The Benevolence of Capitalism | George Reisman

I subject is the benevolence of capitalism what I mean by the benevolence of capitalism is the fact that it promotes human life and well-being and does so for everyone many aspects of this benevolence have been developed over more than three centuries by a series of great thinkers ranging from John Locke to Ludwig von Mises and iron rend I present as many of these aspects of benevolence as I can in my book capitalism I'm going to briefly discuss about a dozen or so of these aspects that I consider to be the most important and which I believe taken all together make the case for capitalism irresistible I'll discuss them roughly in the order in which i present them in my book let me say that I apologize for the brevity of my discussions each one of the aspects that I go into would all by itself require a discussion far longer than the entire time that has been allotted to me to speak today fortunately I can fall back on the fact that in my book at least I think I have presented them in the detail they deserve and now let me begin one individual freedom an essential feature of capitalism is the foundation of security in the sense both of personal safety and economic security it's important to be aware of this fact especially today when people try to claim an opposition between freedom and security freedom means the absence of the initiation of physical force when you're free the thing which you are free of or free from is specifically the initiation of physical force when one is free one is safe secure from common crime because what one is free of or free from is precisely such acts as assault and battery robbery rape and murder all of which represent the initiation of physical force even more important of course what one is free of when one is free is the initiation of physical force on the part of the government which is potentially far more deadly than that of any private criminal gang the Gestapo and the KGB for example with their enslavement and murder of millions made private criminals look tame by comparison the fact that freedom is the absence of the initiation of physical force also means that peace is a corollary of freedom where there is freedom there is peace because there is no use of force in so far as force is not initiated the use of force in defence or retaliation is not required so we don't have force we have peace the economic security provided by freedom derives from the fact that under freedom everyone can choose to do whatever he judges to be most in his own interest without fear of being stopped by the physical force of anyone else so long as he himself does not initiate the use of physical force this means for example that he can take the highest paying job he can find and buy from the most competitive suppliers he can find at the same time he can keep all the income he earns and save as much of it as he likes investing his savings in the most profitable ways that he can the only thing he cannot do his use force himself with the use of force prohibited the way an individual increases the money hearings is by using his reason to figure out how to offer other people more or better goods and services for the same money since this is the means of inducing them voluntarily to spend more of their funds in buying from him rather than from competitors thus freedom is the basis of everyone being as economically secure as the exercise of his own reason and also the reason of his suppliers can make him let me turn now to the second aspect of the benevolence of capitalism which I discussed in detail yesterday namely a continuing increase in the supply of economically usable accessible natural resources this is possible as man converts a larger fraction of the virtue of infinity that is nature into economic Goods and wealth on the foundation both of growing knowledge of nature and growing physical power over it as I say I discussed this yesterday and further elaboration please see chapter 3 of my book now three production and economic activity by their very nature serve to improve men's environment this is because from the point of view of physics and chemistry all that production and economic activity consists of is the rearrangement of the same nature given chemical elements in different combinations and their movement to different geographical locations the guiding purpose of this rearrangement and movement is essentially nothing other than to make the chemical elements stand in an improved relationship to human life and well-being it puts the chemical elements in combinations and locations where they provide greater utility greater benefit to human beings i knows i see many familiar faces i apologize for the repetition for those of you have heard it but it's brief the relationship of the chemical elements iron and copper for example Japan's life and well-being is greatly improved when they are extracted from beneath the earth and made to appear in products such as automobiles refrigerators and electric cable the relationship of chemical elements such as carbon hydrogen oxygen and nitrogen to man's life and well-being is improved when they can be made to yield light and power the relationship of a piece of land to man's life and well-being is improved when instead of his having to sleep upon it in a sleeping bag and take precautions against snakes scorpions and other wildlife he can sleep in a modern well-constructed home that is built upon that piece of land and that possesses all the utilities and appliances that such a home possesses well the totality of the chemical elements in their relationship to man constitutes man's external material environment and precisely this is what production and economic activity serve to improve by their very nature for the division of labor a leading feature of capitalism which can exist in a highly developed form only under capitalism provides among other major benefits the enormous gains from the multiplication of the amount of knowledge that enters into the productive process and its continuing progressive increase just consider each distinct occupation each sub occupation has its own distinct body of knowledge in the division of labour capitalist society there is many distinct bodies of knowledge entering into the productive process as there are distinct jobs the totality of this knowledge operates to the benefit of each individual in his capacity as a consumer when he buys the products produced by others and much more most of it also in his capacity as a producer in so far as his production is aided by the use of capital goods previously produced by others thus a given individual may work as a carpenter say his specialized body of knowledge is that of carpentry but in his capacity as a consumer he obtains the benefit of all the other distinct occupations throughout the economic system the existence of such a vast body of knowledge is essential to the very existence of many products all products that require in their production more knowledge than any one individual or small number of individuals can hold such products of course include machinery which simply could not be produced in the absence of an extensive division of labor and the enormous body of knowledge it represents moreover in a division of labor capitalist society a large proportion of the most intelligent and ambitious members of society such as geniuses and other individuals of great ability choose their concentrations precisely in areas that have the effect of progressively improving and increasing the volume of knowledge that is applied in production this is the effect of such individuals concentrating on areas such as science invention and business 5 at least since the time of Adam Smith and David Ricardo it has been known that there is a tendency in a capitalist economy toward an equalization of the rate of profit or rate of return on capital across all branches of the economic system where rates of return are above average they provide the incentive and also the means for stepped-up investment and thus more production and supply which then operates to reduce prices and the rate of return where rates of return or below average the result is reduced investment and reduced production and supply followed by a rise in profits and the rate of return thus high rates of profit come down and low rates come up that's why there's this tendency toward equalization the operation of this principle not only serves to keep the different branches of a capitalist economy in proper balance with one another but it also serves to give the consumers the power to determine the relative size of the various industries simply on the basis of their pattern of buying and abstention from buying to use the words of on esis where the consumers spend more profits rise where they spend less profits fall in response to the higher profits investment and production are increased and in response to the lower profits or losses they are decreased thus the pattern of investment and production is made to follow the pattern of consumer spending perhaps even more importantly the operation of the tendency toward a uniform rate of return on capital invested serves to bring about a pattern of progressive improvement in products and methods of production any given business can earn an above average rate of return by introducing new or improved products that consumers want to buy or more efficient lower cost methods of producing an existing product but then the high profit it enjoys attracts competitors and once the innovation becomes generally adopted the high profit disappears with the result that the consumers gain the full benefit of the innovation they end up getting better products and paying lower prices if the firm that made the innovation wants to continue to earn an exceptional rate of profit it must introduce further innovations which end up with the same results earning a high rate of profit for a prolonged period of time requires the introduction of a continuing series of innovations with the consumers obtaining the full benefit of all of the innovations up to the most recent ones six as my missus has shown in a market economy which of course is what capitalism is private ownership of the means of production operates to the benefit of everyone non owners of the means of production as well as the owners the non owners obtain the benefit of the means of production owned by other people they obtain this benefit as and when they buy the products of those means of production to get the benefit of General Motors factories and their equipment or the benefit of exons oil fields pipelines and refineries I do not have to be a stockholder or a bond holder in those firms I merely have to be in a position to buy an automobile or gasoline or whatever that they produce moreover thanks to the dynamic progressive aspect of the uniformity of profit principle or rate of return principle that I explained a moment ago the general benefit from privately owned means of production to the non owners continually increases as they are enabled to buy ever more and better products at progressively falling real prices it cannot be stressed too strongly that these progressive games and the generally rising living standards that they translate into vitally depend on the capitalist institutions of private ownership of the means of production the profit motive and economic competition and would not be possible without them it is these that underlie motivated effective individual initiative in raising the standard of living seven a corollary of the general benefit from private ownership of the means of production is the general benefit from the institution of inheritance not only heirs but also non heirs benefit from its existence the non heirs benefit because the institution of inheritance encourages saving and capital accumulation to the extent that it leads people to accumulate and maintain capital for transmission to their heirs the result of the existence of this extra accumulated capital is more means of production producing for the market and thus more and better products for everyone to buy the effect of additional capital of course is also an additional demand for labor and thus higher wage rates the demand for labor it should be realized is a major means by which all privately owned means of production operate to the benefit of non owners capital underlies the demand for labor as well as the supply of products 8 under capitalism not only is one man's gain not another man's loss insofar as it comes out of an overall increase in so far as it comes out of an increase in overall total production but also in the most important cases mainly those of the building of great industrial fortunes one man's gain is positively other men's game this follows from the fact that the sheer erath medical requirements of building a great fortune are a combination of the earning of a high rate of profit on capital for a prolonged period of time and the saving and reinvestment of the far greater part of the profits earned year after year as we have seen the earning of a high rate of profit for a prolonged period of time in the face of competition requires the introduction of a series of innovations these innovations represent better and less expensive products for the consumers the saving and Reinvestment of the profits earned on the innovations constitute the accumulation of means of production which also serves the consumers thus both in their origin in high profits and in their disposition in the accumulation of capital great industrial fortunes represent corresponding gains to the general consuming public for example old Henry Ford's starting with a capital of $25,000 in 1903 and ending with a capital of a billion dollars in 1946 was the other side of the coin of the average person becoming an able to buy a greatly improve far more efficiently produced automobile produced largely in factories representing fords billion 9 as funny sis has shown the economic competition that takes place under capitalism is radically different than the biological competition that prevails in the animal kingdom in fact its character is diametrically opposite the animal species are confronted with scarce nature given means of subsistence who supply they are unable to increase men by virtue of his possession of reason can increase the supply of everything on which is survival and well-being depend thus instead of the biological competition of animals striving to grab off limited supplies of nature given necessities with the strong succeeding and the weak perishing pecking on a competition under capitalism is a competition in who can increase the supply of things the most with the outcome being practically everyone surviving longer and better totally unlike lions in the jungle who must compete for a limited supply of animals such as zebras and gazelles by means of the power of their senses and limbs producers under capitalism are in competition for a limited supply of dollars in the hands of consumers which they compete for by means of offering the best and most economical products their minds can devise since such competition is a competition in the positive creation of new and additional wealth there are no genuine long-run losers as the result of it there are only winners the competition of farmers and farm equipment manufacturers enables the hungry and weak to eat and grow strong that of pharmaceutical manufacturers enables the sick to recover their health that of eyeglass and hearing aid manufacturers enable many who otherwise could not see or hear to do so so far from being a competition whose outcome is the survival of the fittest in quotes the competition of capitalism is more accurately described as a competition whose outcome is the survival of all or at least of more and more for longer and longer and ever better the only sense in which only the fittest is that it is the fittest product and fittest methods of production that survived until replaced by still fitter products and methods of production with the effects on human survival just described as my missus has also shown with his development of Ricardo's law of comparative advantage into the law of association there is room for everyone in the competition of capitalism even those who are less capable than others in every respect have a place in fact a large measure competition under capitalism so far from being a matter of conflict among human beings is a process of organizing the one great system of social cooperation known as the division of labor it decides at what point in this all-embracing system of social cooperation each individual will make his specific contribution for example who and for how long will be a captain of industry and who will be a janitor and who will fill all the positions in between in this competition each individual however limited his abilities is enabled to out-compete all others however superior to him in their abilities they may be for his special place quite literally and as an everyday occurrence those with abilities no greater than required to be a janitor are able to out-compete hands down without question the world's greatest productive geniuses for the job of janitor for example Bill Gates might be so superior an individual that in addition to being able to revolutionize the software industry he might be able to clean five times as many square feet of office space in the same time as any janitor now living and do it better but if gates can earn a million dollars an hour running Microsoft and janitors can be found willing to work for say ten dollars an hour their readiness to perform the job at 11 hundred thousandth of the hourly rate Gates would require so far Dwarfs their lesser abilities that it is they who are horde to conquer in this case no competition at all they win at the same time because productive geniuses are free to succeed in revolutionising products and methods of production those with abilities no greater than required to be janitors are able to enjoy not only food clothing and shelter but even such products as automobiles television sets and personal computers products whose very existence they could probably never even have dreamed of on their own the losses associated with competition aren't most short run losses only for example once the blacksmith's and horse breeders put out of business by the automobile found other lines of work on a comparable level the only lasting effect of the automobile on them was that they too in their capacity as consumers came to enjoy the advantages of the automobile over the horse similarly farmers using mules who are driven out of business by the competition of farmers using tractors did not die of starvation but simply had to change their line of work and when they did so they along with everyone else enjoyed both a more abundant supply of food and of other products as well which other products could be produced precisely on the foundation of the labor released from agriculture even in those cases in which an isolated competition results that an individual having to spend the remainder of his life in a lower station than he enjoyed before for example the owner of a buggy whip factory having to live for the rest of his life as an ordinary wage earner after being put out of business by the automobile even he cannot reasonably claim that competition has horn Tim the most he can reasonably claim is merely that from this point on the immense gains he derives from competition are less than the still more immense games he derived from it previously for competition is what underlies the production and supply of everything he continues to be able to buy and is what is responsible for the purchasing power of every dollar of his and everyone else's income and of course it proceeds to raise his real income from the level to which it was set back indeed under capitalism competition proceeds to raise the standard of living of the average wage earner above that of even the various wealth of the very wealthiest people in the world a few generations earlier today for example the average wage earner in a capitalist country has a standard of living higher even than that of Queen Victoria in probably every respect except the ability to employ servants 10 and now once more with credit to Mises so far from being the plan 'less chaos and anarchy of production that is alleged by marxist capitalism is actually passed thoroughly and rationally planned and economic system as it is possible to have the planning that goes on under capitalism with without hardly ever being recognized as such is the planning of each individual participant in the economic system every individual who thinks about a course of economic activity that would be of benefit to him and how to carry it out is engaged in economic planning individuals plan to buy homes automobiles appliances and indeed even groceries they plan what jobs to train for and where to offer and apply the abilities they possess business firms plan to introduce new products or discontinue existing products they plan to change their methods of production or continue to use the methods presently use they plan to open branches or close branches they plan to hire new workers or lay off workers that they presently employ they plan to add to their inventories or reduce their inventories still more examples of routine everyday economic planning by private individuals and businesses could be found private economic planning is everywhere around us and everyone engages in it but to everyone except students of Mises it is invisible to those who are ignorant of Mises economic planning is the province of government the individuals there like chickens without heads there the anarchy of production that's the usual view immense all pervasive economic planning not only exists but it is also coordinated integrated harmonized to produce a cohesively planned economic system the means by which this is accomplished is the price system all of the economic planning of private individuals and business firms takes place on the basis of a consideration of prices prices constituting costs and prices constituting revenue or income individuals planning to buy goods or services of any kind always consider the prices of those goods and services and are prepared to change their plans in the face of price changes individuals planning to sell goods or services always consider the prices they can expect for their goods or services and are also prepared to change their plans in the face of price changes business firms of course base their plans on a consideration both of sales revenues and of costs and thus of the respective prices constituting both and are prepared to change their plans in response to changes in profitability thus for example when my wife and i first moved to california our housing plan was to purchase a house high on a hill overlooking the pacific ocean but after learning the price of such houses we quickly decided that we needed to revise our housing plan and look for a house several miles inland instead in this way we were led to change our housing plan in a way that made it harmonize with the plans of other people who also plan to buy the kind of house we were originally planning to buy but in addition who are willing and able to commit to their plan more money than we were willing and able to commit the higher bids of others and our consideration of those bids brought about a harmonization of our housing plan with theirs similarly a naive college freshman might have a career plan that calls for him to major in medieval French literature or Renaissance poetry but sometime before the start of his junior year he comes to realize that if he persists in such a career plan he can expect to live his life starving in a garret on the other hand if he changes his career plan and majors in a field such as accounting or engineering he can expect to live very comfortably and so he changes his career plan and major in changing his career plan on the basis of a consideration of prospective income the student is making a change that better accords with the plans of others in the economic system for execution of the plans of others requires the services of fall more accountants and engineers than it does the services of literary experts a last example consumers change their dietary plan and thus plan say to eat more fish and chicken and less red meat this results in a corresponding change in their pattern of buying an abstention from buying now in order to maintain their profitability supermarkets and restaurants must plan to change their offerings mainly to increase the respective quantities of fish chicken and fish and chicken entrees or sandwiches they supply and decrease the quantities of red meat and red meat entrees or sandwiches they supply these plan changes and corresponding purchase changes on the part of supermarkets and restaurants result in further plan changes and purchase changes on the part of their suppliers and on the part of their suppliers suppliers and so on until the entire economic system has been sufficiently we planned to accord with a change in the plans and purchases of the consumers the price system and the consideration of cost and revenue that it entails on the part of all individuals leads to the economic system continually being we planned in response to changes in demand or supply in a way that maximizes gains and minimizes losses and ensures that each individual process of production is carried on in a way that is maximally conducive to production in the rest of the economic system for example as the result of a decrease in the supply of crude oil there'll be a rise in the price of crude oil and of oil products all the individual buyers will consider the higher prices in relation to their own specific circumstances in the case of consumers their own needs and desires in the case of business firms their ability to pass along the increase to customers and all of them will consider the alternatives to the use of oil or oil products available to them individually and specifically thus on the basis of his individual thinking and planning each of the participants will reduce his demand for the items in a way that least impairs his well-being and in this way the thinking and planning of all the participants in the economic system who use oil or oil products will enter into the determination of where and by how much the quantity of oil and oil products demanded decreases in response to arise in price this is clearly an instance of responding to a loss of supply in a way that minimizes the impact of the loss the reduction in supply will be accompanied by an equivalent reduction in use in the least important of the employments for which the previously larger supply had been sufficient similarly the price system and the individual thinking and planning of all participants leads to the maximization of the gains from an increase in the supply of any scarce factor of production the additional supply is absorbed in those uses in which it is most highly valued that is in which it can be absorbed with the least fall in price ironically while capitalism is an economic system that is thoroughly and rationally planned and continuously reap land in response to changes in economic conditions socialism as me sis has shown is incapable of rational economic planning in destroying the price system and its foundations namely private ownership of the means of production the profit motive and competition socialism destroys the intellectual division of labor that is essential to rational economic planning they leave the ability of all the different participants each to plan his own circumstances and have it harmonized and coordinated by the price system socialism makes the impossible demand that the planning of the economic system be carried out as an indivisible whole in a single mind that only an omniscient deity could possess this is the essential meaning of central planning central planning means all of the planning of the system is going to be concentrated in one Center for that of the supreme dictator or the supreme dictator plus a couple of dozen members of the central planning board well what socialism represents is so far from rational economic planning that it is actually the prohibition of rash economic planning in the first instance by its very nature that is a prohibition of economic planning by everyone except the dictator and the other members of the central planning board they are to enjoy a monopoly privilege on planning in the absurd virtually insane belief that their brains can achieve the all-seeing all-knowing capabilities of omniscient deities they cannot thus what socialism actually represents is the attempt to substitute the thinking and planning of one man or at most of a mere handful of men for the thinking and planning of tens and hundreds of millions indeed of billions of men by its nature this attempt to make the brains of so few meet the needs of so many has no more prospect of success than would an attempt to make the legs of so few the vehicle for carrying the weight of so many to have rational economic planning the independent thinking and planning of all are required in an environment of private ownership of the means of production and the price system ie capitalism 11 I turn now to the subject of monopoly socialism is the system of monopoly monopoly on planning the monopoly on the production of everything no one can produce anything but the state capitalism is the system of freedom and free competition as Mises has pointed out the essential nature given requirements of human life such as drinking water arable land and the accessible supplies of practically all minerals are typically available in quantities so great that not all available sources can be exploited the labor that would be required is not available it is employed on pieces of land and min deposits that are more productive or in the more in the numerous operations of manufacturing and commerce where its employment is demonstrated by market prices to be more important than the production of an additional supply of agricultural commodities or minerals in these conditions and in the absence of government interference what is required to enable any producer or combination of producers to become the sole supplier of anything is that the price he charges is too low to make it worthwhile for other potential suppliers to enter the field the position of sole supplier is secured by lowness of price and is not the basis for imposing a high price the same essential point applies to cases in which the necessity of investing large sums of capital sharply limits the number of suppliers here a large capital is required to achieve low unit costs of production which are necessary in order to be profitable at low selling prices you know at your college or university you'll almost certainly encounter the argument well you can't have an automobile of an efficient automobile factory for less than a billion dollar investment and I sure don't have a billion dollars and you don't so there can't be many automobile firms but why do you need to invest a billion dollars to have an efficient size automobile factory because it takes the billion dollars to achieve economies of scale and get the cost of producing the cars down to the point where you can be profitable at low prices of automobiles if the price of automobiles goes higher the level of costs you can incur and still be profitable that goes higher too and if you can have higher costs you don't need so much capital the high capital there's only a limitation on entry so long as it's the foundation of low costs and low prices monopoly is actually the result of government intervention specifically it's the reservation of a market or part of a market to one or more suppliers could be more than one supplier by means of the initiation of physical force exclusive government franchises protective tariffs and licensing laws are examples of monopolies and of course they are all imposed by government 12 capitalism is a system of progressively rising real wages the shortening of hours and the improvement of working conditions contrary to Adam Smith and Karl Marx businessmen in capitalists do not deduct profits from what allegedly was originally all wages or what allegedly is naturally unlight Phylly all wages the original and primary form of income is profit not wages manual workers producing and selling products hi there in Adam Smith's early and rude state of society or in Karl Marx's simple circulation did not earn wages but sales revenues 11 sells a loaf of bread or a pair of shoes or any other product one is not paid a wage but a sales revenue and precisely because those manual workers did not behave capitalistic Lee according to Smith and marks ie did not buy for the sake of selling but made expenditures nearly as consumers they made no expenditures for producing whatever goods they may have sold and because they didn't buy anything for the sake of earning their sales they incurred no money costs of production there were no money costs to be deducted from their sales revenues thus the full magnitude of their sales revenues was profit not wages and on that basis I say I turns out that profit is the original and primary form of labor income here we are we have manual workers they're producing products they get paid for the products that sales revenues they haven't bought anything to produce the products they have zero costs the whole income is profit contrary to Adam Smith and call remarks that is only with the coming of capitalists and the accumulation of capital that the phenomenon of wages comes into existence along with the demand for capital goods and both wages and the expenditure for capital goods show up as money costs of production which must be deducted from sales revenues the more economically capitalistic the economic system in the sense of the greater is the buying for the purpose of earning sales revenues relative to the sales revenues well then the higher or both wages and other costs relative to sales revenues and thus the lower our profits relative both the sales revenues and to wages in other words what capitalists are responsible for is not the creation of the phenomenon of profit and its deduction from wages but the creation of the phenomena of wages and money costs and their deduction from sales revenues which were originally all profits capitalists are responsible for the creation of wages and the reduction of the proportion of sales revenues that represents profit the more numerous and wealthier of the capitalist the higher our wages relative to profits the fact that wage earners may be willing to work for as little as minimum subsistence in the absence of any better alternative and that businessmen and capitalists like any other buyer prefer to pay less rather than more or propositions that are true but utterly irrelevant to the determination of the wages that the wage earners must actually accept those wages are determined by the competition of employers for labor which is both the most fundamentally useful element in the economic system and is intrinsically scarce in that competition that is against the self-interest of any employer to allow wage rates to go below the point corresponding to the full employment of the kind of labor in question in the location in question such low wage rates mean that the quantity of Labor demanded exceeds the supply available ie that there is a shortage of the labor concerned a shortage of labour is comparable to an auction in which there are still two or more bidders for one in the same item the only way that the bidder who wants the item the most can secure it is by outbidding his rivals and making the item too expensive for them so that they must step aside and make it possible for him to secure the item in the labour market there may be tens or even hundreds of millions of workers but the scarcity of labour means that there are potential jobs for far more than that number the fact that each of us would like the benefit of the labour of at least 10 others can be taken as an indication of the scarcity of labour the underlying inherent scarcity of labour when a wage rate goes below the point corresponding to the full employment of the kind of labour concerned it becomes possible for employers not able or willing to pay that higher rate to obtain labour at the expense of other employers who are able and willing to pay the higher rate the situation is exactly the same as the stronger bidder at an auction who is faced with the loss of the item he wants to another weaker bidder the way to secure the labour he needs is to raise the bidding and knock out the competition of the weaker employers in the face of labor shortages which appear when ceiling prices are imposed on labor employers actually conspire with employees to evade the spirit of the wage controls and they do so by giving out phony promotions this happened under our president quarter he attempted to limit the rise in wage rates below the conditions at which the the market was raising them and had employers obeyed them they would not have been able to obtain the workers they needed or keep the ones they had and as a means of raising wage rates above the official guidelines they started handing out phony promotions / you're allowed to pay someone in a higher position more and that was a way of raising the wage rates in defiance of the spirit of the law so my basic point here which obviously would need further elaboration and I assure you I offer a full elaboration in my book the basic point is that the determination of money wage rates is not arbitrary employers have to pay competitive rates to obtain the labor that they want now given the height of money wage rates which we have seen is determined by the competition of employers for scarce labor what determines real wages that is the goods and services the wage earners can actually buy with the money there and what determines real wages is the prices of the goods they will buy real wages we have to keep in mind our determined fully as much by prices as they are by wages real wages rise only when prices fall relative to wages you might think you know something if you know someone is making a million dollars a year well if you take for granted the present buying power of money a million dollars a year means quite something we're very substantial but what it means to make a million Italian lira a year we have the Euro now but until 1999 there was the lira my wife and I spent a few nights in Genoa sometime in the late 90s we stayed I think two or three nights at hotel and our hotel bill was about six million lira so the point is in order to know what real wages are it always depends on the relationship between the money wage on the one side and the prices of the goods on the other and for real wages to rise wages have to be higher relative to prices or what's mathematically equivalent prices have to be lower relative to wages real wages rise only when prices fall relative to ages well what is it that will bring about a fall in prices relative to wages well what makes this happen is a rise in the productivity of Labor that's the output per unit of Labor arise in the productivity of Labor means a larger supply of consumers goods relative to the supply of labor that we have ever many workers working and each on average that can now produce more will there be a bigger supply of goods produced relative to the labor that produces it and that's going to reduce prices relative to wages and raise real wages if we could somehow measure the supply of consumers goods but pay doubling of the productivity of Labor would operate to double the supply of consumers goods relative to the supply of labour and in the face of the same overall respective expenditures to buy consumers goods and labor if we have the same total amount of money being spent to buy the goods but now there's twice the goods well the prices are going to be halved but if there's the same total wages being paid to the same total number of wage earners the wage rates are unchanged so if we have the double productivity of Labor having prices and wages are unchanged real wages have doubled the rise in the productivity of labour there's always the essential then the rise in real wages it's what enables increases in the quantity of money and volume of spending which are the factors responsible for higher money wages it's the only thing that allows the higher money wages to represent higher real wages so we normally think our standard of living Rises because we earn more money well the only thing that enables everybody to earn more money is the existence of more money but if all we had going was more money that would raise our money wages but it would raise prices just as much so when our money wages go up and our real wages to the only thing that allows that is if at the same time there's more consumers goods being produced so that their prices rise less than wages or maybe don't rise higher money wages are only a benefit to the extent that prices rise less and what's required for that is arise in the productivity of Labor well here for lack of time I'm going to close I'd like to to do so by saying that if you found anything in my talk today to be of interest I hope you'll explore the matters that I've discussed at greater length and in detail in my book that's entire sum and substance can be understood as a systematic exposition of the benevolent nature of capitalism I thank you very much you

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