On profit and need for profit

[Tatar Khan]

As the discussion in 1 CAN = 1 USD has come back to the issue of profit in the current economic system, I feel and it seems so doe Sneakgab (correct me if I am wrong) that a separate thread is needed on the discussion.

So I decided to put down a small piece on profit.

There are 3 different definitions of profit that need to be considered. Accounting profit is the one we often see on the news reports and on the company's income statements. Than there is financial profit, this one is calculated like accounting profit but doesn't subtract the depreciation of assets expense. This due to the fact that depreciation doesn't really cause the money to flow from the company and so by finance department is not seen as expense. Finally there is economic profit which is profit after all the expenses including the opportunity cost. Opportunity cost is income that would have been generated in activity that would have been performed instead of current activity. This economic profit exist to direct individuals' efforts optimally. if your economic profit is negative than you better of doing something else. If your economic profit is positive than you should do what you are doing. The positive economic profit attracts other to enter the market to try to capture it. The more firms or individuals enter the market the smaller the economic profit becomes until it becomes zero under perfect competition conditions.

Rather than look at the economic profit which much more ambiguous measure we would look at the financial profit (accounting profit being too similar to consider it separately). Profit comes from the cash flow that comes in the firm net of cash flow that goes out of the firm. The firms acquire the cash flow through the selling of their products that they produce. Now the standard production function called Cobb-Douglass put forward by the economists after which it is named:

http://img374.imageshack.us/my.php?image=cobbdouglassfunctiondj1.jpg

From the production function it is clear that if either labour or capital are zero no production would take place. The Marginal products of the labour and capital also prove the same point. Therefore both are needed for production process. Now lets consider the proper compensation for the capital and labour.

It seems fair that each additional unit of labour should be compensated by the amount it adds to the the production, this amount is marginal product of labour. The same goes for capital as it should be compensated on the marginal product of capital or the amount each unit of capital adds to the production.

The capital comes from the owners/investors who contribute money towards the firm that it uses to buy machinery, equipment, land, building and etc. Compensation of capital gets more complicated than compensation of labour. The labour gets compensated almost immediately on the work. Capital compensation return often takes longer and less certain due to risk involved. Since if the firm were to fail the capital will least likely to be returned as the labour and creditors have first claim on the assets of the firm. In addition, labour doesn't loose its ability to perform labour if the firm fail, the capital once is lost is lost. Since there is risk of loss the provider of capital wants compensation fro taking on the risk. So if the person is asked to invest in a firm $5000 where there is 50% chance he gets $5000 back and 50% chance that he will get back 0, with expected return than being $2500 he will be least likely to risk his money as he is not better off by investing it, he is actually worse off since he risks losing it. If on another hand he has the 50% chance to get back $10000 and %50 chance to get back 0 than expected return is $5000 he might consider investing if he is willing to take the risk. Each person's risk aversion as well as weighted average cost of capital will determine how high should the expected return be before they will invest. Therefore what is referred to as profit is compensation for taking on risk.

Now the argument is often is made that in socialist system the government would be able to remove profit and use it to pay higher wages or lower prices. The problem arising here is the fact that government would still need a measuring stick to decide which projects to take on and which not to take on. The government should not take on the projects which would not return the money it spend on the project because than this project becomes a loss that will need constant additional money from the government to keep it working. Therefore the government needs to choose the projects that would give it money back and in addition provide extra to compensate for projects that do fail as there would be such. Now the government becomes the owner and investor that is looking for profit on their investment. Since it is the people who are directing the decisions of the government the will be more risk averse in its decisions thus taking on less risk, but the new technologies and inventions are very risky to develop as it is hard to determine if they will succeed. The reason for government having strong aversion to risk is the fact that most people are strongly averse to risk. The ones that are less risk averse become the business owners because they are able to handle such a risk. In addition, the government spending --> investing could be motivated more by political rather than economic and financial factors.

''This is more about the value of work being done and appropriate compensation for that work.''

Apparently, the same work has greatly different value depending on who's doing the paying. Making the same car in Asia is apparently less valuable and deserving of less compensation than the same car in America. Also, the owners and CEO's apparently deserve more of the pie as well. We all know that the location is not changing the value of the car by much. I guess in an utterly unregulated free-market system the appropriate compensation would be whatever the employers feel like giving to those who wish to avoid dying from starvation and for whom work is probably worth it simply to have something to do and maybe to allow sanctuary while in a work place (unless of course they bear the common misfortune of their workplace being dangerous). Clearly, the less one has the less he is willing to work for.

Actually the value of the labour in America declines because now this labour is not special anymore as the skills became more common. However often the transportation expense skews the labour compensation. Transporting products that made in America to America is cheaper than Asia to America so often the labour in America gets paid more because they are living in the right country. Actually since they are closer to the intended recipient that means their labour is more precious as labour close to the intended market for the product is more rare which makes their compensation higher.

''Now considering that CEO, COO, CFO and etc are actually employees and not owners of the companies although they do become such on occasions, and considering that they represent the management side of business are you arguing that firms do not require management to manage operations?

If you arguing against their compensation that consider that running a multinational corporation that have to work with dozens of different governments each with their own practices and standards is not that easy.''

Anyway, I actually do argue that their compensation is too large as well. Their work might not that easy but it isn't that insanely hard either. Regardless of how difficult their work is, I don't see why the difficulty of their work should be directly proportional to the profit and scale of their company. Obviously there are certain ''jumps'' in difficulty if a company goes from international to national for example, but between these jumps there are still huge pay differences mostly dependent on scale, regardless of performance for which they normally receive a bonus.

Let's also consider the amount of education and work it takes to get to the position of CEO. As not any regular person with university degree even would be qualified. As for the argument that their pay gives them more than they need to live a good life well that will depend on the definition of that. Let's consider this than a Senior operations manger or senior financial manager might be making enough for a good life than if they not compensated higher why would they want to become a CEO with all that head ache and board of directors and shareholders breathing down his neck.

By the way, if there is truly risk involved, then how is luck not a factor? If somebody buys ten thousand identical small business's each with chances of earning money, earning nothing, or even losing money being as such that they are on average worth their risk, their is virtually no risk involved due to how things average it. So that for example is not really risk, in case you use that as an example. Seeing some way to manipulate things to avoid risk does not make somebody so great that they automatically deserve (insert large number here)$.

You not avoiding risk here but decreasing it as risk of all companies failing exists, risk of losses of some companies would be larger than the gains of the other companies leading to net loss.

[Andrew]

Actually the value of the labour in America declines because now this labour is not special anymore as the skills became more common. However often the transportation expense skews the labour compensation. Transporting products that made in America to America is cheaper than Asia to America so often the labour in America gets paid more because they are living in the right country. Actually since they are closer to the intended recipient that means their labour is more precious as labour close to the intended market for the product is more rare which makes their compensation higher.

Reducing currency risk is also another reason for producing and selling in the same country. Although like Canada/USA, it was cheaper to produce/buy in Canada and ship to USA back when CAD was crap. But it screwed Canadian consumers, and still does. Especially when cars/skidoos built in Canada are more expensive in Canada than in USA, even when we were at parity. It was a joke, and the reason why Canadians were shopping in the USA during parity.

But that is more because Canada/USA are next to each other and transport costs are small compared to shipping from overseas.

[Sneakgab]

''Actually the value of the labour in America declines because now this labour is not special anymore as the skills became more common. However often the transportation expense skews the labour compensation. Transporting products that made in America to America is cheaper than Asia to America so often the labour in America gets paid more because they are living in the right country. Actually since they are closer to the intended recipient that means their labour is more precious as labour close to the intended market for the product is more rare which makes their compensation higher''

It's not like only people in America buy cars. They might make up a big percentage of the market, but they are also very far from everybody else (exl: South and North America, for which most of the countries are in no position to buy cars).

So the product becomes less valuable. Well, if profit increases then clearly they have overcompensated for increase in costs by lowering the salary (therefore the difference in product[some would call it work value]value and pay has increased. Other factors not considered, this is basically given workers a smaller % of their work value). I don't see what else they could lower that they couldn't already lower in the US (which one would imagine has then already been adjusted for maximum profit). Does working further away from the buyers somehow increase the options and the extent they can be pursued for reducing costs? Seeing as how America presumably has better developed factories this seems unlikely.

You're logic seems to be that workers deserve less because of their position and because of that their work is more profitable (But if their product is really less valuable to the same extent then profit would remain the same since both sales and cost price have decreased COMPARED to America where the firms presumably have employed BETTER cost-reducing techniques not (obviously) including cutting salaries. So in other words to make an increased profit (profit in Asia relative to profit in America) despite that fact the wages must be cut EVEN FURTHER. I suppose that some would say that this second fact accounts for itself though in terms of factory development as working in an inferior factory means you're work is less valuable as well. Still, the cancelling out of the factory level factor has no effect on the initial factor about getting a product that is less valuable but by reducing the salaries by more than the difference in value between the new product and the old to increase profit).

One last thing to consider beyond location and factory level is simply the employment of non-physical factors like more efficient organization that is better done in America. However, justifying less pay for this basically seems to be saying that workers deserve less pay because they work for bosses who do not use them as effectively. Not to mention that once again, it cancels out.

If you add up everything making the product and work less valuable, then to get a profit you must reduce salaries more than the reduction in value.

Anyway, like Andrew said Mexico is very close to America making transportation costs small. That is actually specifically why I mentioned Mexico (well, I'm pretty sure I did, if I didn't I still had this in mind though), because I knew you would bring up location affecting value, even though the effects on value must be smaller than the reduction in pay or else profit would not be increased and companies would not be doing.

Peh, also take note that we in other words have an example of a company bearing the inneficiency of an inferior location just so that it can gain the ''efficiency'' of paying people less which therefore makes money and is therefore a ''stronger'' company.

So in other words, a company that does something pointless in terms of REAL productivity like moving elsewhere (when there remain unemployed in their current location) is somehow a stronger company and will eventually defeat a weaker company... so our system should ''evolve'' (ok, the text here became so long that I thought that somebody reading it would forget the point of the sentence outside the brackets, so I moved it... just so you know the original body was related) in favor (fills the market with, essentially) of companies that work in less efficient (for actual production conditions) because they are more efficient in making profit by making products that are less in demand?

Admittedly the loop hole here is that command economics has intervened in America, making it so that products that are less valuable and less in demand due to their location are produced instead... But this suggests that lowering their wages makes products more in demand because they are cheaper and leads to the logic that therefore paying everybody the bare minimum (enough to keep them alive? you can make them as poor as you need them to be to accept any pay and conditions you choose, as you have the advantage of being able to live decently if they refuse while they die or live terrible lives) to make products cheaper and more in demand (in a sense... not really sure that applies though...) will be a growing practice. So, the ''evolving'' due to the ''perfect'' free market will lead companies to pay as little as possible to increase profits.... which surprise surprise is is EXACTLY what is going on in Asia (look at the EPZ's in Vietnam... which are free-market zones to everybody who is thinking ''but Vietnam's not a free market'' though I am sure Tatar already knows that and most would at least look it up if they didn't).

Yes... they are being paid minimum wage... the least possible according to the ''freeness level'' of this element of the economy.

So... the minimum wage is lower in Mexico... Mexicans are paid less... the minimum wage is even lower in Asia... Asians are paid less... Anyone see a pattern providing evidence to my theory that other factors aside companies just pay as little as they can? Clearly, more profit usually means stronger company that survives but DOES NOT mean more efficiency. Just because the consumer gets his car for less (the factor that the ''strength'' leading to the survival of the company comes from and therefore the only ''efficiency'' being considered) does NOT REALLY MEAN EFFICIENCY HAS NECESSARILY INCREASED. It just means somebody somewhere (usually) the workers are getting screwed more.

In fact, the only reasonable guess would be that in terms of production and cost (in man hours and resources [real costs, which I will refer to them as from this point forward], NOT in salary and what the company pays [when I refer to it this time] efficiency  ACTUALLY decreases since by you're own words the location is worse and other factors can only be guessed to be worse in less developed countries.

In other words, moving to less developed countries REDUCES REAL EFFICIENCY by decreasing REAL VALUE/REAL COST ratio by increasing REAL COST but is more PROFIT EFFICIENT because it REDUCES COMPANY COST (which it can only do by reducing pay basically, relative to America) MORE THAN it REDUCES COMPANY VALUE (of products/stock... though naturally if the company profits then the net worth of the owner increases).

This process would continue as much as possible until it is limited by the command economics implementation that is minimum wage.

Now, I cannot answer on the rest till time allows me to do so.

[Tatar Khan]

Reducing currency risk is also another reason for producing and selling in the same country.

Darn I forgot about that one.

''Actually the value of the labour in America declines because now this labour is not special anymore as the skills became more common. However often the transportation expense skews the labour compensation. Transporting products that made in America to America is cheaper than Asia to America so often the labour in America gets paid more because they are living in the right country. Actually since they are closer to the intended recipient that means their labour is more precious as labour close to the intended market for the product is more rare which makes their compensation higher''

So the product becomes less valuable. Well, if profit increases then clearly they have overcompensated for increase in costs by lowering the salary (therefore the difference in product[some would call it work value]value and pay has increased. Other factors not considered, this is basically given workers a smaller % of their work value). I don't see what else they could lower that they couldn't already lower in the US (which one would imagine has then already been adjusted for maximum profit). Does working further away from the buyers somehow increase the options and the extent they can be pursued for reducing costs? Seeing as how America presumably has better developed factories this seems unlikely.

You're logic seems to be that workers deserve less because of their position and because of that their work is more profitable (But if their product is really less valuable to the same extent then profit would remain the same since both sales and cost price have decreased COMPARED to America where the firms presumably have employed BETTER cost-reducing techniques not (obviously) including cutting salaries. So in other words to make an increased profit (profit in Asia relative to profit in America) despite that fact the wages must be cut EVEN FURTHER. I suppose that some would say that this second fact accounts for itself though in terms of factory development as working in an inferior factory means you're work is less valuable as well. Still, the cancelling out of the factory level factor has no effect on the initial factor about getting a product that is less valuable but by reducing the salaries by more than the difference in value between the new product and the old to increase profit).

One last thing to consider beyond location and factory level is simply the employment of non-physical factors like more efficient organization that is better done in America. However, justifying less pay for this basically seems to be saying that workers deserve less pay because they work for bosses who do not use them as effectively. Not to mention that once again, it cancels out.

I am not sure exactly the line of your argument but I think this answers it. As I said the proximity of labour to the intended recipient of the product changes the its value, intervening governemnt regulations can change the value, scarcity of labour due to competition between firms for it changes it value (and yes highly qualified labour is in demand and when person is really good at what he does companies try to lure the person to their firm), knowledge and expertise of the labour changes its value (in your case it is the experience of American labour and its capabilities to operate more complex machinery than its counterparts in developing countries. As developing countries labour gets more educated and experienced their compensation will rise and the American labour compensation will fall as they are less unique in their skills.)

If you add up everything making the product and work less valuable, then to get a profit you must reduce salaries more than the reduction in value.

As the product becomes less valuable the profit decreases signaling that it is time to change the product or get a new product.

Anyway, like Andrew said Mexico is very close to America making transportation costs small. That is actually specifically why I mentioned Mexico (well, I'm pretty sure I did, if I didn't I still had this in mind though), because I knew you would bring up location affecting value, even though the effects on value must be smaller than the reduction in pay or else profit would not be increased and companies would not be doing.

Mexican wages in American factories are rising due to the better skilled personnel working there.

also take note that we in other words have an example of a company bearing the inneficiency of an inferior location just so that it can gain the ''efficiency'' of paying people less which therefore makes money and is therefore a ''stronger'' company.

If a company can see that by changing location it can overall increase efficiency than it should or its competition would do that and kick it out of the market.

So in other words, a company that does something pointless in terms of REAL productivity like moving elsewhere (when there remain unemployed in their current location) is somehow a stronger company and will eventually defeat a weaker company... so our system should ''evolve'' in favor (fills the market with, essentially) of companies that work in less efficient (for actual production conditions) because they are more efficient in making profit by making products that are less in demand?

Really don't get what you are saying here. First of all how moving to a more suitable location is less efficient for production purposes? and where did I say that moving to a more suitable location is less efficient for production purposes? Where did I say that it is more efficient to make products that are less demanded?

So... the minimum wage is lower in Mexico... Mexicans are paid less... the minimum wage is even lower in Asia... Asians are paid less... Anyone see a pattern providing evidence to my theory that other factors aside companies just pay as little as they can? Clearly, more profit usually means stronger company that survives but DOES NOT mean more efficiency. Just because the consumer gets his car for less (the factor that the ''strength'' leading to the survival of the company comes from and therefore the only ''efficiency'' being considered) does NOT REALLY MEAN EFFICIENCY HAS NECESSARILY INCREASED. It just means somebody somewhere (usually) the workers are getting screwed more.

The efficiency of that labour as well as skills of that labour are lower and so they get paid less than more skilled labour. In cases when the skills are the same (call centres are good example) they have become more and more outsourced, except the ones that are necessary to be kept in home country.

In fact, the only reasonable guess would be that in terms of production and cost (in man hours and resources [real costs, which I will refer to them as from this point forward], NOT in salary and what the company pays [when I refer to it this time] efficiency  ACTUALLY decreases since by you're own words the location is worse and other factors can only be guessed to be worse in less developed countries.

You forgetting the rising transportation cost, political cost of the negotiating with 2 government about movement of goods, political risk, government risk incurred by the company for moving out foreign country, currency conversion risk. All this add to the cost of production.

I would need to look it up but there was study back in late 1990s that looked at T-shirt manufacturer that moved out to developing world country to make T-shirts. The study showed that raising by a cent per hour salary of the workers in developing world would mean that the costs of producing in the that country would be higher than producing back in US.

Now, I cannot answer on the rest till time allows me to do so.

[Sneakgab]

First off, I admit that I have not read you're info about types of profit. Who knows, maybe that info will render this entire post moot. Maybe it will ultimately prove that capitalism is perfect and that there can be no other system worth considering. I will eventually read it and edit my post if the info changes my evaluation.

For the record, I have read everything else you have posted.

Now, on to my post....

You misunderstand because you are not differentiating cost of production from cost of paying someone to produce. You are not differentiating material efficiency from efficiency in making profit. You are doing this because you think efficiency in making profit IS efficiency in every sense of the word. Because (to you) seeking and increasing profit efficiency necessarily means increasing production efficiency, you have mistakenly come to think that profit efficiency IS production efficiency.

Wanting to run might lead to the reduction of fat. But that does not mean that running IS reduction of fat. Those are obviously two different terms, verbs, actions,e.t.c.

You say that American labor is better qualified than Mexican labor and so they get paid more... therefore the sense is that it is better to use less skilled employees?

How can that increase production efficiency? Some common sense is required. For an example about the average speed a traveller must drive to reach his destination on time after already having travelled for a set period at a set speed, one finds two answers. 1 is a positive velocity and the other is negative... The answer is obvious.

How can 1 reach the destination by driving backwards? How can production efficiency be increased by moving to a place where the product is less valuable because of it's location and where it is produced more inefficiently in inferior factors by less skilled labor when there are currently more skilled labor (in America) sitting around unemployed (thus preventing the argument that this utilizes otherwise unused labor).?

[Sneakgab]

Even if the labor was as skilled as it

[Tatar Khan]

You say that American labor is better qualified than Mexican labor and so they get paid more... therefore the sense is that it is better to use less skilled employees?

How can that increase production efficiency? Some common sense is required. For an example about the average speed a traveller must drive to reach his destination on time after already having travelled for a set period at a set speed, one finds two answers. 1 is a positive velocity and the other is negative... The answer is obvious.

Since the goal of the firm is to maximize the value of the shares, profit maximisation could be in line with this goals. If it is ruled as being inline than the profit could be maximized through more efficient operations, which is achieved by lowering costs. So a sacrifice is made of higher qualifications for the lower costs as the firm sees that the marginal increase on profit from this move is higher than from having qualified labour. Now this will not hold true all the time as most marginal products follow the theory of diminishing returns. The final result a more efficient production.

[Sneakgab]

(edit... lol, already, but of course this is not the edit I referred to at the end'')

Just wanted to mention that I may have been rude in saying that you ''misunderstood me'', especially since that is likely my fault for posting in a convoluted and unnecessarily long fashion. My apologies.

''profit maximisation could be in line with this goals''

Which goals? You didn't say what exactly you were referring to. Forgive me for being an @$$ if it's obvious. The goal of maximizing production maybe?

''If it is ruled as being inline''

As in, being in line with the previously mentioned goal?

''profit could be maximized through more efficient operations''

Well, here's the thing, how will they make operations more efficient relative to America?

P = V - C(labor). Everything per an hour of labor. C(labor) is obviously the pay for 1 hour of labor.

For now we, will ignore other costs. Now, we will say that the Mexican or Asian laborer half as skilled produces half as much (not sure if half skill = half product but we will ignore this for now) within the same time period if all other conditions are the same (same factory, same location, e.t.c.

Ok, clearly, comparing American factories with Mexican ones, the company owner will not be able to have more produced in 1 labor hour with laborers of equal skill.

Therefore, the only way to turn a profit relative to the profit of a factory in American, is to reduce cost.

Ok, now if he fairly divides the labor pay by 2, he will still be making less profit. This is because, a laborer of half the skill of his American counterpart, makes less than half the product because he works in an inferior factory.

So, to have profit per hour be increased relative to that of America, he must divide the pay of his laborers per hour by more than 2, which is less than they deserve because they are half as skilled as their American counterparts. Now, the owner wants to make money faster rather than slower, and his workforce can only become so big. Therefore, he wants to increase profit per hour as much as possible, which of course means he wants the V/C ratio to be as large as possible.

However, there are other costs other than labor cost. The thing is that all of these things are in favor of the American factory.

As for cost of resources, I don't see how an inferior Mexican factory can have less resource cost per product (and basically per a hour). Even if it did, that resource cost difference would have to make up for costs of location, government negotiation,e.t.c (all the things mentioned previously).

I am simply unable to believe that this is possible. And so, the only way for the owner to make an increased profit relative (ie: higher profit per hour and higher V/TOTALC) to an American factory is to pay his workers more unfairly relative to the pay of the American laborers (less than twice as much).

By reducing the pay of his workers as much as he wants, the owner can increase profit has much as he wants. The pay can be reduced further, and to a more unfair level given the skill of the workers (ie: their skill is half but their minimum wage is less than half) in Mexico. The workers have no choice to accept or suffer horrible misery. You might say that if he lowers the pay too much, that would be worse, but there is also the threat of death.

Now, the cost of the laborer is not actually whatever the owner says it is, though that is what is relevant to him. Usually, I would say that the worker deserves to be paid the entire product he makes (though I am not really happen even with this definition). Of course, not the ENTIRE product so the owner can receive reasonable compensation. There is also the factor to risk, which I intend to get to eventually (honestly :D).

However, for now I will go by the capitalist way and say that the worker only gets a percentage of the product.

Now I will speak about the actual labor cost, REALC(labor). This cost is based on the ability of the worker. For an entire product, it is his abilityxlabor hours. However, per hour that is obviously just ability.

Then we will have surplus value (S). Surplus value is different to profit in that it uses REALC(labor) instead of C as seen in profit.

S = V - REALC(labor)

The capitalist cannot change REALC(labor). The workers are half as skilled AND work at an inferior factory, so relative to the American factory, V is divided by more than 2. Meanwhile, REALC(labor) is only divided by 2. Thus S and V/REALC(labor) ratio have been reduced (or are less, perhaps more precisely) relative to the American factory.

Now, considering the other costs (mentioned earlier) obviously only reduces S and the V/REALC(labor) ratio further of course. P

This is a reflection of also taking into account human input in terms of laborxskill wasted. Now you could say that they are employing people whose labor would be otherwise wasted, but there are many unemployed in America who could instead be put to work for increased S and V/REALC(labor) ratio.

V/REALC(labor) ratio is my definition for production efficiency for now. See, V/C(labor) can be made as high as you want by just reducing pay as much as you want. But does production somehow become more efficient by paying the people doing it less? In terms of profit, yes. In terms of production, no.

By the way, effort should also be taken account into REALC(labor). It is simple to simply multiply by a different effort factor. Somebody who puts in 5 times as much effort per hour than an equally skilled labor has his work hour be equal in REALC(labor) to 5 hours of work of that laborer. This makes no real difference.

There is also the element a worker using resources less efficiently. This resource difference (compared to some ''standard'' worker who is considered to be fairly paid,  basically) is deducted/added directly to his pay. This basically changes REALC. You could reduce/increase his ''skill'' rating, which would seemingly make sense and would change REALC accordingly. Ie: if a worker wastes resouces or uses them more efficiently it is taken out of his pay check or added to it. Basically seems fair (might need some changes), but once again this isn't too relevant here.

As for currency conversion, you are basically saying that there is risk and that is the justification for the increase in purchasing power (getting more wealth... as putting it as getting more money might not make sense).

''Show the mathematics behind that claim because In my opening post of the thread I already showed you the reason why labour gets paid what is paid and why capitalists are getting compensated for their investments.''

You see, what I was referring to (I think, I'll have to go back and check to be honest) was either that if you are saying production efficiency has increased and that profit efficiency is the same, is that then you are treating what owners pay for the labor as the same thing as what that labor deserves. Well, obviously by that definition it is not possible for the pay to be unfair, but it is obviously ridiculous. It seems more reasonable that people deserve to be paid according to their ability and labor not according to where they are. Now notice that if you took these laborers, and had them in the American factory, their REALC(labor) remains the same but the V of their work increases. Thusly S increases reflecting higher productivity.

Ie: capitalist are putting what they pay for C. Yeah, that increases profit. But looking at S, it doesn't increase productivity. So I said they ''forget'', but rather they are considering profit and wages, and they are not considering productivity and REALC(labor). If they put equally skilled laborer in lesser conditions so that they make half and they pay them half, then profit remains the same but obviously productivity is worse because that labor could be used elsewhere (not to mention there is the simple human cost of effort. Somethings are simply not worth the effort, and basically the product is less worth the effort. So in this respect maybe we can say that it's ''worth it ness' ratio)

This makes sense. Having laborers working in the best location with the best tools and whatnot is obviously more productive when taking into account what these laborer's effort and time could be used for. Putting them to use in a good factory in a location closer to where the products are going to makes more sense and is basically more productive than putting them to use in a poor factory. Taking the unemployed, (who were in many cases previously skilled laborers), and putting them to use in the many closed down factories (thus avoiding so many of the costs you mentioned earlier) of America simply makes more sense for productivity. Once these factories are filled to the brim, then perhaps it makes sense to build more factories. Since America's infrastructure is better, it would make more sense to build them in America so long as workers remain. When these or other limits are met, THEN go to Mexico. That is, if you want PRODUCTIVITY.

Now, it is obviously more profitable to use inferior factories in Mexico than the better factories in America, but definitely not more productive.

I will probably return to edit this post to my satisfaction, but for now I am too fatigued.

[Edric O]

One quick point is all I have time for right now:

From the production function it is clear that if either labour or capital are zero no production would take place. The Marginal products of the labour and capital also prove the same point. Therefore both are needed for production process.

Right, but compensation for the owners of capital is only justified if their private ownership of capital is legitimate. If, on the other hand, private property over the means of production is unjustified (which is the case if we take the socialist view that only income from work is rightfully earned income), then the owners of capital deserve nothing.

If we believe that people only deserve the money they worked for - nothing more and nothing less - then the owners of capital deserve no money for the mere fact that they own capital. In fact, they have no right to own capital privately.

[Caid Ivik]

When you speak of justifying ownership, before whom should we justify it? Before affected people, law, conscience, God? I own the brain and hands, which are tools of my work, a capital, as well...