IV. Scarcity of Debt and section 2. Capital and Capitals
In this section, Commons starts with a discussion of Anne Robert Jacques Turgot. Turgot was the foremost of the physiocratic economics in France in the 18th century. Importantly, Turgot unraveled the issue of what was “interest”. It was not the “price of money” but rather it was “the price given for the use of a certain quantity of value for a certain time,” (Commons, 1934, pg. 487). Commons then turns to the idea that capital yield is a key concept. The yield is how income in money terms is produced by any asset. The Price paid for that assert is a numerical ratio over and above the regular monetary income produced by the capital asset. This price will vary according to demand and supply. It is important to note here that it is unclear whether Commons believes this statement or is ascribing this view to others.
Turgot then moved forward with some important conceptions that predate Macleod. He talked about the fact that future purchasing power was the key to property. Common writes that, “Thus Turgot's “pledge,” applied to money and all commodities, is the economic expected purchasing power equivalent to the juristic “intangible property.” It is not a debt—it is expected power to agree upon prices of commodities in bargaining transactions. And it is property in the sense of a right of non-interference with one's liberty of access to markets and liberty in fixing by bargains the prices and values of things. His landed estate, or corporeal property, becomes intangible property when the expected corporeal income of sheep or wheat becomes the expected prices to be obtained by selling the sheep or wheat for money.” (Commons, 1934, pg. 492).
For Commons further, Turgot understood the concept of capitalization. Capital assets prices are based on the underlying yield of income over time that they can produce. If interest rates rise, the prices of capital assets must generally rise at least in the short term as the enterprise must be able to yield more to meet the interest rate.
Commons ends this section with a discussion of Turgot and Ricardo. Both ended at the same place that the landed aristocracy and landed interests were not productive for society but form very different paths. Ricardo stated and used the labor theory of value and Ricardo measured the capital value emanating from past labor investments. In contrast, Turgot used the capital theory of value where productivity was driven by money investments and future income to be gained. Finally, Common is celery siding with Turgot in this intellectual battle. He talks about bond yields and stock yields as key measures of the capital theory of value. Commons clearly sees this as a better pathway for institutional economics as compared to that of David Ricardo.
The next section is Scarcity of Waiting.
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