The Factors of Production
Without understanding the terminology and the associated definitions as ideology uses, it is impossible to understand the ideology itself. Geo-mutualism is no exception to this rule. Some of the more important terms that geo-mutualists may use relate to matters of economics, particularly what are called the factors of production and their returns.
A factor of production is an element of creating goods and services. These include land, labor, and capital. Two of these factors are absolutely necessary to production—land and labor—while it is quite unthinkable today to go without the third, capital. All economic production is done with a combination of these factors, and none other.
Labor includes all human time or effort, mental and manual. This includes strenuous forms of labor, and passive forms of labor, which merely take up one’s time.
Land includes all natural resources which are untouched by human hands, or reclaimed by the wilderness. As a factor of economic production, land includes more than just dirt, but also air, water, and wild plants and animals. It also includes things which have been abandoned or lost by humans.
Capital includes any mixture of the other forms of production, which has not been reclaimed by nature, or which has been claimed back from nature. In classical economics, unlike common Marxian jargon of today, capital includes more than productive property, but all goods, moveable and otherwise, such as gardens, orchards, domesticated animals, houses, machinery, factories, and more. Anything which has been created by, tended to, cared for, claimed by, etc. human hands—that is, any land mixed with labor— is considered a form of capital.
The Returns to the Factors
According to the classical economists, each of these factors of production received a particular kind of return. These included wages, rent, and interest. Then there was profit and taxes, which were particular forms of wages and rent.
Wages were the return to labor, which included any of the human efforts described above. Today this would include various forms of salaries, unit production pay, and hourly pay. Any payment to someone for taking up their time, skill, energy, etc. is a wage.
Rent is the return to land. We are used to rent referring to the payment for borrowing something, but rent does not include the payment for the use of capital—such as houses or buildings—, but only natural resources, such as space or “natural capital.” Rent does include payments made to another person to use a piece of land, but it also includes the return to the user of the land. For instance, a person with better land—either due to having better soil, better location, or what have you— will make more sales—from their better fertility, better exposure to customers, etc.— or otherwise enjoy its use more, and this added value is called rent, even if they don’t let another person use their current location. This difference is, however, the reason a piece of land can be leased to another at a price. Without this rental value, the land would not be leased at a price. When one pays rent to a landlord, they are making up for the production or enjoyment he or she could otherwise have on the piece of land were they to use it directly.
Interest is the return to capital. When one rents their home, some of this payment—that which is paid for the land—is true rent, while some of it—that paid for the house and other capital improvements— is properly interest. Similar to rent, interest includes the difference between the productivity or desirability of capital goods. If a capital good has extra value— most likely due to its ability to increase production—, it can be loaned out or sold, and the return for this, above the amount of labor put into it, is called interest. It is important to remember that wages cover all necessary costs of labor involved in the production of a capital good, and so not all sales or loans of capital goods at a price are sufficient to be deemed interest, but only those which receive a return above the wages of labor. Adam Smith, the father of modern economics, suggested that the worker’s product was their natural wage. Interest, however, is the positive difference in productivity between two pieces of capital which aid production; if one machine produces better, it earns interest. If they all produce the same, they are merely the means by which a worker earns their wages. A worker without the proper means cannot enter the market, however, and so interest is also gained by capital to the degree it is hard to acquire, and, in the case of natural monopolies, to the degree it is not a single or established provider in a market that requires economies of scale, or which has high switching costs.
Money and Interest on Money
We are used to using the word interest to refer to payments for the use of money. This is because money is associated with capital, and can rightly be thought to represent the total value of the capital it represents, interest and all. However, money performs a function beyond capital, and can receive a return not as capital alone, but as means of exchange.
It is only because money is associated with the ability to gain the productive capacity of capital that its return is called interest, but the return to money— outside of representing the total value of the capital which it backs— is due to an entirely different function which it serves, as a means of exchange. A means of exchange is what it sounds like, it is the things that allows for trade to happen. Without a means of exchange, problems with equivalency of value, double coincidence of wants, and other well-known problems occur. “Gifting” (involuntary debt) and barter are primitive solutions to this problem, but they only allow for the most limited of exchanges, as one can only keep up with so many faces or make so many equivalent trades. The return due to the lending of money is not entirely the interest on the capital it is backed by, but its function as a means of exchange, which is another matter altogether. This being so, the return to money is not to be confused with the return to the capital which it represents.
Taxes, Profits, and the “Wage System”
Two other terms that classical economists use, outside of the returns to the factors of production, are taxes and profit.
Taxes are compulsory payments that are not matters of justice, but which are arbitrary in nature. A tax, by its very nature, is non-compensatory in nature, but is instead taken for the use of government spending. The most prolific form of tax in history was the compulsory payment of rent to warlords, which began first as corvée, or forced labor, and later became an involuntary tithe. Taxes started out as rent, and rent continues today to be a form of taxation, though indirectly so. The only reason rent is not commonly understood to be a form of taxation is because there are many tiers of landlords, and some are bigger than others. The biggest landlord—the government—gets the privilege of calling their rent taxes. However, taxes have often included more than rental payments, and may also be taken from interest or wages, beyond the amount of rent paid. Indeed, rental payments are composed of wages, but taxes may go beyond the rental amount.
Profit is a return that is greater than cost. In other words, profit is a payment that is higher than the amount it takes to keep one’s business running. We may occasionally hear a friend offer us something “at cost,” and by that they mean at the price they paid for it, minus the effort they put in. However, if they are not including their own effort into the price, as a wage, they are actually selling under cost. Cost includes wages. In fact, true cost—voluntary cost—is only composed of wages all the way down the line of production and distribution. When your friend offers you an item at cost—their labor aside for the moment—, and this includes items they had to purchase, these items themselves are only a cost because it was necessary to compensate the workers to make the item. Cost price includes only this amount, the wages necessary for work to get done, and does not include profit. Profit is an amount above cost. Cost is effort, labor, and the return to labor is wages, not profit. Profit is gained from having monopoly privileges. All rent and interest are forms of profit, while some, but not all, profit can be produced from labor, such as the profit “earned” by a doctor, lawyer, or professor who have exclusive licenses to provide their “services.”
It is common for anarchists and left socialists to talk about “abolishing the wage system.” Amongst communists, this may literally translate to the abolition of money, and the abolition of the worker’s right to retain their product (which, if you remember, is their natural wage, according to Adam Smith). However, amongst others, the “wage system” refers to the system in which an employer, who has an exclusive license or privately owns capital, “rents” that capital to workers, or otherwise employs them, and pays them a portion of the income while keeping the rest. The keeping of the extra portion is called “profiting,” because it has not been worked for, but is instead due to the employer’s privileges. Some of this profit may be rent, interest, or even wages gouged from some of the more desperate among the working class. It is important to remember that when talking about wages as a return to labor as a factor of production that we are not talking about a specific relationship, “the wage system,” but about the outcomes due to using the factor of labor in the use of production. This being so, one can support “the abolition of the wage system”—the end of employer/employee relations in which the boss takes the meat and the workers take the bones— while at the same time supporting the right of the worker to retain their wages. In many cases, certainly outside of communism, this entails the same fight. If one’s intentions are to ascribe the worker the full right to retain their product, this entails eliminating “the wage system” while supporting the workers’ right to their wages. The “wage system” is the system by which bosses gouge workers of their wages, as much of the boss’s profits are composed of the worker’s wages. This persists due to their inability to work elsewhere (without a similar or lesser deal, or potentially high switching costs).
Monopoly, Competition, and Bilateralism
A market is a relationship between buyers and sellers, using money as a means of exchange. There are two poles that a market can take, and these poles exist for both buyer and seller. These poles are monopoly and competition.
Competition describes a situation in which buyers and sellers rigorously compete to get better prices. Buyers always want low prices, and sellers always want high prices. Competition depends on many buyers and many sellers each competing for the price they want most, which eventually settles at an equilibrium price equal to cost, the wages of those selling the goods and services. An equilibrium price is a price at which supply and demand meet, the one which is most agreeable to each party.
Monopoly describes a situation in which a seller is able to provide a good or service without competition, while a monopsony describes the same for a buyer. They can both loosely be referred to as monopoly in a general sense, however. Due to a monopoly’s lack of competition, a monopoly can begin to control prices as they desire, and can drive prices above or below their natural price, causing shortages or surpluses. Their prices are outside of equilibrium, and outside of cost. Only monopolies can receive a profit or demand taxes.
Markets can exist anywhere between perfect competition to monopolistic competition to oligopoly to absolute monopoly.
Bilateral monopoly describes a situation in which a monopoly is met by a monopsony, or vice versa, and equilibrium cost price is once again established between them. Similar to the competition of individuals, which balances the desires of buyers and sellers, bilateral monopoly balances the desires of monopolies and monopsonies. In the case that a profit is generated in a bilateral monopoly, it is given back to the consumers, often in the form of a dividend.
The Mutualist Cost Principle and the Right of Increase
In regard to a theory of prices, mutualists speak the language of the cost principle and one’s right of increase. The mutual cost principle refers to the maxim that cost is the proper limit of prices, which means that any return outside of wages—any return which is not due to work— is unfair or inefficient. These prices, profit, interest, rent, and taxes, could also be called increase. The right of increase refers to the ability of the government, a private lender, an owner of land or capital, or a holder of an exclusive license, to extract unearned income from workers and consumers.
The cost principle suggests that prices are dictated by costs, but that they are properly dictated by costs alone. In other words, labor is the only factor of production truly worthy of compensation. Any return that is not due to labor is due to a monopoly which has been protected by government, such as exclusive rights to land or licensing. One’s right of increase is attached directly to their government-granted privileges, and without these privileges—which are the source of the monopolies’ power— monopolies would be defanged. However, it is easier said than done, because the government itself is a monopoly, and until it is challenged none of the others can be. They are all subsidiary to government. Without government, taxes, interest, rent, and profit could not exist, but government exists because the population lacks confidence, values, and cohesion.
Some like to argue that if an individual receives nothing but cost for their labor that there is no reason to make exchanges, and that profit is necessary. This is pure lack of logic or misunderstanding, as workers see much necessity in their wages more making exchanges. Even if each worker were to be paid exactly the same, there would be situations in which comparative advantage, division of labor, or economies of scale became an advantage for them. Comparative advantage describes a situation in which tasks are allocated according to opportunity costs; in other words, from people being placed in their most productive places. Division of labor describes the separation of tasks and the ability to specialize. Economies of scale describes the benefits of doing things in large batches, or in a large group. All of these, in the proper conditions, have benefits, and none of these benefits rely on profit, interest, taxes, or rent. These benefits are all transferred to wages. Wages alone can keep the economy in motion, and as the economy develops, everyone’s access to wealth rises.
Back to the Labor Theory of Value
The cost principle is based upon the labor theory of value, the idea that labor is the only thing that legitimately gives an item value in a human economy. Mutualists believe that an economy free of compulsion and violence would also be free of unilateral monopolies, and thus taxes, profit, and privatized interest and rent, and instead would promote a society full of wealth, in which everyone receives the full value of their labor, retains their natural wage.
Some would like to challenge the labor theory of value on the grounds that labor, in and of itself, has no value, that I can work all day, breaking a sweat but doing nothing useful. This is a very true, but very misguided, challenge to the labor theory of value. The labor theory of value does not propose that labor is intrinsically valuable, but that the limit to an item’s value is the amount of labor that would be necessary to reproduce or replace the item. That is, a rational consumer will not pay more for an item than the amount of time and effort it would take to do the work themselves. If they can make the thing they want in less time or with less effort than it would take to earn the wages necessary to make the purchase, they will not freely make the purchase. If a rational worker will not receive at least their labor’s value for an item (except as a marketing scheme or such, in which case they could be said to be a consumer of consumers), they will not freely make a sale. This is what the labor theory of value means, and it has nothing in it to contradict marginal or subjective theories of value whatsoever. Labor is cost, and cost—effort— is subjective.
We have discussed the three factors of production—land, labor, and capital—and their related returns—rent, wages, and interest—, as well as profit and taxes. There are two others I would like to bring up briefly, as they are distinctions that I find important. These are premium and yield. These are important distinctions for me, because I believe they can allow for a fuller discussion for geo-mutualists.
By premium, I mean that return that is gained by an entrepreneur through their inventive use of new capital in production which occur before the market adjusts and the technology becomes widespread, and which is not the result of government privileges, such as patent rights, licensing, subsidies, tax breaks, etc. This is a pertinent distinction, because it is important not to confuse this high return to the entrepreneur as profit. Remember, profit is a return that is above cost, and cost is labor, specifically the amount of labor necessary to do the job for one’s self. This being so, the high returns to the inventive entrepreneur—unless they are due to government privileges—are not profit. However, it is not classically wages, either. Classically, it is considered interest. This term clashes with our mutualist senses, until we study a bit further, to find that, at times, the arguments of the mutualists are refined to suggest the absence of, not all, but excessive interest, profit, or rent, which they refer to sometimes collectively as usury. This becomes confusing, however, when mutualists argue generally against interest, but make exceptions. Part of the issue is that the return to the entrepreneur, while due to capital, is not above cost, and so the entrepreneur’s return is just as much due to labor, a sort of economic paradox. That is—short of government privilege—, the entrepreneur’s success is restricted by cost, or labor—others’ inability to do what they are doing with less effort—, but is expressed in capital. This being so, the return is a hybrid wage-interest, which I call premium. This way, a hard and consistent attack can be made against interest and profit.
By yield, I am referring to that portion of wealth which is created by land, but which is not rent. This includes classical wages and interest, collectively. Any portion of economic production which is not rent is considered to be yield, and when the rent is collected by the community and redistributed, it can also be considered yield.
With these definitions in place, we can understand a little more symmetrically, that:
|Factor of Production||Just Return||Unjust Return|
The just or fair returns—those that do not require state compulsion to exist— include the yield provided by the land, the wages of labor, and the premium of the entrepreneur’s capital. The unjust or unfair returns—those that do require state compulsion to exist— include the rent of the land, profit on labor, and interest on capital. The privatization of rent depends on the externalization of property protection costs, profit on labor depends on exclusive licensing, and interest on capital depends on patents, externalized property protection, licensing, subsidies, and more.
Geo-mutualist economics is an attempt at a thorough and consistent application of the sole intentions behind the cost-principle and the labor theory of value. The aim of the geo-mutualist is to internalize all costs in the economy, so that everyone lives at their own cost, and imposes their costs onto none other. This is the grand and most classic ideal of anarchy, the governing of none, as to govern another is nothing more than to make them take up one’s cost for one’s benefit or amusement.
In order to achieve its ends, geo-mutualism seeks to socialize land and its rent, put capital under competition or bilateral control to get rid of or socialize interest, and put labor under competition to get rid of profit. This is essentially the program of rolling back the state.