Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 6 The Economics of Labor Markets
Chapter 18 of 36 The Markets for the Factors of Production
Section 19 of 20
…
It is the paycheck workers get from their employers.
Capital income is less straightforward.
In the simple model of the overall economy we assume
· households (private individuals) own the economy's stock of capital such as ladders, drill presses, and warehouses
· rent this capital to the firms that use it
…
Capital income from this viewpoint is the rent households receive for firms’ use of capital owned by households.
Capital is bought by the money households invest in or lend to firms.
Firms directly receive the earnings from this capital from consumers of firms’ products.
These earnings from capital are eventually paid back to households.
…
Some of the firm’s earnings are paid in the form of interest to firms and individuals who have lent money to borrowing firms.
These include bondholders and bank depositors.
Bondholders directly lend to firms through purchase of firms’ bonds and receive interest payments directly from firms.
Bank depositors indirectly lend to firms when banks use their deposits to make loans to firms.
The depositors then receive interest payments from the borrowing firms back through their bank.
…
Some of the earnings from capital are paid to households in the form of dividends.
Dividends are payments by a firm to the firm's stockholders.
A stockholder
· is a person who has bought a share in the ownership of the firm
· is entitled to a portion of the firm's profits
…
A firm usually does not pay out all its earnings to households as interest and dividends.
It retains some earnings within the firm and uses these earnings to buy additional capital with the expectation additional profits will result.
Although these retained earnings are not paid to the firm's stockholders, the stockholders benefit.
Retained earnings increase the amount of capital the firm owns and increase
· value of the firm's stock
· future earnings and dividend payments
In short, capital income is payments from firms to households that are owners of or lenders to firms.
… …
The above is summarized from an economics textbook. In the case of full communism how would assets and income be managed?
ChatGPT:
In a system of full communism, assets and income would be managed very differently from the capitalist framework you summarized.
Let me break it down along the same lines as your excerpt:
Ownership of Assets
Capital ownership:
Under communism, private ownership of productive assets - factories, land, machinery, financial capital - would be abolished.
Instead, the community or state would collectively own all productive capital.
Households as owners: In capitalism, households own capital either directly through stock, bonds, deposits or indirectly including via pensions, mutual funds.
In communism, individual households would not own capital.
They would have use rights to consumer goods, but not ownership claims over productive assets.
Earnings from Capital
No private capital income:
Since there is no private ownership of capital, there are no interest payments, dividends, or capital gains going to individual households.
All earnings from productive capital such as factories and farms flow into the communal/state budget.
Retained earnings:
Firms, if they exist as organizational units, wouldn’t retain earnings on behalf of shareholders.
Instead, surpluses would be centrally allocated—reinvested into more capital, directed to social programs, or redistributed as public consumption including healthcare, housing, and infrastructure.
Labor Income
In pure Marxian theory, under communism there is no “wage labor” in the capitalist sense.
Work is not paid through a labor market.
Instead:
In early/post-capitalist socialism, compensation may be based on contribution i.e. “to each according to his work.”
In full communism, the principle shifts to “from each according to his ability, to each according to his needs.”
Income becomes a social entitlement, not tied directly to productivity or wages.
Distribution of Goods and Services
Instead of workers getting wages to buy goods on markets, the community distributes goods and services directly to individuals.
Some models imagine rationing, others a more automated abundance-based distribution.
Markets, if they exist at all, are very limited—prices and profits are replaced by planned allocation.
Savings and Investment
Individuals don’t “invest” in firms via stocks or bonds.
All investment decisions are made collectively (often through central planning, though some models imagine decentralized communal planning).
The social surplus is allocated to expanding productive capacity or improving quality of life, not to enriching private owners.
In Short
No labor vs. capital income divide:
All income distinctions collapse into a unified distribution system.
No dividends, interest, or capital gains:
Households don’t lend to firms or own shares.
All surpluses go to society as a whole:
Either reinvested, provided as public goods, or distributed according to need.
Income = social provision: Instead of wages and returns on capital, people receive resources through the collective.
…
Why doesn’t the communist economic model ever work?
ChatGPT:
Economists and historians generally agree communist systems have struggled to work in practice—not necessarily because the idea of equality or collective ownership is flawed in itself, but because the economic and social mechanics of communism tend to run into serious problems.
Here’s a structured breakdown:
1. Incentive Problems
Labor incentives:
In capitalism, wages and profits motivate individuals and firms to work harder, innovate, and take risks.
In communism, where pay is equalized or detached from effort, people often lack incentive to be productive beyond the minimum required.
Innovation incentives:
Without the prospect of profit or personal reward, technological innovation and efficiency improvements often stagnate.
Bureaucrats or planners don’t take the risks entrepreneurs do.
2. Information & Planning Failures
Central planning limits:
A modern economy involves billions of daily transactions and choices.
Central planners cannot gather or process this vast information efficiently, “the calculation problem,” famously raised by Ludwig von Mises and Friedrich Hayek.
Mismatches:
As a result, communist economies often suffer chronic shortages of of producer and consumer goods in some areas and surpluses in others, because planners cannot accurately match supply with demand.
3. Bureaucracy and Corruption
Large, centralized systems require layers of bureaucracy.
This tends to breed inefficiency and corruption.
Officials can misuse their power since there’s no competitive check like rival firms or market test like profits/losses.
4. Suppression of Markets
Markets are efficient at transmitting information via prices.
When communism abolishes or heavily restricts markets, it loses this mechanism.
Prices set politically rather than competitively fail to reflect real scarcity or consumer preferences.
5. Political Consequences
To maintain collective ownership and suppress private enterprise, communist states often resort to authoritarian control.
This reduces personal freedom, and fear-based compliance can replace genuine motivation.
In practice, communist systems created new elites, mainly party officials, rather than eliminating class structures.
6. Historical Examples
Soviet Union:
Rapid early industrialization, but chronic inefficiency, stagnation, and shortages finally collapsing in 1991.
Maoist China:
Tried radical collectivization with the Great Leap Forward which caused famine and tens of millions of deaths.
Later shifted toward market reforms.
Eastern Europe:
Similar stagnation, low growth, poor quality goods and fell far behind capitalist West.
Cuba, North Korea: Survive but heavily reliant on outside aid, tourism, or black markets.
7. Theoretical vs. Real-World Communism
Marx imagined communism in an advanced industrial society with abundance, but real-world attempts started in poor or war-torn countries.
This made shortages, repression, and hardship worse.
The theory assumes people will work selflessly “for the common good,” but human behavior is usually more mixed: mostly self-interested, partly altruistic.
In Short
Communism hasn’t worked in practice mainly because:
It removes the incentives that drive productivity and innovation.
It cannot coordinate an economy as effectively as decentralized markets.
It tends to concentrate power in bureaucracies, leading to inefficiency and authoritarianism.
… …
retained earnings
ryūho shotoku
留保所得
Comments
Post a Comment