Like johnswentworth, I also don’t understand the leap to “Iron Law of Wages takes over”. You seem to be at least making some unstated assumptions in that part. Besides, even if subsistence wages do obtain for labor, land should continue to be very valuable and be earning a lot of rent/surplus, so can’t the landlords at least be considered “children in Disneyland”?
(I said I wasn’t going to comment further here, but for Wei_Dai, who was likely absent for a while, I’m going to make a one-time exception, but not respond further here. If Wei wants to talk further I can be contacted elsewhere.)
That was a late edit to attempt to respond to comments, and I’m already regretting it. I made a last attempt to make this more clear. If it’s still not clear, then once I’ve got to where I am eventually going, then we can revisit and see if there’s a better way to go about this.
It’s hard to know exactly which assumption is the important missing one, but my guess is it’s that we’re talking about thinking through all the implications of a fully perfectly competitive world, rather than an individual perfectly competitive market. Or, alternatively, the implicit assumption that a perfectly competitive world is static, so we are solving for the equilibrium, although I try to avoid pulling that trump card out at steps where one doesn’t have to.
The labor market is fully competitive by assumption. Or, given undifferentiated labor, the only way to not have the Iron Law be true right away (other than frictions we are assuming away) is to have a labor shortage because demand for goods exceeds labor available to supply the goods. Now the question comes of where that excess demand is coming from.
On land: I understand in its historical context why land is distinct from capital in this kind of context, and it certainly can have different dynamics in some ways, but I’ve always wondered why land isn’t just capital like any other capital, once it is properly valued. If we agree to assume the risk-free rate truly is zero, then the value of land is equal to the sum of its future income streams, which if things truly are permanently static means land is infinitely expensive—extremes do insane things. More realistically, land is just super expensive (see: SF, NYC, etc, only more so) so landlords have very high wealth, which they can spend for at least some time, but this doesn’t ‘get us out’ any more than other sources of wealthy people get us temporarily out for that subset, which must be small.
(You could also say that land being valuable is actually a violation of perfect competition since it implies differentiation in costs, again extreme situations are weird.)
I’ve always wondered why land isn’t just capital like any other capital, once it is properly valued. If we agree to assume the risk-free rate truly is zero...
This has never, ever been the case in the history of humanity. The risk-free rate of land is the one thing we actually have very good records for and ways of calculating over human history. It’s not zero, nor has it ever been close to zero. Somewhere around 3-5% on average is a reasonably good estimate without getting into specifics of region and era.
But if you’re basing your argument on land having a risk free return on zero, we’ll that’s something that can be quite easily looked up and disproven.
(This will be my last word in this thread, as I do think replying to this can be helpful in creating clarity, then I’m done here.)
The argument here is not based on ’there was a time and place, or is a time and place, where this scenario took place. It is an argument that given the assumptions, this is what would happen. It definitely hasn’t happened in the past.
Agreed that the rate of return on land has never been zero until at least recently because returns to capital have not been zero until recently if ever.
But if returns to non-land capital are zero, and returns to land capital are positive, and land is alienable, then people bid up land until the returns equalize. If it’s not alienable, as it sometimes isn’t, asking what it is worth is weird but I’d assume you want to value it as if it was alienable anyway.
This brings me back to not understanding the land vs. non-land division absent laws about land ownership. Land is a capital good like any other, its return must be the same as all the others unless something is out of equilibrium.
All right, that’s it. I sincerely wish I’d been able to convey the points in ways that didn’t lead to these confusions, or found ways to skip over the confusing things and still get where I want to go, but what’s done is done.
Like johnswentworth, I also don’t understand the leap to “Iron Law of Wages takes over”. You seem to be at least making some unstated assumptions in that part. Besides, even if subsistence wages do obtain for labor, land should continue to be very valuable and be earning a lot of rent/surplus, so can’t the landlords at least be considered “children in Disneyland”?
(I said I wasn’t going to comment further here, but for Wei_Dai, who was likely absent for a while, I’m going to make a one-time exception, but not respond further here. If Wei wants to talk further I can be contacted elsewhere.)
That was a late edit to attempt to respond to comments, and I’m already regretting it. I made a last attempt to make this more clear. If it’s still not clear, then once I’ve got to where I am eventually going, then we can revisit and see if there’s a better way to go about this.
It’s hard to know exactly which assumption is the important missing one, but my guess is it’s that we’re talking about thinking through all the implications of a fully perfectly competitive world, rather than an individual perfectly competitive market. Or, alternatively, the implicit assumption that a perfectly competitive world is static, so we are solving for the equilibrium, although I try to avoid pulling that trump card out at steps where one doesn’t have to.
The labor market is fully competitive by assumption. Or, given undifferentiated labor, the only way to not have the Iron Law be true right away (other than frictions we are assuming away) is to have a labor shortage because demand for goods exceeds labor available to supply the goods. Now the question comes of where that excess demand is coming from.
On land: I understand in its historical context why land is distinct from capital in this kind of context, and it certainly can have different dynamics in some ways, but I’ve always wondered why land isn’t just capital like any other capital, once it is properly valued. If we agree to assume the risk-free rate truly is zero, then the value of land is equal to the sum of its future income streams, which if things truly are permanently static means land is infinitely expensive—extremes do insane things. More realistically, land is just super expensive (see: SF, NYC, etc, only more so) so landlords have very high wealth, which they can spend for at least some time, but this doesn’t ‘get us out’ any more than other sources of wealthy people get us temporarily out for that subset, which must be small.
(You could also say that land being valuable is actually a violation of perfect competition since it implies differentiation in costs, again extreme situations are weird.)
This has never, ever been the case in the history of humanity. The risk-free rate of land is the one thing we actually have very good records for and ways of calculating over human history. It’s not zero, nor has it ever been close to zero. Somewhere around 3-5% on average is a reasonably good estimate without getting into specifics of region and era.
But if you’re basing your argument on land having a risk free return on zero, we’ll that’s something that can be quite easily looked up and disproven.
(This will be my last word in this thread, as I do think replying to this can be helpful in creating clarity, then I’m done here.)
The argument here is not based on ’there was a time and place, or is a time and place, where this scenario took place. It is an argument that given the assumptions, this is what would happen. It definitely hasn’t happened in the past.
Agreed that the rate of return on land has never been zero until at least recently because returns to capital have not been zero until recently if ever.
But if returns to non-land capital are zero, and returns to land capital are positive, and land is alienable, then people bid up land until the returns equalize. If it’s not alienable, as it sometimes isn’t, asking what it is worth is weird but I’d assume you want to value it as if it was alienable anyway.
This brings me back to not understanding the land vs. non-land division absent laws about land ownership. Land is a capital good like any other, its return must be the same as all the others unless something is out of equilibrium.
All right, that’s it. I sincerely wish I’d been able to convey the points in ways that didn’t lead to these confusions, or found ways to skip over the confusing things and still get where I want to go, but what’s done is done.