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Quotation of the Day…

… is from page 59 of Edwin Cannan’s 1914 book, Wealth: A Brief Explanation of the Causes of Economic Wealth:

The present organization of industry is sometimes described as capitalistic, and the term is quite properly applied, if all that is meant by it is that in our part of the world the greater part of industry and property is immediately controlled by persons and institutions whose object is to make a profit on their capital. In Western Europe and America it is certain that the majority of workers work as they are directed to work by persons and bodies of persons who employ them in order to make a profit by getting more than they pay for all expenses, and who reckon the profit as a percentage on their capital. The greater part of the property is also in the hands of such persons and institutions. But we are not to conclude from this that these persons and institutions exercise any really spontaneous control over mankind and the useful things upon the face of the earth. They are only intermediaries between the consumer on the one side and the persons whose work and property is necessary for production on the other. They can only get their profits in consequence of a careful attention to value which compels them to agree on the one side with the consumer with means, and on the other with the workers whom they employ and the owners whose property they use. Their profit is dependent on the price the consumer with means will give, and on the prices at which they can obtain the things and services necessary for the production. If the consumers for any reason choose to place a lower value on some commodity or service which is being produced by “capitalistic” methods, the profits fall off, and all or some of the persons, firms, or companies engaged in the trade are compelled, or at the least find it better, to reduce their output. And the same thing happens if, on the other hand, the value of some of the necessary elements of the production rises: profits are reduced until the amount produced is cut down, so that a rise in its price takes place.

DBx: Yes.

Thomas Piketty and his fans are mistaken when they assert that the value of capital “tends to grow mechanically,” as in independently (1) of the creativity, risk-taking, and on-going effort of owners of business firms, and of (2) the desires and options of individuals acting in their capacities as consumers and as workers.