is credit. But that eventually leaves you with bigger & bigger credit bubbles -- like we see today.

[geckosfeet]

4. If you move inventory to keep the business running you don't need profit.

You reallocate income from the profit column to buy more materials, machines, and hire more people to grow the business.

You just need to sell products for slightly more than the total cost of getting them to market.

[kentuck]

6. Many businesses today do not operate with large inventories...

They use JIT (Just in Time) production to supply present customer demands. With less inventories, it made downturns in the economy shorter and people were able to find jobs quicker.

[HiPointDem]

7. you don't understand what i'm saying. if the only consumers of the products are the entrepreneur

his workers & suppliers, that means that if the entrepreneur 'invests' $1000 (in our hypothetical closed loop small town), $1000 is all he can ever get back. people work, the entrepreneur pays them, then they buy back what they made with their wages. no profit, just enough money to do the same thing again.

'profit' = what's left over after you've paid the cost of making something (supplies & labor, etc.)

in a closed system profit is impossible.

[kentuck]

9. But...

Doesn't that assume that every worker works at the same place for the same wages?? Also, doesn't it assume that every person has the same needs for consumption?? If wages are higher in one job than the other, then that worker may save his money and spend it on something else that he wants to purchase.

I'm not sure your definition of "profit" is modern or up to date? Profit is whatever the market will bear in today's world. Prices can go up for no reason at all except the desire to make more money.

I'm not sure what you mean by a "closed system", other than that capitalism requires a continuous search for new markets and new customers in order to keep growing profits?

[belcffub]

12. two things

profits are what is left after all expenses are paid

and a closed loop economic model is mostly hypothetical... but it consists of an economy with no external inputs or exports...

[HiPointDem]

14. the earth isn't basically a closed loop?

[kentuck]

15. But a thousand new customers ...

would be like a new market for local businesses. I could see the hypothesis if there were no new customers. A closed loop economic model, in my opinion, would be like bartering one product for another or for labor, which is not constant, because roofs always need to be repaired, roads always need to be fixed, trees need to be trimmed, kids need to be educated, etc. It's hard to visualize such a "closed" economy, for me personally.

[HiPointDem]

16. a thousand new customers from where? in a closed loop small town you just have normal

population increase.

things always need to be done & people have always needed to do them, even before capitalism existed.

the point is that in a closed loop, you can't get more out than you put in. ergo, profit is impossible without robbing others.

[kentuck]

17. It's a very interesting concept...

and may be the next step in capitalism, out of necessity.

http://davidbent.wordpress.com/2011/01/18/business-models-for-a-closed-loop-economy/

[HiPointDem]

18. imo the global economy has always been a closed loop. that's how the rich get richer -- by

stealing the livelihoods of others and converting them to wage laborers, welfare clients, and homeless.

and in many cases by killing them.

[HiPointDem]

13. it assumes a closed loop with no black box "outside". you can make the example more complicated

if you like; the result is the same.

profit is whatever's left after paying the costs. "whatever the market will bear" is irrelevant -- it's still what's left after paying costs.

In our hypothetical small town, if $1000 is invested in production, $1000 is all you can get back -- you get it back from your suppliers and workers.

profit is impossible in a closed loop (unless it's taken from other producers a/o involves eliminating others' ability to consume/produce).

the implication is that in the long run, it's also impossible in the closed loop of earth.

[RKP5637]

2. Well said, and sadly modern capitalism wants customers with no jobs

magically enabled to purchase the products. It is an absolute conundrum, especially given the goal is to offshore to the lowest labor pool. There's a huge gap in the equation to say the least.

[HiPointDem]

28. It's a historical method of theft. A bubble builds up, people feel like they're doing well -- then

it pops, and a lot of people lose a lot of money, property, etc. The bigs guys (who had most of the money in the first place) mop up all the wealth and property that was created during the bubble for cutrate prices -- leaving them in even better shape for the next round.

ordinary people's worklives = building their power and digging our own graves.

[RKP5637]

30. And the Lemmings worship the system falling for all of the political

rhetoric while digging their own graves deeper each cycle and saying ain't this great!

[upaloopa]

5. Working at CPA firms I've worked on the books and taxes of many small business owners.

I have found out that:

Many business owners who lasted had a good idea but were not good with research and development, engineering, accounting or finance, marketing and sales. They paid people to do that. They had access to money, either borrowing or were given wealth.

They were mostly sheep, reading the latest popular business book like "Winning Through Intimidation" or the "One minute manager" and a whole raft of others.

They got a lot of undeserved respect. Forced their family to work in the business.

There were some really good business owners but they were the exception.

[Romulox]

10. Most consumer goods are produced overseas; the small business doesn't need workers to produce.

Thus, the crisis in employment.

[kentuck]

11. Now we are moving beyond the most basic level...

and to manipulation of markets, especially labor, for the benefit of the few, and the harm of many, with the bribery and payoffs of politicians calling the shots in a corrupt political system.

[dkf]

19. Labor is also being replaced by technology, which is how it has always been.

I was just watching a special on Amazon's warehouse process, where robots retrieve items and glide on tracks that are programmed for efficient flows. The robots go on their path and barely miss each other but never crash. Moreover they are amazingly accurate in their retrieval of products.

Soon they won't need to go to China. They will have robots that can operate more efficiently 24/7.

I have no idea how things need to be reordered but we are fooling ourselves that compelling businesses to move these jobs back is a long term solution.

[reformist2]

20. What if we only needed 1 millon people to work? Our economic system has no way to handle this.

[kentuck]

21. I agree.

Our concept of labor is becoming extinct. Technology is replacing workers rapidly and is also moving wealth more quickly to a few at the top. Their costs for labor, a traditional major expense, is dropping as their production increases. It is truly a problem that our society needs to address. I don't see how it can be addressed without becoming more socialistic, as in creating government jobs to sustain our population.

[reformist2]

22. Or, instead of giving everybody jobs....dare I say it...

how about giving everybody money?

[kentuck]

23. Because jobs will still need to be done...

Just not the type of work that creates a quick profit. Such as clearing out the dead brush from our forest so we don't have forest fires like the one we had in Colorado Springs a few weeks ago. And making trails in our national forest. And keeping our environment clean. And planting trees for our future need of oxygen. And making reservoirs to store water for times of severe drought. And all types of work that we would enjoy as a society, but not for profit sake. Considering the multiplier effect of money, this would be a great stimulus for our economy and could give everyone a job that wanted to work, and could help pay for higher education. There would be a side benefit of a healthier people that spent more time outdoors.

[Selatius]

29. The final goal of technology is likely the automation of almost all vital operations needed to live.

I'm going off on an example of a hypothetical distant future, but I believe it bears to be heard given what is happening now with automation and mechanization.

Let's take the growing and transport of food as an example. If you could build the infrastructure and the machines needed to, say, grow food, there would be no need of farmers. The problem is if you have an economy built upon the exchange of money for products and services, those farmers would have no money to access that food. The truck drivers, the store clerks, the stock people, all of them are replaced by machinery and infrastructure necessary to get food to people. Eventually, the only jobs people would have with respect to growing food or transporting food would be merely limited to programming the machines that make it all go and repairing the machines that break down, and even then, once the machinery is advanced enough, the machines will be writing their own code and repairing themselves without need of very much human intervention except to obey a command given here or there.

I can't imagine fully what human society would look like in such an evolution of technology, but I would think all of that wouldn't be possible without the identification of an energy source that is, in a practical human sense, limitless. If people aren't having to spend their days working to live, what is there to do? For such a possible future I've always found Capt. Picard's words comforting:

Picard on accumulating wealth:

&feature=related

Picard on the economics of the future:

Well ... I hope for that kind of future. It's better than ending up inside the Matrix.