Author: Flash

Jeff Bezos Handy Wealth Comparitor

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Just how wealthy is Jeff Bezos? Turns out he’s so wealthy that it’s hard to apply any context… but we’ll try.

Attempt #1 – Pixels

A 4K screen is needed in order to properly resolve this graphic. At the tip of the leftmost red arrow is a single black pixel, which represents the median net worth of someone in the first world. At the tip of the other red arrow is a tiny purple block, which represents a net worth of $1M. The blue block represents the net worth of a billionaire. It wasn’t possible to represent the median net worth of someone in the third world as that would have resulted in an unworkable file size, far beyond the resolution of any graphics display that currently exists. But you get the idea.

download to zoom in properly so you can actually read this

Attempt #2 – Arson

If two workers were employed full-time, with both tasked to burn $1 million every hour, then it would take them over 48 years (40 hours a week and 46 weeks per year) to incinerate Jeff’s fortune. That’s their entire working lives! At US minimum wage it would cost $1.29 million just to get the job done. No shit.

this pile isn’t even close to a million bucks

Attempt #3 – Rice

One guy did it with rice, but that was back when Jeff was only worth $122Bn, and now he’s worth $178Bn… still gives you some idea though… if you just imagine adding another whole sack.

Attempt #4 – Time

The median US citizen would have to labour for over 3 million years (this is without spending any of their salary), in order to amass a fortune comparable Jeff’s. The median citizen of the world in general, would have to labour for almost 40 million years to accumulate that amount… some 200x longer than the 200,000 years or so that humans have walked the earth, almost ⅔ of the time elapsed since the Jurassic period.

Mike’s first day at work 40 million years ago

Attempt #5 – Cocaine

imagine if your nostrils were this big

If the median 35 year old US citizen invested their entire net worth in cocaine, then they’d be able to afford around a third of a kilo (street value). By way of comparison a $178Bn stash would weigh as much as a medium sized aircraft carrier. And “no” we have absolutely no idea how long that would take to snort, but guys in the second example would most certainly incinerate all that money quicker than you could inhale it.

“Learn Economics!“

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Many of those who exhort others to “learn economics” barely grasp marginalism, as can readily be verified by posing the following simple question:

“Is the value of a capital good subjective?”

To which your typical poorly read laissez-faire ideologue will parrot something along the lines of:

All value is subjective. There is no way to objectively ascribe value to anything. A million tons of gold could be worth a lot or worth nothing, depending on the factors at play.

OK then…

That sort of answer belies confusion around the meaning of the term “objective”.

objective is a matter of perception

When an entrepreneur assesses a machine, although not in possession of perfect information, that assessment is being made as objectively as possible. The entrepreneur is not deciding whether the machine is nice looking, pleasant sounding, or tasty… but rather attempting to calculate how much money it will make. While different entrepreneurs might reach different conclusions, they are each attempting to be as an objective as possible in doing so. Furthermore there’s no requirement for an objective analyses to be 100% accurate! Being objective isn’t synonymous with being right. It’s about being free from feelings and bias.

More crucially:

At the end of a machine’s life, when all its utility has been realised, it’s possible to precisely determine how profitable it has been in retrospect, by deducting its purchase price and lifetime running costs from its total productivity plus whatever can be realised for it as scrap. This is objectively the value realised from that capital good expressed in monetary terms.

Not only is this evidently the correct answer, it doesn’t actually contradict the STV.

This misconception around how capital goods are valued highlights a common misinterpretation of the Subjective Theory of Value, and also economics in general. It’s usually indicative of someone who imagines that there’s very little overlap between the various schools of economics, when in fact they all treat capital goods much the same way, take for instance Austrians vs Marxians

The Austrian View

lots of Austrian economists

The situation with capital goods differs from that of consumer goods in that capital goods are used for making money, therefore their utility can literally be measured in money. A rational entrepreneur will weigh up the productivity of the equipment verses its lifespan, running costs, service intervals, and maintenance costs. These factors can generally be gleaned from the specification, so the entrepreneur will objectively select whichever option can deliver the highest profitability for whatever outlay falls within budget, whilst also taking any other aspects such as the form factor into account.

Although the relative value of a capital good is objectively determined by profitability, the price paid for it remains dependent on supply and demand.

The Marxian View

Karl Marx & Friedrich Engels

When people purchase goods they are doing so to use them, and use value (utility) is subjective to the individual’s particular needs and aspirations. The exchange value (price paid) can objectively be measured in money, for example if someone pays $500 for a product then any observer would objectively agree that $500 had been paid.

Capital goods are used in production, therefore their use value can be quantified in money. A capitalist will weigh up the productivity of the machine verses its lifespan, running costs, service intervals, and maintenance costs. Assuming all of these can be calculated and for comparable machines, then the capitalist will objectively select whichever one generates the highest rate of profit for whatever outlay falls within their budget, whilst taking account of physical factors such as the space they have available in which to house it.

It’s important to comprehend that while the use value of a capital good is objectively determined by its rate of profit, the exchange value for that rate of profit is in turn dependent on the demand for whatever is being produced.

Subjective Exceptions

If an entrepreneur/capitalist were to irrationally select a capital good based on its colour or how it smelled then they’d invariably be outcompeted by other more rational actors. Those subjective factors only come into play where the products are objectively equal in all other respects, and this is seldom the case. For this reason comparable capital goods tend to appear a lot more homogenous, since there’s far less commercial advantage to be gained from investing in their looks.

looks can be important dependant on the setting

There are also some exceptions to this. For example if a restaurant has its coffee machine on display then greater consideration would be given to style.

Competing Theories of Value

is value subjective or does it depend on labour?

Reading through both explanations should highlight something that anyone who has actually bothered to learn economics will already be aware of: Menger and Marx don’t actually disagree on the nature of what’s occurring, they just explain it in different ways.

marginal utility

Since most “learn economics” types have never read any economics beyond basic marginalism, they tend conflate explanations of utility (use value) with the competing theories of STV and LTV… so for the absolute avoidance of doubt all economists (yup, including Marx) share the orthodox view that the prices of goods arise from market forces. This has never been even remotely controversial.

is value subjective?

The STV is not about the value of everything being subjective, which is how “learn economics” types understand it. It’s about how market prices (exchange values) are ultimately dependent on the marginal utility of goods.

As highlighted above by von Mises, Austrian economists theorise that the utility (use value) of a good is perfectly synonymous with its market price (exchange value). This is the Subjective Theory of Value. However, as we’ve just seen, in the instance of capital goods the market price is tethered to profitability; anything profitable has a non-zero value that increases linearly with said profitability. Austrians are thus highlighting that:

  1. …the profitability of a capital good depends on the utility of whatever it’s producing…
  2. …and on its purchase price…
  3. …which in turn depends on how much entrepreneurs are prepared to invest in order to achieve said rate of profit…

…which brings us back to the first point. Damn!

There’s an easy way to exit this circular reasoning though – since capital goods only exist to produce consumer goods for profit, the utility of a capital good does not arise by its consumption. Very few people purchase a lathe for entertainment or to act as an ornament. The purpose of a capital good is to make money, so it can be objectively valued on how much money it’s likely to make/is making/did in fact make, at any given moment in time.

Carl Menger
Founder of the Austrian School
Architect of the Subjective Theory of Value

So there you have it in the words of Menger himself (click on his photo for the full text). How valuable is my tractor today? Well it made me $500 after taking account of operating costs and depreciation. That’s an objective measurement, one that can be itemised on a balance sheet.

The basis of STV is that all value is dependent on the marginal utility of consumer goods (and services), which also impacts on the profitability of capital goods since this is dependent on the prices consumer goods are being exchanged for. STV is far more complex that the glib assertion that “all value is subjective”. A more accurate way of phrasing it is “all value arises subjectively”, because that’s the phenomenon that the theory is actually describing.

Classical and Marxian advocates of the Labour Theory of Value suggest that the value of a product can instead be measured according to the hours of socially necessary labour time needed to efficiently produce it.

or is value derived from labour?

The basis of this belief being that where the decision was taken to manufacture something, then someone must have persuaded workers to manufacture not only that product but consequentially all the components needed for assembly, and also to mine and refine all the raw materials that go into those. Since that would have entailed financially compensating numerous workers throughout the supply chain for the hours they variously expended on doing so, the instigator of this process must have perceived it to be worth the effort. LTV is therefore figurative in the sense that it can notionally assign value to anything, irrespective of commercial viability, based on the socially necessary labour time required to manufacture it.

value is a matter of perspective

According to LTV a good is only viable if consumers feel that it’s worth exchanging at least as much of their own labour for it, as went into producing it. LTV is predicated on socially necessary labour time rather than money, which is why it’s more applicable in scenarios such as mutualism and collectivism where money is eschewed in favour of labour vouchers.

LTV considers value from the perspective of manufacturing a good, while STV considers value from the perspective of marketing a good. Setting logical fallacies aside, there isn’t a right way of looking at this, it’s merely a case of chicken and egg.

The Exergy Theory of Value

The problem with applying STV or LTV to production is that both ignore the impact of the second law of thermodynamics, by assuming that natural resources are ‘free’ to whomever has claimed them, rather than accounting for those as finite. STV even goes so far as to ignores the energy expended by labour.

Rather than opting to quantify value in money or labour time, we can instead consider the Joules of energy consumed by the delivery process less energy wasted. This is known as “exergy”.

exergy is energy used less energy wasted

A “million tons of gold” therefore has an absolute non-zero exergy value (it was created by nuclear fusion in a star) that can be quantified in Joules. Likewise should that gold be fashioned into rings then those rings will also possess an exergy value in Joules, a value greater than that of the raw unprocessed gold.

labour without energy is a corpse, capital without energy is a sculpture

The Exergy Theory of Value is consistent with thermodynamics and even has scope to be mathematically validated. As such ETV can be considered the truth per se. This is why many anarchist economists are now advocating ETV, since that has the potential to transform economics from a social science into a physical science, and thereby unify umpteen competing ideological schools into a pragmatic scientific discipline.

The Golden Principle

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Individually we all desire security, and in the absence of a state the only way to obtain any measure of that, is to jointly refrain from doing things that would adversely impact upon one another. We can only be truly free when everyone is equally free, thus anarchy is implicitly bound together by a common desire for social cohesion. This is neatly encapsulated in a tenet known as the Golden Principle. The particular wording of the Golden Principle is the most pertinent to anarchism is:

“Treat someone in accordance with that individual’s views on how others should be treated”

the Golden Principle cuts both ways…

This aspect of egalitarianism relates neither to equality of outcome nor equality of opportunity… but instead to equality of treatment. It necessitates being non-judgemental, respectful of one another, and levelling any social structures intended to uphold inequality.

the “circle E” symbolises order arising from equality (the ‘circle’ represents the letter “O”)

The Golden Principle is not synonymous with the NAP (Non-Aggression Principle), because it frames human relations in terms of respect rather than aggression. Moreover the Golden Principle is intended to work subjectively, and in doing so impels people to consult their conscience and assess how their actions will be perceived by others. This is crucial because it’s entirely possible to adversely impact on someone without overtly aggressing against them, and that’s very risky in a society where security is dependent on harmony rather than who has the biggest gang on their side.

dialogue with the conscience

This then begs the question as to why anyone who professes to desire a free society would then suggest a framework dependent on somehow upholding absenteeism and advocating non-aggression, rather than one predicated on mutual respect? The answer is that such people seek totality of freedom for themselves, as opposed to equality of freedom for everyone… and this includes the freedom to enslave others.

non-aggression maintains inequality

In a society where individual security is dependent on solidarity, absentee ownership is damn insecure thus rendering it non-viable. So called ‘anarcho-capitalists’ have essentially diverged from the pragmatic political theory of how to implement a free society (anarchism), into a fantastical laissez-faire ideology where everyone collectively undertakes never to overthrow their oppressors.

fuck that shit – pitchforks at dawn!

The bottom line is this: usury necessitates a state, not voluntary adherence to a principle. If someone aims to gouge a living from rentseeking, profitseeking, or moneylending then the last thing they should be considering is abolishing the monopoly on force that enables such behaviour. The taxes capitalists resent paying, primarily go towards maintaining coercive social structures that are conducive to their goals.

usury necessitates oppressive structures

Government might seen horribly wasteful, but there’s actually a method to its madness – it’s about conning the oppressed into paying for their own oppression under the illusion of democracy. If someone feels they’re being forced to pay for all this, then it’s because they’re a slave to capitalism, rather than a master of it.

the state exists to uphold rentseeking

There’s a clear choice, and it’s between seeking a free society, and seeking rent. Your call.

The Property Registration Problem in the Anarcho-Capitalist Individualwealth[sic]


Yup, you guessed it, the title of this essay parodies “The Economic Calculation Problem in the Socialist Commonwealth” by Ludwig von Mises. The following text doesn’t attempt to address that particular work, but a comprehensive debunking of the ECP by socialist economist Robin Cox can be found here.

Briefly though… Ancaps love to misconstrue that the calculation problem is somehow applicable to stateless socialism, even though Mises was quite explicit that it wasn’t:

oops… a bit awkward that

As you can see from the quote above, this point is somewhat obscured by Mises insistence on referring to libertarian socialism as “workers’ capitalism”.

But enough of that! Our essay will instead establish why stateless capitalism could never be economically viable, and how attempts to make it so would dispel any notion of it being ‘anarchist’.


The statist implementation of property presently depends on control of cadastral maps and land registers, operating under state monopolies, and underpinned by state enforcement.

a cadastral map delineates private property

In the absence of the state, property rights would instead default to mutual respect and the natural desire for social harmony. This is termed “occupancy & use” or “possession property”, and is a fundamental tenet of anarchism. The rightful occupier/user is whomever is commonly recognised [see note 1] to occupy, possess, or use the asset in question. The onus being on establishing this by peaceful means, and not laying claim to assets that are commonly recognised to be occupied or used by someone else. Disputes can then be settled by negotiation, arbitration, or adjudication, rather than resorting to force.

occupancy & use depends on mutual respect

[NOTE 1: “commonly recognised” infers that property is not automatically deemed to be abandoned the instant an occupier/user is no longer present.]

Laissez- Faire Capitalism

The political theory known as minarchism proposes retaining a minimal state and its related security force (along with the necessary taxation), primarily for the purpose of upholding abstract property rights. Anarcho-capitalism (ancap) is an economic ideology that takes this concept even further by seeking to marry the concept of a stateless society to those same abstract property rights.

ancaps are all about abstract property rights

Abstractions such absentee ownership would be straightforward where there’s an incumbent occupier or user (although if that person is not the owner but is instead a tenant, guard, or employee, then contractual terms would be prudent in order to deter them from assuming possession of the property, or vacating it without notice). Ancaps do however face another significant challenge in peacefully imposing their property norms.


Issues would still arise where a property was left vacant or unused, since it might not be recognised as having a rightful occupier/user.

others might peacefully claim property left vacant

In the case of an absentee landlord, it may well be that neighbouring occupiers are not in fact cognisant of the status of the property in question. They might assume that it’s been abandoned, may be unaware of the landlord’s identity, unwilling to get involved, or simply not prepared to lend assistance to someone they do not experience any meaningful social interaction with.

neighbours look out for one another

The presence of buildings, for rent signs, or passive security measures such as fences and private property notices are not reliable indicators of occupancy, and may degrade, collapse, or go missing due to erosion, natural ingress, or vandalism.

signage is only a deterrent when it appears to be current


In order for capitalists to peacefully uphold abstract property rights within a stateless society, they must either:

A. Convince anticapitalists to voluntarily adhere to capitalist property norms. OK… so what on earth would possess anticapitalists to voluntarily adhere to capitalism? We’re all ears…

B. Persuade anticapitalists to enshrine abstract ownership as a universal human right. Anticapitalists simply aren’t going to agree to enable capitalism. This outcome is so unlikely that it amounts to little more than fantasy.

C. Institute a central register of property owners. The likelihood of anticapitalists consenting to this is extremely remote, given that have serious reservations around abstractions such as absentee ownership in the first place. Furthermore ancaps might even struggle to agree amongst themselves on how a centralised authority would be organised, controlled or funded.

D. Establish a network of private registrars who agree to share data. Since anticapitalists are not only distrustful of absenteeism but utterly detest private for-profit bureaucracy, it seems a bit of a stretch to assume that they would cheerfully participate in a private programme intended to facilitate land hoarding! Without their cooperation any register would lack legitimacy, rendering it utterly devoid of authority.

E. Resort to force to impose A, B, C, or D. This would of course establish that anarcho-capitalism is inherently authoritarian, and not anarchist.

good ideas don’t require force

Of course the obvious solution would be for ancaps to ditch the obsession with various abstractions and simply adopt occupancy & use, since provided that a property is recognised as being occupied (even if said occupant is a tenant, guard, or employee) then nobody else could peacefully establish occupancy of it without the prior consent of the recognised occupant.

The Problem

It’s therefore worth examining what motivates ancaps to insist on universal adherence to capitalist property norms, when all they need do is install tenants or hire guards?

guards are an option

The problem is that much of the planet’s usable landmass is currently vacant but in private ownership. In the US some 59% of all land is in private ownership, most of it vacant, and this situation is upheld by the state. A vast army of tenants and/or guards would be needed to occupy that real estate, several orders of magnitude beyond those presently active in those respective markets.

stats for the US

The tenant/guard solution would therefore massively increase demand for both tenants and guards resulting in a chronic scarcity of both. Rental charges would plummet to the extent that landlords would be reduced to acting as social housing providers. It may even be that tenants could demand a wage, since they’d essentially be functioning as live-in security. And as for actual guards… well such high demand would push the market rate for those into the stratosphere. Ancaps would end up paying to hang onto property, rather than accumulating wealth from owning it, therein defeating their own economic objective. Ergo absenteeism simply isn’t cost effective without a tax funded state and cops to uphold it.

it can be expensive to uphold absenteeism

Even a blind monkey with a glass eye stuffed up its butt can see that stateless capitalism wouldn’t be feasible if landlords had to pay tenants to occupy/use their property. It appears most ancaps are of course fully cognisant of this problem, because why else would they be so shrill and insistent about abstract property rights and the NAP? Lets now examine what would transpire if their attempts to impose capitalist property norms were met with any sort of resistance…


Where an absentee landlord is unable to maintain their claim, then a reasonable view would be “well tough shit – that person is no longer entitled to that property”.

boo hoo

Some capitalists dispute this, and shamelessly suggest that any subsequent initiation of force against a peaceful occupier/user to retake the property would magically constitute self-defence by the absentee landlord. This is clearly delusional though since actual defence of property would never manifest as an assault on it!

but the NAP…

Other capitalists have suggested that a neat way around this issue would be to booby trap absentee property with sentry guns, landmines, incendiary devices, poison gas, Semtex… you name it!

nothing even slightly dystopian about this

Trespassers? No problem they’d be shot to pieces and/or blown to bits! Tenants refusing to pay their rent? Just release the poison gas! Strikers equipped with gas masks occupying the workplace? Well set the damn building alight, or as a last resort blow it all to smithereens! All of this is fully compliant with the NAP, since the other party initiated the aggression!


Abstract ownership on a large scale would be rendered economically non-viable in a stateless society. We’re then left with the disturbing scenario, whereby if capitalists were unable to peacefully impose their property norms, then they’d instead aim to replace government with a dystopian hellscape.

Capitalists are Really Just Energy Vampires

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Capitalism is an economic system where wealth is supposedly accumulated via the ownership of capital.  This essay looks at what capital actually is, and whether the return on a capital investment is really generated by the capital itself, or through the cynical exploitation of workers and consumers.  

Some basic business economics are touched upon, along with Capital Theory, the Cambridge Capital Controversy, the Labour Theory of Property, and the essay even rounds out with a brief introduction to the Exergy Theory of Value. Everything is presented in very simple terms, and anyone with decent arithmetic skills should be capable of following the thrust of it.

Business Economics

Imagine that you are someone with money to invest in a small business, in exchange for a share of the company, in the hope that this will produce a financial return.

the angel investor


You hook up with a guy called Billy who has £5,000 to start a landscaping business, but who needs a total of £10,000 to purchase the equipment (capital goods). The banks wont lend to him because he hasn’t established a credit rating. However, you view Billy as a good risk, so you invest £5,000 in exchange for a 51% share of the landscaping business. One of the conditions in the shareholder’s agreement, is that the business will pay Billy wages at the market rate for whatever labour he performs, and that any surplus achieved beyond that is divested as profit by way of share dividend.

capital goods are used to make money

NOTE – a 51:49% split in favour of investors who are contributing at least half the startup capital is standard practice in order to safeguard their interests. Under the shareholder’s agreement Billy will be reimbursed in wages for any labour he contributes, before the profit is apportioned. If you feel that this is wrong, then feel free to adjust the terms however you see fit, as this largely irrelevant to the matter at hand.

The Return

Here’s what all this means in simple terms: if Billy charges a customer £100 per hour to landscape, which incurs costs of £10 (on stuff like fuel), and sets aside £5 against the business’ fixed overheads (stuff like the telephone bill)… then he can pay himself £50 for an hours labour… leaving a profit of £35 to be split 49/51 between Billy and yourself, netting you a return of £17.85 with Billy receiving a further £17.15 by way of his own dividend in addition to his £50 of wages (meaning Billy receives a combined £67.15 in respect of his wages and share of the business).

calculating the return

The landscaping business averages revenues of £800 per day, 5 days a week, 45 weeks of the year – that’s £180,000 per annum.  This provides you with an annual return of £32,130.  At a 5x PE (price to earnings) ratio (a basic measure of how businesses are valued) your share capital in the landscaping business is now worth £160,650 – and that’s in the ballpark of what Billy would have to offer in order to buy you out and keep all future earnings for himself.

a business is valued on price to earnings ratio

The Capitalist

This is what it means to be a capitalist. An absentee investor need only stay alive to collect the return on their investment. In order to comprehend the nature of capital, we need to look at what actually funds those returns. Is this money for old rope, or is there actual substance to it?

what is the source of profit?

The (mostly) Orthodox View

All economists agree on three primary factors of production: land, labour, and capital.

Orthodox Neoclassical and heterodox Austrian also advance the existence of a fourth factor – entrepreneurship – which encompasses risk, organisation and coordination (and by the Neoclassical definition intellectual property).

All capitalist economists agree that profit either arises from the supply of natural resources that the capitalist owns, from efficiencies derived from the use of equipment that the capitalist owns, and in the case of Neoclassical and Austrian economists, from the positive action of entrepreneurship. Furthermore they advance the notion that the buyers and sellers must be mutually profiting from any voluntary trade otherwise they would be unable to agree a price.

All capitalist economists argue that profit cannot be attributable to waged labour since said wages compensate each worker for their labour.

do returns really arise from capital?

Returning now to Billy’s Landscaping, what is the source of your return. Well Billy is the one supplying the labour and you’ve both agreed that he will be remunerated for that prior to the division of profit. You aren’t suppling any natural resources, and in terms of entrepreneurship the funds that you risked were invested in capital goods, therefore your return must arise from the machinery making Billy’s labour more efficient than it would otherwise be. And even though the tools purchased with your original £5,000 stake will eventually wear out, the gross profit generated by the use of those tools will cover the cost of their replacement, meaning that your capital will persist for as long as the business remains solvent.

replacement capital goods

Capital Theory

While that might appear perfectly reasonable, it’s also dependent on capital being an actual thing in its own right, so precisely what is capital? This subject has been tackled by notable economists such as Eugen von Böhm-Bawerk of the Austrian School. Briefly, capital is a factor that facilitates the production of wealth, through the creation of value. Here’s a good summary on the nature of capital from, which includes this quote:

“What is capital, then? It is composed of three things:

First, of the materials upon which men operate, when these materials have already a value communicated by human effort, which has bestowed upon them the property of exchangeability — wool, flax leather, silk, wood, etc.

Second, instruments that are used for working — tools, machines, ships, carriages, etc.

Third, provisions that are consumed during labor — victuals, fabrics, houses, etc.

Without these things the labor of man would be unproductive and almost void; yet these very things have required much work, especially at first. This is the reason that so much value has been attached to the possession of them, and also that it is perfectly lawful to exchange and to sell them, to make a profit off them if used, to gain remuneration from them if lent.”

defining a unit of capital

Machines/tools that are used commercially (such as a bulldozer, an oil rig, or Billy’s lawnmower) are termed “capital goods”, but as Ludwig von Mises explains here:

“From the notion of capital goods one must clearly distinguish the concept of capital. The concept of capital is the fundamental concept of economic calculation, the foremost mental tool of the conduct of affairs in the market economy. Its correlative is the concept of income”.

What does von Mises mean by that? Well lets run through how capital is calculated, which is standard across all modern schools of economics:

The value of capital can be objectively extrapolated from its rate of profit.

NOTE – If you’re struggling to fathom why the value of capital is objective rather than subjective, then this essay will help clue you in on how the Subjective Theory of Value works. But briefly… Menger (who devised STV), was quite clear from the outset the value of higher order (capital) goods could be extrapolated from their profitability.

Carl Menger
Founder of the Austrian School
Architect of the Subjective Theory of Value

If a machine costs £100,000, has an operational lifespan of 10 years, and incurs £50,000 of running, maintenance and insurance costs over that time period, but its use produces £500,000 of goods or services, then (roughly speaking) its rate of profit is £500,000 goods less £100,000 purchase price less £50,000 operating costs = £350,000 profit over 10 years = ~£35,000 per year.

  • The value of capital can be extrapolated from its rate of profit.

That doesn’t mean that the machine should sell for £350,000 – after all even when brand new it only retailed at £100,000. Instead the rate of profit offers a means of objectively comparing that machine against all other machines, including machines that produce different things, this is possible because capital goods are heterogeneous (meaning they don’t all produce the same stuff). Two machines with the same rate of profit are therefore deemed to possess the same quantity of capital. Likewise a particular mechanical digger may represent a quantity of capital equivalent to that encapsulated by ten picks combined with ten shovels (thus enabling one man to perform the work of twenty).

  • Capital is heterogenous (like apples and pears).

We measure the value of capital in units of money, so £1 would represent one unit of capital.

  • The value of capital is quantified in monetary terms.

The rate of profit on capital is dependent on the quantity of capital.  This means that £10,000 of capital will produce 10x the rate of profit that £1,000 worth of capital does.

  • The rate of profit is dependent on the quantity of capital.

Collating each of those points on the nature of capital:

  1. The value of capital can be extrapolated from its rate of profit.
  2. Capital is heterogenous.
  3. The value of capital is quantified in monetary terms.
  4. The rate of profit is dependent on the quantity of capital.

Aah but… there’s a problem

When we try combining those points on the nature of capital into a cohesive and definitive statement, we arrive at something like this:

The monetary value of capital, can be extrapolated from its rate of profit, which is in turn dependent on the quantity of said capital as measured in money.

Hmm… that’s circular reasoning; we’re trying to calculate the value of capital, from its rate of profit, which then turns out to be dependent on the quantity of the aforementioned capital.  Both are also quantified in monetary terms, so we’re left trying to measure money with… money.

capitalism is predicated on circular reasoning

Capital appears to be an invalid concept, since there doesn’t seem to be any way of quantifying it.  Given that capital goods are only capable of production in the presence of labour, in the absence of any way to measure the value produced by a unit of capital, the capital itself cannot be verified as the source of any returns being generated from its use in production. Uh oh…

The Cambridge Debates

This conundrum is known as the Cambridge Capital Controversy.  Esteemed economists from the neoclassical and post-Keynesian (aka neo-Ricardian) schools, including Robert Solow, Nobel Laureate Paul Samuelson, Joan Robinson, and Piero Sraffa, spent over a decade arguing about whether or not capital was perhaps analogous to ectoplasm… and failed to resolve the issue.  In the end they just gave up, swept the issue under the rug, and carried on as if nothing whatsoever had happened.

the Cambridge debate raged for a decade

Does any of this even matter though?  Well let’s return to Mises’ description of capital, but replace the word “capital” with the phrase “circular reasoning”:

“The concept of circular reasoning is the fundamental concept of economic calculation, the foremost mental tool of the conduct of affairs in the market economy”. Oh dear… that’s really not a good look!

This also has some serious implications when its logic is applied to the aforementioned landscaping business, wherein it becomes clear that capital cannot be generating the return, since the capital is measured by its rate of return, and that rate of return is dependent on the quantity of capital.  There’s simply no way of quantifying the capital beyond the original £5,000 that was invested, so that investment cannot be shown to be “making money” in and of itself. In other words, the notional return is actually being justified by [cue horror music]: circular reasoning.

This leads us to the only other logical conclusion – that the value of the original £5,000 capital investment, was worth just that, £5,000… meaning that someone is somehow being ripped off in order to fabricate returns for the investor.

Here’s a nice easy to grasp summary of the capital debates (scroll down past the links at the top).

A Dialectic Theory of Value

A mathematically sound theory of capital had already been devised decades earlier by Karl Marx, but since his solution undermined the philosophical basis of Marxism… he chose to ignore his own reasoning.  Here’s a paper detailing this by Australian economist Steve Keen.

Karl Marx ignored his own reasoning

Property is Theft!

Pierre-Joseph Proudhon actually figured all this out even before Marx did (he just wasn’t able to adequately explain the mathematics).  This is why Proudhon proclaimed “property is theft”.

Proudhon had capital sussed

Non-proviso Lockean

Murray Rothbard had an interesting take on capital by reinterpreting John Locke’s Labour Theory of Property weirdly bereft of Locke’s Proviso.  He postulated that property was essentially the original labour of the capitalist, which then somehow persisted eternally.

can ancap word salad validate capital?


A worker can dig 50KGs of soil each day using just his or her bare hands, this is worth £80 per day. This is the value of that person’s labour.

the rawest expression of labour

An entrepreneur spends their £500 of their earnings buying up 10 picks and 10 shovels.  This entrepreneur then employs 20 workers to dig on their behalf using those tools.  Thus a new capitalist is born.  Each pair of workers now manages to dig 500KG of soil each day, which is around a fivefold increase.  Since the workers’ raw labour would only amount to 50KG of production, the additional 200KG of production per worker can therefore be attributed to those tools, which remain the property of the capitalist.  Thus the £6,400 of earnings each day from this increased productivity must ‘rightfully’ belong to the capitalist.

tools increase productivity

After 4 weeks the capitalist invests £100,000 in a mechanical digger.  The capitalist is now able to dismiss 14 workers, since only 6 workers are needed to operate that digger 24×365.  The digger is able to dig through 5,000KG per 8 hour shift, equating to extra production of 4,950KG, for a gross profit of £166,320 per week of operation, from which £16,320 of operating costs are subtracted, creating a return of £160,000 for the capitalist… and so forth.

better tools mean more profit

NOTE – The perceptive will have noted that these figures trend towards the unrealistic.  That’s because the example doesn’t account for free market competition from other digger owners driving those prices down.  This is irrelevant to the problem itself, but feel free to change the numbers if doing so makes you feel better.

Yup – Capital is Just Ectoplasm

Rothbard’s fantastical narrative still fails to navigate around the problem highlighted by the Cambridge Capital Debates.  The notion that the value of someone’s ‘original labour’ can be magically multiplied by investing it in capital goods does nothing to alter the ectoplasmic nature of capital – it merely provides a fairytale as the backstory.

no… money doesn’t actually make money

We’re still left with the aforementioned circular reasoning: “The monetary value of capital, can be extrapolated from its rate of profit, which is in turn dependent on the quantity of said capital as measured in money.

An Energy Theory of Value

At the root of the Cambridge problem is the notion that money can make money, but let’s look at the actual physics involved.  All energy used in production can ultimately be measured in joules.  The raw materials used in production, the worker’s bodies, the food they consume in order to replenish the energy being expended as they labour, even planet Earth itself… all these things were ultimately created by, and depend upon, solar energy.  The Sun can (as near as damnit) be viewed as the primary source of all energy used in human production, meaning economics is subject to the same laws of physics as everything else (shock horror), including “Conservation of Energy“.  Production doesn’t create new energy, it simply repurposes energy originally radiated by the Sun.

the Sun is the source of all our energy

Goods & services are in fact repackaged matter and energy, and their value ultimately arises from the Sun, rather than from capital.  What economists think of as units of capital are in fact joules of energy, and as such each joule can be assigned a monetary cost/value.  The notion of capital as a source of energy that can make more energy, which can be then translated back into money, therefore contradicts the First Law of Thermodynamics.  Hence the entire economic basis of capitalism is false.

capital violates this

Capitalism is Exploitation

In the absence of any weird ectoplasm, workers and consumers (who are for the most part the same group of people), are being ripped off by the capitalist, who is likely charging more than the value of the good, whilst paying the workers less than the value of their labour, in order to carve out a living from money.  The capitalist is in effect an energy vampire.

yup… capitalists are really just energy vampires

Capitalism is de facto the exploitation of the working class by a dominant capitalist class. This can be confirmed by incorporating thermodynamics into economics equations, effectively grounding the social science in actual physics, and thus proving that capital itself does not magically generate a return.

capitalism is exploitation


This essay was debated in Ancap vs Ancom Debate Group (Facebook 14th & 15th August 2020), with Bill Orton arguing for cap and Craig Adams arguing for com.

Bill>> “The example of the lawn mowing enterprise is very good. The author asks where profits come from…”

Essay> “The basic premise of capitalism is that the substance is the capital itself.”

Bill>> “This is a glaring error. “Capitalist” economic theory posits that there are four factors of production: land, labor, capital, and entrepreneurship.”

Bill>> “The answer to the question “How is the profit generated?” is: By combining the four factors of production efficiently.”

Craig>>> “Profit is in fact the portion of revenue that’s leftover once all costs have been accounted for. Efficiency is important in that it ensures that none of those costs are greater than they need to be… but efficiency cannot generate gross profit in and of itself; it only maximises the net profit available for distribution. It’s always amusing when ancaps demonstrate a fundamental lack of understanding of very basic business economics.”

Craig>>> “By claiming that gross profit arises purely from efficiency, Bill is unwittingly inferring that capitalism is somehow possible without capital goods… so let’s examine that premise. I want a hole dug, and am willing to pay Bill to do it. Since there are no capital goods, he would have to dig it with his bare hands. The source of the hole is Bill’s labour. If Bill charges me more than he believes his labour is worth then in his mind he’s gained from this deal. If I pay Bill less than I think his labour is worth then in my mind I’ve gained from this deal. In fact we could each believe that we have ‘gained’ from this deal. This is the basis of the Subjective Theory of Value. Bill would probably choose to refer to his gain as “profit”. However the bottom line is that Bill dug a hole, and the market decided how much his labour was worth. Perhaps Bill believes that he dug that hole a smarter way, generating an efficiency gain by getting the job done more easily than someone else might have. The thing is we could also view this from the opposing perspective, whereby unless a worker is operating at maximum efficiency they are merely generating unnecessary costs. Ultimately this boils down to the amount of energy a worker expends on a task. Spending less energy is more efficient, but it isn’t actually giving rise to costless energy. This sort of efficiency gain is not “profit” per se; it’s just working smarter instead of working harder. This deserves a name, so I’m going to christen it the Burma Railway Fallacy: that working more efficiently magically generates a gain in excess of the energy being expended.”

Craig>>> “There is no “glaring error here”. The entire economic premise of capitalism is that capital goods create efficiency gains that exceed their operating costs. The more efficient a capital good is, the more valuable it is. This enables an entrepreneur to make objective and rational comparisons of capital goods based on their rate of profit.”

Craig>>> “Conversely the entire economic premise of Marxism is that all revenue is ultimately a product of labour, therefore profit does not exist (as I’ve just shown, this would indeed be true in the absence of capital goods). This is important because Bill is attempting to show that the essay is putting a Marxist spin on capitalism, when clearly this isn’t the case at all.”

Bill>> “The article commits a fallacy when it tries to answer the question, by assuming (without reason) that only one factor can be responsible for the profit. That would be an easy error for a socialist to make! It is a common socialist dogma that there can be only one factor – labor. So by transference, the author assumes that all his readers have the same false assumption. Saying that only one single factor explains profit is like saying that only one single ingredient in a cake accounts for the good flavor.”

Craig>>> “Oh look… as anticipated Bill is attempting to twist this around and has already referred to the Labour Theory of Value, and resorts to a feeble analogy since there’s no mathematical basis for his claim.”

Bill>> “Of the answers given in the article, #4 is closest to the truth: “The tools (capital goods) that Billy uses to landscape, make him more efficient.” That is a true statement, but really doesn’t explain where profits come from. It does explain one motivation for Billy to seek an investor, and one motivation for the investor to risk his capital.”

Craig>>> “That’s because from a capitalist perspective this is ‘true’. Returning to the hole: if Bill possessed a mechanical digger, and used this to dig the hole, but I still paid Bill the same amount as before (what the hole was worth to me), then Bill would have indeed made a profit, provided the costs attributed to the digger amounted to less than the gain attributed to it. This is because from a capitalist perspective the digger (with Bill operating it) somehow did most of the work, for just a fraction of the cost.”

Bill>> “The article quotes Mises correctly but misleadingly. It uses the same font for Mises quotes and the dubious “bulleted points regarding the nature of capital.” Needless to say, Mises did not write the bullet points – the socialist author of the article did.”

Craig>>> “What’s most revealing here is that for whatever reason Bill has chosen to skip the entire section on Austrian economist Eugen von Böhm-Bawerk and Austrian Capital Theory that immediately preceded this. I’m going to hazard a guess that this might be because Austrian Capital Theory inconveniently contradicts Bill’s claims up to this point:”

Eugen von Böhm-Bawerk> “Without [capital goods] the labor of man would be unproductive and almost void; yet these very things have required much work, especially at first. This is the reason that so much value has been attached to the possession of them, and also that it is perfectly lawful to exchange and to sell them, to make a profit off them if used, to gain remuneration from them if lent.”

Craig>>> “The thing with ancaps is that they only go along with the Austrian School when it suits them…”

Craig>>> “Outside of that Bill’s objective seems to be around the Ludwig von Mises quote and the bullet points that follow both being italicised. This is weak sauce indeed given the quote is clearly presented in quotation marks. There’s no intention here to deceive anyone; each of the bullet points is simply stating a basic axiom of capital.”

Essay> “1. The value of capital can be extrapolated from its rate of profit.”

Bill>> “The author notes that value here does not refer to market value, but only as a way to compare the productivity of different capital goods.”

Craig>>> “Bill is correct. This isn’t getting into STV, rather it’s highlighting the objective basis used by [an] entrepreneur to make rational decisions on which capital goods to invest in.”

Craig>>> “What Bill does next is a little sneaky though, he skips a couple of the bullet points in order to give the impression that the essay is somehow drawing an erroneous conclusion.”

Essay> 4. The rate of profit is dependent on the quantity of capital.”

Bill>> “The author takes (1) and (4) and draws the erroneous conclusion that:

Essay> “The monetary value of capital, can be extrapolated from its rate of profit, which is in turn dependent on the quantity of said capital as measured in money.”

Bill>> “Do you see the problem? The author forgot his own caveat, and mistook “the value of capital” for a measure of profit, rather than merely a method for comparing the efficiency of capital goods. No, the efficiency of a machine is NOT dependent on the quantity of capital. In short, the circular reasoning is due to the author’s misunderstanding of his own bullet points.”

Craig>>> “Err no. When an entrepreneur evaluates capital goods according to their rate of profit, he or she is measuring that rate of profit in money, therefore assigning a monetary value to the capital encapsulated in each capital good. A crucial point being that capital goods are heterogenous (not all of the same type), and the essay is actually discussing the abstract concept of capital. Bill is of course conflating the stuff of capital goods with the abstract concept of capital. Capital goods are an expression of capital, they can be classed as “capital”, but they are not the essence of capital. Bear in mind that Bill already skipped over the section of Austrian Capital Theory, which laid the basis for this. Now let’s just look at that Ludwig von Mises quote again in this context:”

Ludwig von Mises> “From the notion of capital goods one must clearly distinguish the concept of capital. The concept of capital is the fundamental concept of economic calculation, the foremost mental tool of the conduct of affairs in the market economy. Its correlative is the concept of income”.

Craig>>> “Can you see where Bill is getting all muddled? That’s not actually his fault; the essay is delving into the Cambridge Capital Controversy, something that the world’s top economists spent over a decade arguing about, before deciding that it was better to simply deny the issue existed. If Bill were able to address the CCC then he’d be awarded a Nobel Prize.”

Essay> “Capital appears to be an invalid concept, since there doesn’t seem to be any way of quantifying it.”

Bill>> “Sure there is: The market value of currently owned capital goods, plus saved wealth available for investment. And it is quantifiable in money, obviously.”

Craig>>> “And just to illustrate my point, Bill again conflates types of capital with the concept of capital.”

Bill>> “Part of the dishonesty in the critique of Mises is that Mises himself gave his definition of capital, in the same article cited and quoted. All the socialist contortions are unnecessary.”

Craig>>> “Bill now quotes Ludwig von Mises in order to support his own confusion.”

Ludwig von Mises> “The calculating mind of the actor draws a boundary line between the consumer’s goods which he plans to employ for the immediate satisfaction of his wants and the goods … which he plans to employ for providing by further acting, for the satisfaction of future wants.”

Craig>>> “There’s nothing whatsoever wrong with this quote, it just doesn’t live up to Bill’s claim that it somehow defines capital. What it does do is delineate the boundaries of capital… but the essay isn’t disputing those. This quote is entirely consistent with the essay’s narrative.”

Bill>> “Capital is all wealth that is not intended for consumption.”

Craig>>> “Correct. That delineates capital in absolute terms, but fails to define the actual essence. Bill is defining capital in the negative sense, by excluding all the things we do know the essence of, and stating that capital is what’s leftover. This is where an analogy is appropriate, since the essay is arguing that the essence of capital cannot be defined, so here we go: “God is what’s left over when you subtract everything that isn’t about God.” OK, so we’re left with some churches and the bible… but that does nothing whatsoever to define the essence of God, rather basing the claim of God’s existence on the presence of stuff that God supposedly had a hand in. It’s circular reasoning.”

Bill>> “Moving on, the author notes that Murray Rothbard reinterpreted Locke’s Labor Theory of Property. Rothbard dropped the weird and perverse “Lockean proviso.” The author is mistaken in his claim that Rothbard’s sticky property “persisted eternally.” Even anarcho-capitalists have abandonment criteria, obviously. Cf: Kevin Carson, “Are We All Mutualists?””

Craig>>> “Well it’s little wonder that Bill seeks to move on, and move on he does, ironically skipping over the Cambridge Capital Controversy, and ignoring the sections covering DTV… which was one of the things he queried that led to this essay being posted in the comments. No matter, Bill is safely back on his home patch with Murray Rothbard. His criticism here is limited to a technical detail around the abandonment criteria for sticky property, and it’s totally valid, it just happens to have no bearing at all on the thrust of the argument, but point taken.”

Bill>> “The author does give some beautiful illustrations of how productive capital can be, with his example comparing workers digging by hand, with shovels, and with a mechanical digger. He proves that the labor had little to do with the productivity and profits, but capital had a lot to do with it. Good example, especially coming from a socialist.”

Craig>>> “Yes, exactly! In capitalist economic theory, capital is the source of profit. This is what Bill has been focusing most of his attack on, and now he unintentionally concedes that point.”

Craig>>> “Although the author is a socialist, the essay has thus far dealt with capitalism almost exclusively from the capitalist perspective. It hasn’t been making any meaningful socialist arguments. In the lawnmower example it gave the reader a choice between the gain arising from 1) labour, 2) grifting, 3) a combination of labour & grifting; or 4) by the action of capital goods. It didn’t attempt to argue to case for 1), 2), or 3). It based it’s argument solely on 4). Bill then carelessly argued for a combination of 3), and 4)… unwittingly conceding the argument to Marx right from the get-go. He did this because he hasn’t fully grasped capitalist economic theory. Many ancaps are unwitting Marxists. The author of the essay is not a Marxist though, and the essay comes down solidly in favour of the Exergy Theory of Value.”

Bill>> “The labor theory of value LTV has the fatal problem of assuming that there is a “true” market value for things. This medieval notion of a “just price” is superstitious and has no objective foundation. It is amusing that, as a replacement theory of value, they offer yet another Just Price Doctrine – this time based on joules of energy. Why would counting joules of energy give a good measure of market value or productivity? Apollo the Sun God said so?”

Craig>>> “At no point does the essay argue in favour of LTV. The closest it came was mentioning Locke’s Labour Theory of Property. There is no argument being made for LTV. The basis of LTV is dismissed right from the get-go. Bill is reintroducing this as a straw man that he can argue against, because he’s out of his depth with Capital Theory, CCC, DTV, and ETV.”

Bill>> “Finally, out of the blue, the author claims that “capitalism is exploitation.” He has not given any argument for this. All he has done is misunderstand what capital is to come up with a circular statement. But I suppose the article is by and for socialists, people remarkably ignorant in economics.”

Craig>>> “I guess this would be “out of the blue” if you’d skipped over the whole section on the Exergy Theory of Value.”

Craig>>> “Bill wraps up by accusing the author of being “ignorant of economics”, apparently on the basis that the author is a socialist. This is rich coming from someone who has just demonstrated a grasp of economics that extends no further than maginalism and STV. To resort to another analogy (since that which is self-demonstrable doesn’t require an argument), this is like reading a beginners guide to Einstein and grasping the basics of gravity and relativity… then attempting to use that to argue that electromagnetism, thermodynamics, and the Standard Model aren’t valid physics.”