This confuses me. Wouldn’t the increased productivity of labor decrease the necessary amount of employed labor, thereby creating a “race to the bottom” of wages, resulting in an increase of profit, yet a decrease in wages?

Assuming full employment, the capitalist needs to bid labor away from other lines of employment in order to hire them to generate productivity from his capital investment. The very fact that this capital is more productive allows him to bid more for labor and still make a profit.

Why would you assume full employment?

Because the alternative is assuming labor costs are zero.

That makes sense. So you’re saying that without distortions in the market created by the state, wages would drop, and employment would rise, until they balanced each other? It seems like an intriguing proposition in our current global economy, with labour and capital racing around the planet, tryin…

The increased productivity of labor means greater general provision of consumers’ goods and services, which results in lower money prices for consumers’ goods and services, which means the same wages will purchase more consumers’ goods and services.

Catching fish with your bare hands is less efficient than catching fish with a net (introduction of capital). The more plentiful and sophisticated capital afforded to you, the greater your productivity (output per time period). The more stuff you have, the wealthier you are (economically speaking). …

Correct me if I’m wrong, but are you and I basically saying the same thing here?

I didn’t read your comment, but basically yes. At least, your explanation is the way it works in market economies. Crusoe does not see prices on his island–but an increase in his productivity level (introduction of capital) still makes him wealthier (catches more fish, ect).

I didn’t read your comment, but basically yes. At least, your explanation is the way it works in market economies. Crusoe does not see prices on his island–but an increase in his productivity level (introduction of capital) still makes him wealthier (catches more fish, ect). Okay cool. That’s wh…

How does increased invested capital increase real wages?

Economics Economics Questions

Lilburne February 9, 2010, 12:11am 7

How can the laborer be hired away from other capitalists with the fruits of the productivity that that same laborer will enable in the future?

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How does increased invested capital increase real wages?

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