so perhaps the answer is there, that since the supply of capital has been expanded whereas the supply of labour has not, even though both capital and labour is more ‘expensive’ due to greater purchasing power of money, labour is the relatively more expensive, since the supply has not grown as has the supply of capital .
I see a bit of a problem with this also. The supply of capital does expand, but let’s trace this back to it’s source. As with anything else, if the supply of it increases, it does so because the demand increased. The mechanism is the price system, so prices on capital goods must have increased BEFORE the supply of it did, and was the reason it happened. I think all this is besides the so called Ricardo Effect. I think people like us who question ideas instead of swallowing them, being spoon fed, are ahead of the game. It seems like some of the contemporary Austrian authors would deal with the Ricardo Effect in a way that answers all these questions and objections that was neglected by guys like Hayed, De Soto, Mises, and Ricardo himself. Without a more thorough covering of the subject, I’m about to conclude that the Ricardo Effect is false.
if i decide to forgoe some of my income that historically i would have consumedl then i plan to save and i offer a loan to an entrepeneur.I am not directly bidding for capital or labour, in fact, i am supplying ‘capital’ to entrepeneurs, for their consideration. hey entrepeneurs, could you make profits by using this capital i give you? from the perspective of an entrepeneur, my offering savings, constitutes an increase in supply, the demands i make, are projected into the future…
I am trying to turn my present purchasing power into future purchasing power. the entrepeneur considers what he can do with the the money if he takes the loan. surely, if he wants to start a new enterprise that in 5 years will start to produce many more widgets at lower costs than present widget producing business he will surely need to bid away some labour and some ‘already produced’ capital away from other entrepeneurs engaged in business. but his whole business plan, involves using that labour and capital to produce lots more capital, which will make his workers way more productive than his competitors. his plan doesnt involve breeding labourers and increasing their supply. so i still wonder whether that’s the explanation…