[kamray23]

There are several issues with that. The largest one is that you assert that the costs can only inflate. They cannot.

TL;DR – Yes, but the added value gets smaller each recursion, such that even if you add on an infinite amount of these costs it will only come out to a finite value. The productivity of a single person, which in today's industrial world is immense, makes these costs so small they might as well be cents on the final product.

Let's say a farmer farms a square field with 100 metre sides, or exactly 1 ha of land. This is a size which it is perfectly reasonable for one person to farm, even entirely by hand, and which is woefully small considering modern farming equipment. On it they grow wheat, with a production of 0.25 kg/m² annually, or 2 500 kg when you do the calculation. This is a perfectly reasonable yield. Taking into account milling yield, we end up with only about 70% of that, or 1 750 kg of flour. A loaf takes roughly half a kilo of flour so, assuming water and yeast are effectively free, so selling this to a baker, they produce 3 500 loaves in the end.

So far, so easy. Then we take into account the losses that are going to be accrued for the loaf of a single customer in this very small thought experiment economy, in which exist only the farmer and the baker. Each, we say, might eat 2 entire half-kilogram loaves in a week, so 8 in a month and 96 in a year. The baker prices one loaf at (flour cost + 96·loaf cost)/3 500. The farmer prices his flour at 96·loaf cost/1 750 kg, but as the farmer buys everything, we can ignore the division. The price of one loaf is now (96·loaf cost + 96·loaf cost)/3 500, or 192·loaf cost/3500, or, rounding a bit, 0.05·loaf cost. Propagating it down, we have 0.05²·loaf cost, then 0.05³·loaf cost, and when you recurse to infinity, we have 0. The further you get from the producer, the smaller the added cost becomes in reality, such that even if you add up all the costs you eventually reach not an infinite value but a finite one.

If we say that each take a profit of $100 annually in addition to what they need to live, we get that the farmer prices their flour at ($100 + 96·loaf cost)/1 750 kg and the baker their bread at ($200 + 192·loaf cost)/3 500. Propagating it down, the price becomes ($200 + 192·($0.06 + 0.05·loaf cost))/3500 = ($210 + 0.05·loaf cost)/3 500. Going further, it will be ($210 + 0.05·($0.06 + 1.4·10⁻⁵·loaf cost))/3 500 where we entirely lose precision and the added cost from profits appears to stay at $210/3 500, while the rest of the calculation becomes so small it disappears off to 0 at infinity once again.

While this example is only very simple, and I won't prove here that it applies in larger or more complex cycles, it is nevertheless fairly obvious that this disappearing off applies to everything. Whereas your recursive argument about costs only being able to inflate is correct, they can only inflate up to a finite value at the limit due to the inflation added at each level of recursion being smaller than the last.

[samsquire]

Thank you for writing this down.

What I witness in the world is endless costs, from housing maintenance to shelter and rent and mortgage costs and transport costs. Everything is very expensive. Housing is not cheap relative to salaries nor is transport.

If I wanted to pay someone to do work for me, I need to pay enough to pay all the workmen's costs.

I need to provide for myself and provide enough revenues for everybody else to pay for these things. So the prices you pay provide revenues for these costs fans out in all directions through everyone you buy things from.

Is the finite value that these cycles larger than the money supply?

There is a finite amount of work that can be done per period of time but some people work 60 hour weeks. But work is renewable until you ruin your joints and knees or health problems.

I am sure everyone wants to earn more and has costs they want money for and want larger houses and to own housing rather than rent.

I didn't even include profits or value addition to my theory as they need to come from somewhere.

[kamray23]

I doubt money supply has much to do with the issue at hand, since we're looking at the real world and money is just a tool for managing it.

I think you're correct in that everything is very expensive, possibly close to the most expensive it can be. Salaries paid are essentially just what is enough to keep yourself alive nowadays, often not even enough to keep yourself in decent mental health. I doubt your average worker is capable of purchasing everything they create in a month with their monthly salary.

It's certainly not the first time this has been observed either. Let me give you a classic criticism. Take the old but reliable labour theory of value. We ignore price fluctuations for this analysis because they are considered nothing but representative of true value – a method of making trade easier. Work is what people value, specifically the time used for labour. Creating something in one minute gives it one minute of value, it would be more valuable if it took more effort to create. For the purposes of markets, it's also obvious that what matters to us is not the individual value per se but the socially necessary labour time, the average value taken to create something. Therefore a man who creates a spoon in one minute and a man who creates one in 20 will make an equally valuable object in the societal context. Creating an object from materials will have the value of those materials plus the value you create through your work, so $2 bread from $1 wheat will have $1 of additional work done by the baker.

With this in mind, let's investigate farming. A farmer works land, they create $1 worth of wheat and sell it. That $1 is the full reimbursement for their work and if they want to buy their wheat back they will pay that $1 for it.

Adding in an agricultural conglomerate, lets say that a bunch of farmers work the land of this conglomerate as employees. As a large oversimplification, we once again say that a farmer creates $1 worth of wheat for the company. The company sells it and returns to pay the farmer a salary: ¢80. The ¢20 missing is the profit of the company and it has to be larger than zero for the company to keep existing at all, profit being their singular reason for existence.

This is fine and all, and it's how most companies work, the issue arises when you think about the farmer being a consumer. The farmer is not reimbursed in full for their work, in other words, they become incapable of purchasing back their own labour in full. If the farmer the goes home and to the store, they cannot purchase the wheat they themselves created, it will cost more than what they were paid. This repeats itself in every company, the employees simply cannot be fully reimbursed for their work, not now and not ever. Yet, the workers also form the base of consumers, they are the vast majority of people who must be relied upon to consume these products. The end result is that everything seems expensive relative to salaries and you will, at some point, have to have a violent economic event to correct the markets as consumers simply run out of money.

Now that's not accurate in its entirety and it's a critique from the 19th century, but it goes to show that we have always recognised this being an issue. We just deal with it by accepting that some people will be unjustly hurt in regular recessions in the boom and bust cycle and move on – there's no just way of doing things without entirely removing companies from the picture. That's the way our economy is doomed to work, and we just have to accept it and move on unless we want to literally outlaw companies and organise production on a national level.