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Wednesday, March 16, 2005
 The Linguistics of Economic Deception

Topic: Semi-random Thoughts
How many times do we hear it: the phrase, "So and so 'earned' X number of dollars last year", or "So and so 'made' X number of dollars"?

This is something that we see and hear every day in every discussion about incomes and the economy, but it's a phrase that is dead wrong in expressing the reality of how incomes work.

Just today, while listening to NPR, I heard a report which stated that while the wage-gap is closing in America, "Blacks, women and other minorities still earn less money than whites for doing the same work".

What they really mean to say, however, is that Blacks, women and other minorities receive less money than whites.

If Blacks, etc., are indeed doing equal work and getting less pay, then in fact they are EARNING more than they are receiving, hence the fact that this is a problem.

The use of the terms "earning money" and "making money", are highly deceptive in American economic language. What is really meant is "receiving money". The difference between "making money" and "receiving money", of course, is substantial, and the use of the terms "earn" and "make" are a part of how the American establishment frames the issue of individual compensation.

The reality is that anyone's income is not a measure of how much value they have created, indeed, it is a measure of how much value they have received, and this distinction is critical.

The easiest way to demonstrate this concept is to think about two hourly employees. Both employees are paid $10 an hour to unload equal sized boxed from trucks. Employee A moves 100 boxes during his shift, and Employee B moves 50 boxes.

If they both work the same amount of time they will both be paid the same amount, but can we say that they both "earned" the same amount, or that they both "made" the same amount?

No, they obviously didn't both add the same amount of value to the economy. Employee A did two times as much work, and thus created two times as much value, but both Employee A and Employee B received the same amount of pay.

If you were to hear an account of their day's work in the American media you would be told that the two employees earned $80 a day.

The reality, of course, is that they aren't both earning $80 a day, all that we know is that both are receiving $80 a day.

Now, the fact is that everyone's income, from the most poorly paid person in the world to the person with the highest income in the world, is nothing more than a measure of value reception, not value creation.

The system, so we are told, is supposed to result in individuals receiving compensation equal to their contribution, but the reality is very far from this. In fact, the reality is that the relative relationships between contribution and compensation have become extremely skewed in America, in some cases by orders of magnitude.

Now, I don't have data on hand to back this up, and I suspect that backing this claim up would require a multi-million dollar study conducted by a team of economists and that such a study would be obstructed significantly by the American wealthy, because the fact is that, on the whole, the American wealthy are receiving many times more value than they are creating, and the American middle-class, the American working poor, and most significantly perhaps, the foreign workers who make American products, are all generally making much more than they are receiving.

The use of these terms, earning and making, in framing economic discussion is significant, and that is why all people who wish to speak accurately must take action to reform our language, and reform our usage of these terms. When discussing incomes it is appropriate to use the term "receive", not "earn" or "make".

What are you going to say the next time someone tells you how much someone "made" last year? Tell them, "You mean they received $X, I'm not really sure how much value they actually created."


Posted by rationalrevolution.net at 6:50 PM EST | Post Comment | View Comments (5) | Permalink
Updated: Thursday, March 17, 2005 9:25 AM EST

Tuesday, March 29, 2005 - 10:35 PM EST

Name: Noel Chrotsky
Home Page: http://dissectright.blogspot.com

What are your thoughts on the LTV?

Wednesday, March 30, 2005 - 7:47 AM EST

Name: rationalrevolution.net
Home Page: http://www.rationalrevolution.net

I'm generally supportive of the LTV, for reasons demonstrated throughout my series on capitalism: http://www.rationalrevolution.net/articles/capitalism_economy.htm

There isn't any inherent contradiction between the LTV and market theory, contrary to what many today seem to claim. I mean first of all the LTV was developed by the classical economists, Adam Smith and David Ricardo, Marx just expanded it to make it properly explain broader price fluctuations.

In Part II of my series on capitalism I actually expanded the LTV even more to account for more price variations, and to show how the LTV can account for things such as the increase in the value of an antique over time.

Regardless, one does not need the LTV to demonstrate the concepts I discussed in this entry. Standard neoclassical economics reveals the same exact reality about incomes and value creation.

As much as neoclassical economists have tried to get rid of all distinctions between different elements of the economy, such as class, or the difference between labor and other mateial resources, etc, the distinction between labor and the products of labor remains even in neoclassical economics, and the distinction between labor markets and product markets also remains.

Thursday, April 14, 2005 - 6:37 AM EDT

Name: Noel Chrotsky
Home Page: http://dissectright.blogspot.com

Thanks for your thoughts.

I'm yet to come across a coherent critique of the LTV that does not involve simple misunderstanding and misrepresentation of the theory. When arguing, I've had 'libertarians' and the like telling me a wage is conceptually the same as a profit, labour exploits capital (ungrateful serfs!), exploitation is just an 'impractical' moralistic term, etc., etc. The most basic flaw in these critiques is the fallacy that the LTV substitutes the concept of supply and demand, and the confusion of value with price. It would be nice to have a critique from someone who has actually digested the theory before forming judgement. I think the critics are more scared of the theory's implications than interested in the details.

Great articles and excellent blog, sir. I've actually downloaded many of your articles to my hard drive, but haven't yet found the time to read them.

Do you plan on having a RSS feed?

Thursday, April 14, 2005 - 8:54 AM EDT

Name: rationalrevolution.net
Home Page: http://www.rationalrevolution.net

I agree. Actually I discuss this a little bit in my section on Marxism, which is hidden in the piece This War Is About So Much More

It's here:

Marxism

Wednesday, March 9, 2011 - 11:12 PM EST

Name: "Skip"

Ya, there are only two classes in a Capitalist economy. The capitalist class, that owns the means of production and the working class, that does not own the means of production.

 

The ruling class always extracts surplus value. Could be from slave labour, confiscating a portion of production or  in Capitalism's case, paying a person less then the value they create.

 

That's how it works.  You get paid for your ability to work (labour power) and not for your labour.

 

The example would be, you get paid $10 an hour to run a shoe making machine. But in one hour you produce $1000 worth of shoes on the machine.

  That means the Capitalist would extract $990 of value from you.

 

Of course the Capitalist would have to pay for the up keep of production costs from that. But essentially, because the Capitalist own the means of production, they dictate the terms of it's use.

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