Wednesday, January 31, 2007

Why Wages Rise; a review of F.A. Harper's book

Economist F.A. Harper wrote his monograph Why Wages Rise in 1957 to answer the question alluded to by the title. The book is available online at Mises.org. [1]

One point that hits home is the total wage concept:

Wages have no worth except as one can buy with them
something he wants, including the investment of savings. So
no matter what the rate of pay or the form of payment, there
is no way to pay wages making it possible to have something
this year that is not to be produced until next year or the year
after.


Three key points

One: Wages only have value equal to that which can be purchased, saved, or invested. The Soviet Union, especially under Lenin, had trouble grasping this concept. During Lenin's first planned economic intervention - war communism, Soviet workers were paid more than they had ever experienced, though stores lay barren of consumer goods. Initially excited by the higher wages, the workers soon realized that their hard work was rewarded by paper, not the goods they desired. The early enthusiasm for meeting lofty production goals soon faded to a level equal to the empty, dusty store shelves.

Two: You can't buy goods today that will not be produced until next year. So, why would anyone buy the Keynesian line that inflation -- inflating the money supply -- stimulates the economy. Putting additional dollars in my hand will not allow me to purchase goods not already produced. It will, though, force prices to rise as the new dollars chase the current stock of goods. In addition, by devaluing the currency, inflation robs the value of wages earned. [2]

Three: Harper explains lost value through government taxation: Your nominal wage has no real relationship with your value wage. Under the subheading, I Spend It for You, he shows with very clear logic how the $1 taxed loses value when spent by others - government. If it were true that your taxed dollar has the same value as a dollar of your disposable income, then you would have spent the dollar as government spent it -- with government miraculously incurring no bureaucratic costs. In that odd case, government provides no real benefit. In all other case, you lose value through taxation -- government is a detrimental cost.

It's as simple as that.

Read the book. At 122 pages, it is an easy read of an important subject.


Notes:
[1] In fact it is one of a large selection of free downloadable books of economics and Liberty available at Mises.org.

[2] Of course, I could run on-and-on about the ills of inflation.

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