further, given the deflation, and rising purchasing power of gold, its ability to buy capital is increased as well as its ability to buy consumers goods, so even a super low time preference entrepenuer would benefit from maximizing his real wealth. the desire of entrepeneurs to maximise their real wealth isnt the sticking point here is it?
But this doesn’t seem to answer my question, as to why Huerta de Soto and Hayek claim that the use of labour will decrease in comparison to that of capital.
I’m really not trying to “get” anybody, I just want to understand this myself.
No it’s not. Since you’re positing that he spends it on capital anyway, which doesn’t make sense given this answer of yours.
because as labour gets more expensive, alternatives to it look more attractive. like if oil got more expensive alternative energy sources would be used increasingly.
of course, the very process of entrepeneurs bidding for capital, and reduce their bidding for labour, is a process whcih causes fall in demand for labour relative to capital, and makes labour relatively more attractive…
But the same applies to labour, since from the perspective of the entrepreneur, real wages of the labourer does not matter. Although, this is not what Huerta de Soto is trying to explain.
But labour does not become more expensive. Only if the choice were between labour and consumers goods, which, it isn’t.
it does not apply to labour equally as to capital and consumer goods.
why do you say the entrepeneur doesnt care that his labour costs rise?
earlier i missed the opportunity to directly confront your understanding
I have somewhat paraphrased your questioning statemetn that you bolded; here to try for clarity:
I would ask you whether you agree that it could matter to an entrepeneur that real incomes have increased given that it is the result of an increase in the productivity of labour; and hence an increase in the cost of purchasing the labour ?
Yeah, I really didn’t mean it like that. I just meant I was stumped. Joking doesn’t come across well on the internets without using the smileys and I hate the smileys.
hate smiley [8o|]
Why not?
I’ve not said that I’ve said the costs don’t rise.
Let’s say that E is an entrepreneur and W is a worker. The market price of bottles of wine is $10, the worker is paid $100 a week. As savings increase, the price of bottles of wine drops to $5. The worker can now afford more wine, and hence his real wages have risen. But how does this effect the entrepreneur?
it should be clear that the productivity of labour determines through supply and demand the price that labour can command.
Over time as the average worker productivity has increased, so has their real wealth, and so has the real cost of employing them.
i.e. a worker in an autofactory can make oh more many motors than 80 years ago.
a worker in an autofactory can thus purchase many more consumer goods than they could 80 years ago.
and it costs an autofactory owner( who employs an autoworker) money equivalent to the value of that much greater quantity of consumer goods that the money can buy.
so not only has the real income of worker increased. but the real cost of employing the worker from the perspective of the entrepeneur has also increased
But as far as I can tell, you’re incorrect on both counts. In as much as we’ve been assuming that productivity of labour has remained the same (since what we’re trying to do is explain the reason that entreprenuers use less labour). And also because the cost of purchasing labour won’t change.
in you example the worker who could formerly affored 10 bottles of wine. can now afford 20bottles of wine.
in real terms, the boss would be paying him money equivalent to twice as much wine to keep him on the job. it costs the employer twice as much in real wealth (bottles of wine) to hire the same employee as previous, so a machine might have become relatively cheaper if it could produce as much wine as the fella but only cost 15 bottles of wine to rent.
no, the opposite, why claim that the productivity of labour has not increased. it must have, how could workers get more real wealth, if there has not been a change in wealth production? there has been a change of wealth production that explains the rising real wealth of workers.
But you’re assuming the prices of all goods increase. They don’t, only consumer goods. So the worker wouldn’t really cost 20 bottles of wine.
Because there has been a decrease in demand for consumer goods, as such prices have decreased (although not enough to compensate for inreased savings).
no, its prices of goods decreasing that we are talking of.
the wine example of mine does suffer because of it being a narrow market whose consuemr base does not normally consist entirely and completely of those themselves in the wine making iindustry. but it is very roughly illustrative, consider it on the largest scale, labour produces more, HENCE labour is more expensive, ceteris parabis.
But only consumer goods. As such the trade off between labour and capital goods isn’t effected.