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jmherbener
ParticipantNo apologies are necessary. If I now understand the scenario correctly to which you are responding, someone is claiming that raising the minimum wage will merely create a wealth transfer from the capitalists to the lower-skilled workers without having any effect on employment.
Even if this were true, you are correct that raising the minimum wage would still have detrimental effects on social production and therefore, middle class standards of living. The main reason is such a transfer de-capitalizes those who have demonstrated superior entrepreneurship by running successful business enterprises and capitalizes those who have not demonstrated such abilities. The entrepreneurs would have invested a larger portion of the capital transferred than the workers will invest and would have invested it more wisely. Social production suffers and standards of living fall below the levels they would have obtained. Moreover, by giving monetary incentive to workers who have not produced value commensurate with their subsidized income, the coercive transfer will draw more marginally productive workers into the subsidized areas and out of areas in which the value of what they produced was higher. And, by taking monetary incentive away from entrepreneurs who have produced value, some of them are draw into other areas in which they produce less value for consumers at large.
ParticipantMost economists do agree that a minimum wage at a high enough level is destructive and would increase unemployment. What they disagree about is the answer to empirical questions such as “what is the magnitude of the unemployment generated by raising the minimum wage incrementally from $7.25 to $10.10 over the next two years” and policy trade-offs such as “would the gains in higher wages for some offset the losses in wages for others,”
This business week story is indicative of these issues:
So, I don’t think you’re missing anything. I think the economics profession, having sowed the wind of model building, is reaping the whirlwind of politicalization.
ParticipantThe productivity measure computed by the BLS doesn’t refer to the marginal productivity of labor that relates to the wage rate. Here is a brief BLS explanation of its method of computation:
http://www.bls.gov/lpc/iprread1.htm
And here is the technical explanation:
http://www.bls.gov/opub/hom/homch11.htm
The BLS computation of wages and real wages is also problematic as a metric for assessing actual markets:
Here is the BLS explanation of the method:
http://www.bls.gov/news.release/realer.tn.htm
Here’s the technical details.
http://www.bls.gov/opub/hom/pdf/homch8.pdf
The short answer is that “productivity” in the chart does not refer to the productivity that relates to wages. So the alleged relationship shown in the chart is a statistical artifact. It does not show that workers are working more productively and yet not being paid more. To show that, one would have to look at a single production process to determine what the change in physical production of a unit of labor has been over some time period and then what the corresponding change has been in the wage of that labor. And then, this would need to be done for all production processes to get a sense of the what’s happening across the entire economy.
ParticipantYour premise about what determines the level of a person’s wage is correct. The wage a person earns is based on his productivity and the value of the output he helps produce. As you say, in a market economy there is a spectrum of wages, those who have the greatest productivity in the most valuable goods earn the highest wages and those who have the smallest productivity in the least valuable goods earn the lowest wages.
What the minimum wage does, then, is criminalize the payment of wages earned by those workers with the smallest productivity in the least valuable goods. They can no longer be legally employed. This has no direct effect on wages and employment above the legal minimum. It simply criminalizes the employment of the least productive workers. The workers made legally unemployable by the minimum wage cannot compete with the employed workers because they lack the productivity to earn the higher wages commanded by the more productive workers. The jobs once done by the now unemployed workers will not exist, at least not in the manner in which they did before the minimum wage.
Of course, by forcing workers into unemployment, the output they were producing is lost and therefore, the standards of living of people decline. The burden of this decline is felt not just by the unemployed. To the extent that other workers were employed because of the demand for their goods by those now unemployed, they too might have their wages fall. They might even fall below the minimum and force them into unemployment as well.
This process of declining wages is only partially offset by rising wages in areas that now become targets of investment in capital. At least part of the investment previously made in the processes of production now abandoned because of the minimum wage will be invested in capital that will raise worker productivity sufficiently to sustain these new production processes. (A recent example is the robo-burger-flipping machine. A McDonald’s restaurant, perhaps, can have a work-force of three instead of six and serve the same number of customers.)
ParticipantThe course is at an introductory level. It covers material in a two-semester sequence in college: Principles of Microeconomics and Principles of Macroeconomics.
ParticipantYes, to state the principle in general: those whose buying prices rise more than their selling prices over the period of inflation lose and those whose buying prices rise less than their selling prices over a period of inflation gain.
Rothbard is simplifying the calculation by assuming the money balances of the recipients remains the same during the period in which the late buyers are waiting to spend their new money. In fact, the money balances of people would begin to change as soon as the new money is spent and that would affect who winds up being a winner or losers in the process of inflation.
Remember that Rothbard’s point is not to trace out the complete effects of inflation, but merely to show that even a proportional and instantaneous increase in everyone’s money balances would not leave the pattern of real income the same in the market after the new money is spent.
ParticipantTake a look at Joe Salerno’s recent article on ABCT. I think it will answer your questions:
http://mises.org/journals/qjae/pdf/qjae15_1_1.pdf
Hayek’s work on the cycle can be found in his book, Prices and Production and Other Essays:
http://mises.org/books/hayekcollection.pdf
In brief, credit expansion suppresses the rate of interest below its market level. But the rate of interest is the price spread between the stages of production, i.e., it is the spread between the buying prices of inputs and the selling prices of output. As Rothbard shows in Man, Economy, and State, the lowering of the rate of interest shifts investment toward the higher stages of production and away from the lower stages. The capital structure is lengthened out. This boom is self-reversing because the people’s time preference do not support the lengthening out of the capital structure. People prefer to have resources devoted to the pattern of investment that existed before the boom, i.e., more to lower stages and less to higher stages than is brought about artificially during the boom. The bust corrects the malinvestments made in the boom.
ParticipantForeign governments, especially the French, began to redeem dollars for gold. They could take $35 and redeem it at the Treasury for an ounce of gold and then have an asset that was worth more than $35 in world markets. Gold was flowing out of the Treasury into the hands of foreign governments during the 1960s. Foreign governments realized that the Fed had inflated the dollar money stock to the point at which redemption of the dollar at $35 an ounce was becoming untenable.
Take a look at chart 14.1 in the publication below.
http://fraser.stlouisfed.org/docs/publications/bms/1941-1970/section14.pdf
It documents that the Treasury gold stock peaked in Jan. 1958 at $22,784 million and then started to steadily decline. By Dec. 1970 it stood at $10,732 million.
Here is Jacques Rueff’s account of the collapse of Bretton Woods. Rueff was an economic adviser to French president Charles de Gaulle.
ParticipantDuring Bretton Woods, only foreign governments and their central banks could directly redeem dollars for gold at the Treasury. Take a look at Rothbard’s chapter on Bretton Woods in his book, What Has Government Done to Our Money:
ParticipantPrior to the Fed, commercial banks still held some gold as reserve in the U.S. The Fed centralized the banking gold stock during WWI. But Americans could still own gold legally until 1933-34. The statistics, however, are for gold held by the government.
The typical economic analysis uses government gold stocks or, when appropriate, the gold stock used as monetary reserves and not the total gold stocks owned by everyone in the country. Governments and banks obtain gold reserves through international trade.
Take a look at the Figure 1 World Gold Reserves 1925-1932 in this paper by Doug Irwin:
http://www.dartmouth.edu/~dirwin/Did%20France%20Cause%20the%20Great%20Depression.pdf
This chart gives the lie to the claim that gold flowed into the U.S. and caused the Great Depression because the Fed and Treasury sterilized the inflow. The chart clearly shows that the U.S. gold stock remained roughly the same, $4 billion, from 1925-1932. Gold did, however, flow into France. Also, the world gold reserves steadily increased from around $9 billion in 1925 to nearly $12 billion in 1932.
ParticipantTake a look at Ludwig von Mises’s book, Liberalism, section 3:
There is also his work, The Free and Prosperous Commonwealth, mentioned in this article by Leonard Liggio:
Here are videos of a conference on Imperialism sponsored by the Mises Institute in 2006:
http://mises.org/media/categories/94/Imperialism-Enemy-of-Freedom
Here is Joe Stromberg on American Empire:
ParticipantThe gold inflows, which occurred after the beginning of 1934, fed monetary inflation and credit expansion which caused the boom of 1934-1937 which led to the bust in 1937-1938.
Here is a chart of the DJIA from 1920-1940:
http://stockcharts.com/freecharts/historical/djia19201940.html
ParticipantThe U.S. gold stock was $4,356 million in January 1931. It rose to $4,708 million in August and then fell $4,173 million in December 1931.
Here are the figures:
January 1931 – $4,356 million
January 1932 – $4,129 million
January 1933 – $4,265 million
January 1934 – $4,033 millionThe data is in Table No. 156, page 537:
http://fraser.stlouisfed.org/docs/publications/bms/1914-1941/section14.pdf
After the gold stock was revalued at $35 an ounce in February 1934, the figures are:
February 1934 – $7,438 million
January 1935 – $8,391 million
January 1936 – $10,182 million
January 1937 – $11,538 million
January 1938 – $12,756 million
January 1939 – $14,682 million
January 1940 – $17,931 millionThe argument is that the outflow of gold was bad for the European countries because, under the rules of the classic gold standard (which as pointed out already didn’t exist after WWI), it would have forced them to deflate their money stocks leading to price deflation. Allegedly this deflationary effect was not counter-balanced by an inflation in the U.S. because the Treasury was sterilizing the gold inflow, i.e., offsetting the additional gold with a decline in other forms of money.
But the gold sterilization program of the Treasury did not occur until 1937:
ParticipantIt depends on how one defines social mobility and what proxy one uses to indicate its extent. Sowell claims that the standard sociological definition is not the relevant one and suggests replacing it with “economic mobility.”
http://townhall.com/columnists/thomassowell/2013/03/06/economic-mobility-n1525556/page/full
http://cafehayek.com/2007/11/economic-mobili.html
Here is the IRS study on income mobility:
http://www.treasury.gov/resource-center/tax-policy/Documents/incomemobilitystudy03-08revise.pdf
Here is a broader study on income mobility put out by the Boston Fed:
ParticipantIt is false that all jobs have been out sourced or replaced by machinery. Just take a look at the distribution of employment in the different sectors of the economy.
http://www.bls.gov/emp/ep_table_201.htm
Prices of output are determined by consumer demands, not costs of production. Higher wages cannot be passed on to consumers by raising prices. If it were true that businesses could raise prices without any negative repercussions in lost sales, then businesses would have already raised prices before they had to pay higher wages. Businesses always ask the highest prices they can given consumer demand. If they ask prices high enough, the amount people buy will decline.
Consumers cannot pay ever higher prices for goods unless the money supply increases. With a given stock of money in society, if consumers pay more for some goods, they must pay less for other goods. Regardless of whether an entrepreneurs are producing in a market in which their output prices are rising or falling, their input prices will adjust accordingly. If their output prices are rising, then they will increase their demands for inputs and drive input prices up until no additional profit can be made. If their output prices are falling, then they will decrease their demands for inputs and drive input prices down until no losses are suffered.
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