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Of course is isn’t communism, it’s the Solow Residual

Summary:
A gentleman running a rent out what you already own company assures us that this isn’t communism. Of course it isn’t, it’s the Solow Residual:The new app that lets users rent strangers’ stuff. ‘This isn’t about communism,’ says founderQuite so. The essential idea is that there are many - say - lawnmowers out there and most of them are not in use at any one time. So, rent out some of those that do exist during their downtime.This has the effect, obviously enough, of reducing sales of lawnmowers which will not be to the taste of lawnmower manufacturers. But it’s not communism - the intermediation is being done by a paid market which doesn’t sound very communist - for it’s making the society richer which isn’t a great feature of that socioeconomic system.Why this makes us all richer is the

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A gentleman running a rent out what you already own company assures us that this isn’t communism. Of course it isn’t, it’s the Solow Residual:

The new app that lets users rent strangers’ stuff. ‘This isn’t about communism,’ says founder

Quite so. The essential idea is that there are many - say - lawnmowers out there and most of them are not in use at any one time. So, rent out some of those that do exist during their downtime.

This has the effect, obviously enough, of reducing sales of lawnmowers which will not be to the taste of lawnmower manufacturers. But it’s not communism - the intermediation is being done by a paid market which doesn’t sound very communist - for it’s making the society richer which isn’t a great feature of that socioeconomic system.

Why this makes us all richer is the Solow Residual. That’s the increase in output that comes from whatever it is other than an increase in capital and or labour going into the system. Productivity increases for example.

The lawnmower here is the capital, by having the one for many lawns we get many lawns mowed for the use of one dose of the capital. It’s a pure increase in the productivity of lawnmowers that is.

The same is true of all of these different schemes that do this. By more efficiently using the things that already exist we gain more output from the current capital base. We’re richer.

It’s also nothing at all to do with such hippy dippy concepts as the sharing economy etc. It’s also not new economics or anything droll like that. Which is why we’ve already got the description of what’s going on in the textbooks of course.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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