I decided to give more of this guy’s view on economics and minimum wage in general. I believe this post explains it:
Micro economics is all about profit, costs and revenues. Economists schooled and experienced in micro economics well understand that money comes in, and money goes out, and what gets kept in between is bread and butter.
When economists move from the study of micro economics (the study of individual businesses), they have been conditioned to look for revenue and expenditure, and so examine the whole as a sum of parts. Things like wages, taxes and interest are considered costs to society, while things like sales, production, and government spending are considered revenue.
This was my mind set when I entered a discussion with a gentleman some years back, who was complaining about the banks. He deemed it unfair, that the banks gave to society money, and demanded the money back plus interest. Since the interest is not produced by the bank, how could society be expected to return the extra money to the bank.
His logic was compelling and it took me a long time to realize that the bank does not keep the interest. Interest to the bank is revenue, just as it is expense to the greater society, and it goes out of the bank in expenses, rent, heat, wages, etc. Although interest is a cost to most of society, it is not a cost to the macro economy. This was my first eureka moment.
If interest is not a cost to the macro economy, then what of taxes and wages? All wages paid to labor come back to business in the form of consumer spending. All taxes paid to the government are spent by the government and so there are no costs to the macro economy. What is an expense to one individual is always a revenue to another. Transactions in the macro economy cannot be separated into costs and revenues, because in the macro, they are the same.
What is important to the macro economy then is circulation… how to get more transactions going with the same money. In a stagnated economy, there is lots of wealth to go around, it just isn’t going around. Transactions are minimal. Rich hire labor for their barns and gardens at subsistence rates; people live on what they make, but have no disposable income. Discretionary spending is moot. The only way that transactions can be accelerated is some measure or circumstance that allows the poor some disposable income.
Workers cannot in a stagnant economy demand money in excess of their need. If they do not accept a wage of what they need , they might well find themselves starving on the street. When war breaks out, workers can afford to be blaze about their job, because they have the option of soldiering. They can and do demand money in excess of their needs, and so gain some disposable income for discretionary spending. This is how war improves the macro economy; not from the money government spends, but from the increased option it gives to the commoner, which results in an acceleration of transactions on the menial level.
Colonization proved to provide the same effect; by giving commoners the option of colonization and pioneering, commoners came to expect higher pay from their employers, pay that allowed them some options without leaving the country, and so consumers discretionary spending spawned the industrial revolution.
There is always excess capacity in any sector in any economy. Any business will boast its ability to service its customers, and none will bemoan its inability to supply all its customers with their requests. Extra capacity spawned in the industrial revolution came about as a result of consumer discretionary spending, and though, as the transactions accelerated, consumer spending was fed by the wages of the factories, it was not the factory’s wage that initiated the situation.
In America, as the pioneer trails were ending, something else helped provide the bulk of the population with excess income; racism. Any piece of white trash came to expect that his salary must be in excess of what it took to keep a black family alive. This meant that the bulk of the labor force maintained earnings that provided discretionary spending.
Minimum wage was initiated in 1916 in California. I don’t have the particulars of other states right now, but have seen some indications that there were several minimum wage laws around the country as the US moved into the roaring 20s. In 1923 these laws were trashed in the supreme court. While most economists bemoan various problems of the late 20s precipitating the dirty 30s, the real problem stemmed from the catastrophic erosion of consumer spending by falling wages after 1923. When the NRA was introduced in 1933, the economy immediately started recovery and seemed to be growing right through to 37. But minimum wage was again trashed in the courts in 35, and so the growth declared from 35 to 37 was illusory, as consumer spending capacity slid down again, and transaction velocity shrunk. Minimum wage was reintroduced to the US economy in 1938, and this time it held, and so America has not known stagnation since.
With the amount of evidence that minimum wages provide a strong support to the transaction velocity of the macro economy, I find it so very frustrating that the wage is still considered a cost to the macro economy by the conventional economist.
I know most of you say this guy is dense…and this post has been responded by others…even using Mises’ theories. But please, what is your view on this?