[tatefegley]

We know that the general tendency of money in the unhampered market economy is for its purchasing power to appreciate due to economic growth. Goods will become less expensive. Does the same hold true for services? And if so, what does this mean for wages?

For example, during my stay in Bangkok, I have noticed that massages are much less expensive here than in the United States. As the Thai economy grows and becomes more prosperous, is it likely to be the case that the price of massages (or labor) will increase?

[jmherbener]

A rising purchasing power of money and falling prices for things traded against money are just two ways of saying the same thing. If money’s purchasing power is falling because of increased production of goods, then the prices of those goods will be falling relative to the prices of other things traded against money. So even if wages for labor services decline during economic progress, prices of goods decline to a greater extent and real wages, i.e., standard of living, rise.

[tatefegley]

I’m having a little trouble understanding the first part of the second sentence (“If money’s purchasing power is falling because of increased production of goods,”). I was under the impression that increased production of goods would increase money’s purchasing power.

And in the third sentence, “So even if wages for labor services decline during economic progress,” we are talking in nominal terms, correct? So, in terms of paying for services that can’t currently be replaced by capital goods (such as massages), we would see a decrease in the monetary price but an increase in the real price of the service?

[jmherbener]

Sorry for my imprecision. Yes, the PPM would be rising not falling and yes, nominal wages, not real.

No, real wages would tend to rise as nominal wages fell more slowly than prices of output. Capital goods prices would be falling more than the prices of output. like the computer industry. The price of a massage is not the same as the wage of the masseur. The price of the massage must cover the prices of all the inputs used to produce it. The prices of more specific factors of production will adjust more to changes in the price of output than the prices of less specific factors.

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