However, those firms that take in a lot of profit tend to divert their gains into r&d, which results in more efficient production, from which a higher standard of living inevitably follows.
Perhaps it is a zero sum game, ceteris paribus, and only looking at the profit margins of the competing firms. But on the whole, production is a positive-sum game.
The loophole you’re overlooking is that prices can fall. Adding wealth to the economy tends to drive prices down. All other things equal, that literally benefits everyone: the money in your pocket gains purchasing power while you lounge in the back yard. For this discussion, “monetary profit” is not a useful concept. In times of hyperinflation, it’s possible that everyone is profiting immensely in monetary terms–even while many starve to death.
–Len.
I agree in totality.
In general you are completely correct and I utterly agree. For one thing, I was assuming that the money supply was held constant, so hyperinflation wouldn’t be possible. Secondly, I was not looking across time.
Last, just to clarify your statement; when an economy creates wealth, thus causing prices to fall, in order for that process to be ignited, money must be taken away from present consumption and diverted towards future consumption, i.e, the production of capital goods.
All I’m saying is that if, say, Bob pays out $5 to his one employee (his MP in the ERE) and his sales suddenly amount to $10 then that extra $5 came from someone else who hadn’t been spending that $5 there before. Accordingly, someone else is now not receiving that person’s business. Whatever that business was, it now has $5 less and consequently, has over paid his employee(s), capital goods, or land, $5 more than their MP.
This is all that I was saying. I think you’re grossly misinterpreting what I’m saying and thinking it to be something that it is not.
First of all, I am pretty sure it is impossible for every business to increase in wealth at the same time. The reason being competition. Once one business in an industry becomes more efficient, then for a time period, the rest of the businesses in the industry will lose business to the more efficient business until they are able to catch up. However, the economy as a whole has increased in wealth, because costs have gone down for that industry. Meaning that now, instead of two people having to pay $10 between the two of them, now they only have to pay $8 between the two of them, and they can still spend a $1 each on some other industry.
So it is definitely not a “zero-sum” equation. Efficiency leads to capital, which leads to investment, which leads to efficiency, which leads to capital, etc., etc.
Funny thing, I just had an inconclusive exchange with somebody on this…
Here the first mail:
Dear Friends,
Does anyone have any first-hand knowledge of Georgian or EU labor law? I have a question about employers requiring work without pay.
The Universal Declaration of Human Rights states, “Everyone who works has the right to just and favourable remuneration…”
Slavery was abolished in Russia in 1860. In America, the 13th Amendment abolished slavery and indentured servitude in 1865; my guess is that Federal and state statutes prohibiting employers from requiring hourly workers to work without pay are universal.
One Georgian lawyer tells me that there is nothing in Georgian law to prohibit an employer to require one or more month’s of work without pay as a condition of employment.
Theoretically, I can advertise for workers in my factory, choose two or more in a competition, designate them as “interns,” or “probationary,” pay them nothing, and then fire one or all after a period free labor. Presumably, I could do this time and again and have free labor for the whole year!
I don’t know about Georgian law, or EU law, but this so obviously immoral that I cannot believe it conforms to any civilized system of law.
Sincerely,
My reply:
I’m not sure it is immoral, provided several conditions are met:
If these two conditions are met, I do not see anything immoral in a relationship that was entered into freely, knowingly under these conditions. The employee can then decide whether he sees this as a risk worth taking.
Such jobs, in various forms, exist in many countries, including Canada. I don’t see why there should be laws against this - unless you want to legislate ‘being nice’.
Cheers,
my reply (since then, nothing)
I do not doubt that this is what is taught in labor relations classes. The choice for the employee here, however, is simple: no money or … no money. If he takes the job, he has no money, but if he does not take it, he also has no money. Accepting the job for the time being may be to his advantage, since he may in this manner acquire new skills, meet new people, learn something completely unexpected, have at least something to put onto his resume - as opposed to ‘unemployed’.
What also has to be considered is the reasons why the employee is in this situation: how is it possible that he is in a situation that he has so little to offer to the labor market that employers are not willing to pay him anything? Is it the employers fault that the individual in question has no skills worth money?
Simple economic thinking would tell one that the fact of marginal cost and benefit apply even in this situation.
The evils described in the Grapes of Wrath stem almost exclusively from the intervention of the state into the labor market: I’m not even beginning to discuss the monetary system that caused the Great Depression, but I simply focus on the fact that police (state) power was used to fight those who did something as simple as express their discontent with the situation.
Obviously, had the state not intervened in the situation between the employers and the employees, the outcomes would have been very different.
What we are dealing with here is a situation where marginal workers are not able to find anybody willing to pay for their labor. No law can change that - they would still not be able to find somebody to pay for their labor - their skills are not worth any money.
After all, would you claim the the old women who sell fruits on the market, but can’t find a buyer are in a situation where the state should force people with appetite for apples, but no interest in buying them, should have to pay for them? After all, the old woman really is in no position to do anything about people willing to eat apples for free, but not willing to pay for it.
Anybody willing to work for free does so for a reason. Anybody willing to give apples away for free does so for a reason. People willing to eat apples that are given to them for free should not be forced to pay for them anymore than people who are willing to employ labor that is given to them for free.
That’s usually true, but not necessarily so. For example, I can wander into the wilderness with nothing but a knife, and come back with a buckskin sack full of gold. People usually don’t do that, because it’s more efficient to start with existing capital.
–Len.
I happen to have sat on both sides of the table. Did you have evert sat on any side of the table during job interviews?
If your comment was meant as a refutation, it was quite a silly failure.
Someon that doesn’t have money won’t pay signing bonusses, because he doesn’t have that kind of money at all. He will rather consider making concessions in terms of the agreement. Businesses rarely have to fill in all positions at once.
It may differ from industry and socio-economic situation. But an established business owner (for that matter his HR-Manager) who has a running income will always be in a stronger position then a work seeker that doesn’t know how he is going to pay for his rent or food the next day.
Don’t worry. Congress is always there to supplement the ill effects of a minimum wage with an anti-discrimination law.
Of course, most employers don’t even know what MP is, this is strictly a microeconomic assumption for the sake of theoretical analysis.
In reality, wages are based on several factors, varying with different sectors and so on.
The minimum wage in the US, as I understand it, basically has no real effect (except in rare cases) on wages since natural wages are higher than the minimum (thus, some economists argue, a rise in the minimum wage would have no real effect).
In other places, where unions are strong - wages are based on such agreements, where representatives of employers and employees agree (after hours and hours of arguing) on a certain min. wage rate plus various benefits).
Unions, of course, plays a crucial role regarding unskilled labour. But for jobs requiring advanced skills, the opposite is most often true - employers compete for the workers, offering high salaries and good benefits (meaning: supply and demand is what matters).
However, in practice, there are no good ways of telling how “productive” a worker may be - so there’s no way to use the productivity criteria in setting the wage. All they know is that they need this particular experise, and will then try to pay enough so to attract somebody with the demanded skill.
And how do they do this? Yea, basically look at what other employers pay workers with similar jobs and levels of education. A kind of industry average. Some argue that, in the case of women on average being paid less than men, the rule of thumb is that women is a less secure “investment” - meaning that they more often quit their job due to having children, moving away with their husbands, caring for the elders and so on (known as the glass-cieling theory), and therefor must be paid a lowe wage - regardless if a particular woman employed will actually have kids or leave.
It’s similiar to advertising - in an interview, a quite well-known Swedish advertiser said that roughly 50% of advertisment costs is a loss - the problem is that you’ll never know what 50% accounts for the loss so you’ll just have to go for the whole thing, it all adds up in the end anyway.
I’m thinking of trying this argument on the next statist I argue with over the
MW:
Tell him to imagine a government that wanted to use its power for evil
purposes instead of good. Never mind why, I would tell him, just imagine it.
Now imagine that these politicians wanted to think up a law that will hurt
low-wage workers, say, hamburger flippers, causing them to get laid off.
Again, never mind why they want to do this, they just want to.
Then they come up with a brilliant piece of legislation to do just that: This law
will make it illegal to hire anyone below a certain wage. In setting this
legally mandated wage floor, they make sure it is higher than the wage the
flippers are currently being paid. The politicians reason (correctly, for a change)
that the business will not be able to afford the higher mandated wage, and the workers
will have to be let go, putting them out of work and accomplishing their evil goal.
Then I would ask the statist, do you really think this law would backfire and have the
unintended consequence of making the hamburger flippers better off? Then I would say,
if you still believe this, then you do admit that a law can indeed backfire and cause consequences
beyond what the law was originally designed to do. So how can you be so sure that the minimum wage
law that you advocate doesn’t backfire and have the unintended consequence that economists
say it brings about?
At least you could argue to a clear stalemate this way, which is sometimes the best one can accomplish with a statist
—and possibly get your foot in the door for more.
All you will achieve is that you agree to the nonsensical statement of minimum wage making people better off. Only the most idiotic and stupid person can deny that laws have unintended consequences. You want to argue economic logic, not human fallibility. The minimum wage does NOT work to the advantage of marginal workers, even IF there was no unintended consequences. Your argument starts off perfectly well, because you talk about what the law really will accomplish. What you end up arguing is that laws always achieve the opposite of what we want them to do. Which means that if we made it a law that everybody could just randomly kill whomever he wants, the unintended consequence would be that suddenly nobody murders anybody anymore.
Not logical.
Sorry - stick to the first part of the argument, namely that an evil government would do exactly what you propose (hell, maybe that IS what’s going on?)
What about laws of minimum profits for businessowners [;)]?
Careful when arguing a minimum wage - always make sure everyone talks the same language. For the purpose of our debate, I think we are talking about legally proscribed wages that are substantially higher then present or potential labor market wages. To make it clear these are not morally recommeded wages (devent wages), these are wages that are enforced by law, someone not complying with the legislation will be punished. Most likely people will then look for alternatives (like exporting the very employment opportunities to low wage countries.) or simply extralegal or extraformal kinds of employment.
The only thing that I can think of one could do is having an institution which could give wage guidelines.
I think that a comparative demonstration of the policy would drive the point home quite well.
Start out your discussion by assuming that the minimum wage does help poor people. Then go about showing that if someone wanted to hurt poor people, enacting a minimum wage to reduce the income of poor families would be an effective way of doing that.
The initial assumption cannot be reconciled with a demonstration that a minimum wage disemploys low skill and entry level workers.