Re: Adam Smith vs Alexander Hamilton on Manufacturing

[jrmu@xxxxxxxxxx]

> Imagine that you have $100 that you want to invest. There are two options, one
> manufacturing, one agriculture, that will both give you $30 in profit. Suppose
> that the former requires $5 in rent, while the latter requires $20 in rent.
> The total revenue for the former (manufacturing) must be $135, and the latter,
> $150 -- $100 to make up for the initial investment, plus $30 in profit each,
> plus $5 in rent for the former, and $20 in rent for the latter.
> 
> So, for the two investments to be equally profitable despite paying more rent
> in the one case, it must be that the one case is more productive of value. 
> The assumption of equal profits to you is based on the fact that you would
> presumably not want to invest in a less profitable industry. Agriculture is
> more land-intensive, both in terms of time spent using the land, and area, and
> so that is why rent is more.
> 
> If you consider the land to be capital, note that capital will be left unused
> if you choose to invest in manufacturing rather than agriculture. This of
> course assumes that there is unused land available.
> 

There's no reason to assume that profits are equal in both.
Manufacturing may generate more profits than agriculture. E.g., $500
profit for manufacturing, $200 for agriculture.

> Tariffs cannot without limit increase the profitability. If you enact an
> 1-million percent tariff on the t-shirt, no one is going to buy a t-shirt for
> $100,000, they will just abstain from buying it altogether. A domestic
> competitor can initially charge more for the t-shirt than they could in
> absence of a tariff, but there is still a limit to how much they can charge.
> Anyway, immediately enacting extreme tariffs or outright prohibitions would
> lead to severe shortages -- people will need to go without that commodity; so
> this is not a feasible economic policy. But less extreme tariffs would provide
> less incentive to invest in the industry. (A tariff that gradually increases
> to a prohibition will not provide the same incentive as an immediate
> prohibition, since this allows time for domestic competitors to enter the
> market.)

Demand for clothing is inelastic because people can't survive without clothing.

> You say that Farmland produces enough of its own oil supplies, but this seems
> unlikely if they were buying significant amounts of oil from Desert Kingdom.
> This could be possible if, for example, Farmland exported all of its oil and
> imported Desert Kingdom's oil (if the reason it did this was due to some sort
> of oil processing, then this would not be relevant; it needs to be usable
> oil); but unless Farmland set up this situation with the intention of making
> Desert Kingdom dependent on Farmland, then presumably it would not produce
> enough domestic oil. This also assumes that Desert Kingdom is highly reliant
> on a single country and cannot get enough of its food from elsewhere.

See United States of America (Republic of Farmland) and Saudi Arabia
(Desert Kingdom).

> There is no need to rely on the capital of a single man. The capitalists can
> pool together their capital if there is an employment of it that is more
> profitable.

In practice, they don't. All massive infrastructure projects were funded
by government.

-- 
Aaron Lin
jrmu@xxxxxxxxxx
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