The Plane: Economics in two parts

From The Writer in Black

The Plane: or Why Interest is Justified

This is my own telling of one of Frederic Bastiat’s essays. I like it because it makes clear, why those to provide capital–the means of production–are entirely justified in receiving ongoing recompense for providing that well beyond. Suppose there was a rough carpenter, let’s call him John. He makes a certain amount of money in […]

And here’s part 2:

The Plane (part 2)

Last time we left carpenter turned capitalist John retired, with his capital passed on to his son John Jr.

This time we take a look at John Sr’s old workshop. It’s still sitting there. John Jr. could go into that workshop and start doing carpentry. That’s one measure of the value of that workshop sitting there. Another is that he could simply sell it and let someone else worry about doing the carpentry. But there’s a third possibility. Someone, let’s call him Andre, approaches him. Andre wants to do carpentry but Andre doesn’t have any tools or workshop. Andre could, in principle build his own workshop and acquire his own tools but there’s this one John Jr. has. So he suggests John Jr. let him work in it.

[snip]

So the same principles that applied to John Sr. and his plane apply to John Jr. and his factory. And it’s entirely proper that the people providing capital, the means of production, be compensated based on whatever benefit they could obtain through alternate uses of that capital. And the people managing capital be compensated based not on the “labor” they provide but on the value they bring to the enterprise.