Monday, February 10, 2014

Comments in Response to Marxism-Inspired Article in New York Times

The main article on page one of today’s (February 10, 2014) New York Times is inspired by Marxism. The article attempts to deny that raising wages reduces employment. The substance of its denial is the mere fact that employers make this claim. The Times’ position is that if capitalists claim something, it can’t be true—because it is capitalists who claim it. The Times and its staff are wedded to the proposition that capitalism is a system functioning exclusively in the interests of a handful of capitalist exploiters and against the interests of the overwhelming majority of mankind (think of the “1%” vs. the “99%,” which is the current popularization of this dogma). This belief is assumed to be true beyond any possible question and any attempt to challenge it, it is believed, can only reflect dishonesty on the part of whoever dares to do so and should immediately be ignored as soon as the slightest connection can be found to the interests of capitalists.

I have tweeted on the article on Twitter.

More importantly, I’ve managed to get The Times to publish two comments of mine relevant to the article. My comments appear on The Times website, accompanying the online version of the article. Each comment can be found by clicking on its title.

One of the most fundamental principles of economics is that, other things being equal, the higher is the price, the lower is the quantity demanded. Applied to wages, this means that, other things being equal, the higher is the wage, the smaller is the number of workers employed.

The truth of these propositions is not diminished in any way by the fact that interested parties use them. In this case the interested parties are using a scientific truth, just as a patient with an interest in saving his life relies on the scientific truths established by medical science.
Empirical studies showing wage increases without decreases in employment, indeed, wage increases accompanied by actual increases in employment, do not invalidate the fact price (wage) and quantity demanded are inversely related. The relationship holds OTHER THINGS BEING EQUAL. If over the same period of time that wages rise, the quantity of money and volume of spending in the economic system also rise, the same or a larger number of workers can be employed. However, if their wages did not rise, or rose by less, the number of workers employed would have increased by still more. In this case, the unemployment that results from a higher wage is to be understood as being in comparison with the greater amount of employment that would have existed in the absence of the wage increase.
A fundamental fact to keep in mind is that any given amount of spending can buy more the lower are prices/wages. This is a fact of arithmetic.

Whoever is concerned with raising the standard of living of the average wage earner needs to realize that that standard of living is not determined by the height of the worker’s money wages. What it is determined by is his wages RELATIVE TO THE PRICES he must pay as a consumer. Before the introduction of the Euro, every Italian worker earned millions every year—millions of almost worthless Lira. Despite being multi-millionaires, the standard of living of Italian workers was very low, because prices were extremely high.

The standard of living of all workers taken together is simply not increased by increasing their money wages. What increases money wages across the board is basically just an increase in the quantity of money and volume of spending in the economic system. But that same increase operates equally to raise prices, thereby preventing any rise in the general standard of living.
What allows the workers’ standard of living to rise is improvements in the output per worker. The same number of workers, or a larger number of workers, each on average producing more, implies an increase in the supply of consumers’ goods relative to the supply of labor, and thus, as far as it goes, a fall in prices relative to wages.

However counterintuitive it may be, the rise in the workers' standard of living comes about not by virtue of the workers earning more money, but by virtue of the rise in output per worker holding the rise in prices below the rise in wages.