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Makers vs. takers?

from David Ruccio

Like many liberal economic nationalists, who are concerned about both inequality and economic growth, Michael Lind attempts to make a distinction between “takers” and “makers.”

As against conservative economic nationalists, who blame immigrants and the welfare-dependent poor, Lind focuses his attention on the “rent-extracting, unproductive rich” for undermining the dynamism and fairness of contemporary capitalism.

The term “rent” in this context refers to more than payments to your landlords. . . “Profits” from the sale of goods or services in a free market are different from “rents” extracted from the public by monopolists in various kinds. Unlike profits, rents tend to be based on recurrent fees rather than sales to ever-changing consumers. While productive capitalists — “industrialists,” to use the old-fashioned term — need to be active and entrepreneurial in order to keep ahead of the competition, “rentiers” (the term for people whose income comes from rents, rather than profits) can enjoy a perpetual stream of income even if they are completely passive.

This is a familiar trope within economic discourse. As I’ve explained before (e.g., here and here), it relies on a distinction between productive and unproductive economic activities, which is then overlain with other dichotomies: active vs. passive, doing vs. owning, and so on. The idea is that one group—the passive, owning, recipients of rent—increasingly serve as a drag on the other group—the active, doing, recipients of profits.  

If one or more of the sectors providing inputs or infrastructure to productive industry charges excessive rents, then industry can be strangled.  Industry cannot flourish if too much rent is paid to landlords, if credit is too expensive, if excessive copyright protections stifle the diffusion of technology. . .

All of this suggests that, if we want a technology-driven, highly productive economy, we should encourage profit-making productive enterprises while cracking down on rent-extracting monopolies, whether they are natural products of geography and geology (real estate and energy and energy and mineral deposits) or artificial (chartered banks, professional licensing associations, labor unions, patents and copyrights). This is a valid distinction between “makers” and “takers.”

fredgraph

Basically, Lind is privileging the profits that are received by productive capitalists from their supposed doing activities (the blue line in the chart above) and calling into question the profits that are received through the rent-seeking activities of financial capitalists (the red line in the chart above).

It’s a powerful idea, and one that—after the spectacular crash of 2007-08, the subsequent bailout of Wall Street, and the uneven recovery since then—stands to garner a great deal of attention and sympathy.

There are, however, two fundamental problems with Lind’s distinction between profit-oriented makers and rent-seeking takers.

First, Lind presumes that industrial capitalists would do more—more investing, and thus more job creating, more growth, and so on—if they had to pay lower rents to others, including rent-taking financial capitalists. While it is certainly the case that “industrialists” would have higher retained earnings if they distributed less of their profits in the form of rents (not only financial charges but also, as Lind explains, taxes, union wages, oil rents, healthcare premia, and so on), there’s no guarantee they would actually invest or accumulate more capital with those profits.

That is precisely the specter that is created when, as I explained the other day, the capitalist machine is broken. In recent decades, investment has increased much less than profits, thus calling into question the pact with the devil that historically has stood at the center of capitalism. Lind may be an economic nationalist but the industrialists he champions are not, and never have been.

The second problem is that Lind never offers an adequate explanation of where the profits of those industrial capitalists come from. He merely presumes they are the fair return to entrepreneurial, making activities.

But who is doing all that making—and who are the ones getting the profits? Non-financial corporate profits represent the extra value workers create during the course of producing commodities (both goods and services). The workers receive wages (more or less equal to the value of their labor power) and their employers receive the extra or surplus value those workers create (above and beyond the value of labor power). In other words, the profits of industrial capitalists stem from the exploitation of productive workers.

The surplus appropriated by the boards of directors of industrial capitalist enterprises is, in turn, distributed. One portion remains within those enterprises (in the form of retained earnings, executive and supervisory salaries, expenditures on new equipment and software, the hiring of additional workers, and so on), while another portion is distributed outside them (to shareholders, finance capitalists, merchants, the government, and so on). All of those payments—some of which Lind characterizes as profits, others as rents—represent distributions of the surplus.

In the end, then, there is no valid distinction between makers and takers. The appropriators of the surplus make nothing—and everyone who gets a cut of the surplus, in both industrial and financial enterprises, is a taker.

They are all, in Lind’s language, rich moochers who hurt America.

  1. January 14, 2017 at 8:45 pm

    “In the end, then, there is no valid distinction between makers and takers.”

    In some cases there is overlap of making and taking, but there are also clear cut cases of just taking, for example financial speculation, HFT and similar strategies of Just playing the system. Monopolies establish not such a clear difference between making and taking but but rather increase taking without precluding making. Addressing the clear cut Just Taking activities may be a good start.

  2. January 15, 2017 at 8:59 am

    From an ecological economist’s point of view, the distinction between entrepreneurs and rentiers is quite simple and stark, at least conceptually.
    I readily admit that it is still difficult to find an operationally successful methodology for isolating (i.e. measuring) rent, even from our point of view.

    Firstly, one always has to adjust accounting net income of any enterprise to get an aggregate of “economic profit + rent” by substituting ex-ante, opportunity cost values for any ex-post values used in accounting standards. Enterprise-level financial accountants often need to trade-off economic relevance for “reliability” (a.k.a. procedural verifiability) and this is often achieved by using less relevant, but observable ex-post cash-flows, or accruals calculated a bit mechanistically, from ex-post data.

    Then one has to distinguish what is earned from from legally-privileged access to natural resources in relatively inelastic supply, from entrepreneurial and labour inputs that are in a much more elastic and competitive supply. This is conceptually simple – the distinction between rent and profit was a fundamental one in the classical economics of the Physiocrats, Adam Smith, David Ricardo, T.R. Malthus, James Mill and J.S. Mill – and it is a distinction that is conceptually vital in the ecological economics approach. There are operational difficulties, however, at this second stage too.

    Nonetheless, political economists who find the Marxian analysis of appropriation of surplus from a dis-empowered social class by a social class that is (differentially) empowered by its ownership of the means of production, a highly enlightening one; might perhaps see greater relevance in the rent-profit distinction we inherited from classical economics through a simple heuristic device I am about to suggest. Imagine for a moment, that there was a third non-human, economic class, besides capitalists and workers in the “class struggle”, namely wildlife that makes its living in subsistence fashion, from natural ecosystems undisturbed by human harvesting and industrialized extraction technologies. “Rents” then, would be that portion of the aggregate of “economic profit + rent” (arrived at by suitably adjusting accounting income as discussed above) that represent “surplus value” expropriated from this third economic class, by first impoverishing, then decimating and finally exterminating it by displacement if not by deliberate extermination. One could even argue that indigenous societies that use traditional “lower-tech” hunter-gatherer techniques but also recognize finite ecosystem yields, in their spiritual values and in their socio-economic organization, are more closely part of this “third” class than they are part of the capitalist or labouring classes of the industrial economy.

    For economics to be sane in the long run, rather than insane, as so much mainstream modern macroeconomics seems to be whenever it takes on a normative hue, a distinction MUST be made conceptually, and also somehow operationalized, between “making” and/or “taking” that is sustainable in the long-run, and that which is not. These limits come from biophysical “facts of life” that cannot be wished away. Even in the long run, ingenuity and human labour, are inputs in fairly elastic supply. Abiotic natural capital (minerals and hydrocarbons in liquid and gaseous form), biotic natural capital and ecosystem services are not. Abiotic resources are only elastic in the limited sense that as-yet unextracted elements of a finite stock are, rather arbitrarily, not considered part of the physical supply. Domestication of animal species may suggest that some forms of biotic natural capital can be made much more elastic in supply than undomesticated species through the domestication process, but as we see from the enormous collateral ecosystem damage wrought by industrialized animal “husbandry”, this is merely a short-run illusion. And in the long run, even the elasticity of the human labour supply has its limits, because the human carrying capacity of Planet Earth is not infinite.

    I am not at all convinced that we would do well to abandon the conceptual distinction between rent and profit that we inherited from classical economics, just to win a short-term ideological argument for a more egalitarian distribution of wealth and income among human beings, worthy as that goal might be. Thought-dominance by the neoclassical approach to microeconomics over the last almost 150 years, has blurred the rent-profit distinction to a dangerous degree. It is disturbing to see socially-progressive economists seemingly jumping on that unfortunate bandwagon, when maintaining the distinction seems so vital to us developing ecologically-sane economic policies.

    Michael Barkusky
    Pacific Institute for Ecological Economics
    Vancouver BC Canada

  3. William Yohai
    January 15, 2017 at 7:58 pm

    After all there is not an absolute barrier between “rentier” capitalists and “productive” ones. In the real world all capitalists share both conditions. Most of all of them are owners of land (urban or rural) for the sake of rent seeking and capital appreciation and most own some kind of “productive” interests, be it through shares of companies or directly.

  4. January 16, 2017 at 7:01 am

    You say:
    “The surplus appropriated by the boards of directors of industrial capitalist enterprises is, in turn, distributed. One portion remains within those enterprises (in the form of retained earnings, executive and supervisory salaries, expenditures on new equipment and software, the hiring of additional workers, and so on), while another portion is distributed outside them (to shareholders, finance capitalists, merchants, the government, and so on).”

    But in fact a large part of the problem is that these are not “outside” parties at all, but C-suite executives getting paid in stock, government included – which owns a plurality of shares through pension and sovereign wealth funds. It also includes revolving door bureaucrats/financiers from Goldman Sachs etc. who make sure the surplus – which is not just based on labor but also on debt-leveraging, as Michael Hudson and others make clear, goes to them and others in the 1% rentier class.

    Today’s inequality goes far beyond exploitation of the labor class to exploitation of Earth’s resources, and even parasitic destruction of the very enterprises that capitalists have built up over generations. It is, as Hudson so aptly puts it, the parasite killing the host.

  5. January 17, 2017 at 9:17 am

    How can one provide a distinction when both takers and makers are the one. And even if you come with certain hypothesis about this classification, it can not help in deriving some good.

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