sorry im a bit of an economics noob but this question has been bugging me.
say for example the average real wage of an economy increases from $20,000 to $30,000. i understand that this is facilitated by an increase in productivity etc. but what i dont understand is where this extra money comes from. if my wage increases, then surely this money must come from somewhere, be it my employer or outside. in other words, where does this extra money come from?
From the people who would rather have the product of your labor than the money.
I think what he's trying to get at is this: "Sure productivity increases, but the only way to facilitate exchange, and furthermore, increased productivity is more money to do just that."
He's asking whether we need more money injected in the economy to facilitate the increase in production, and which one comes first. Does the increase in production necessitate an increase in the money supply, or does the increase in the supply of money facilitate an increase in production.
I hope I've characterized your question properly, OP.
Mr Schnapps,
This is what I understood the OP to be saying as well. What effect does a commodity currency, like gold, have on real wages versus a fiat currency, like dollars, when productivity increases?
RonPaulLol:sorry im a bit of an economics noob but this question has been bugging me. say for example the average real wage of an economy increases from $20,000 to $30,000. i understand that this is facilitated by an increase in productivity etc. but what i dont understand is where this extra money comes from. if my wage increases, then surely this money must come from somewhere, be it my employer or outside. in other words, where does this extra money come from?
A higher real wage is just another way of saying that we can afford more stuff because there has been an increase in productivity. There's not more money, that would be an increase in nominal wages. There are more goods to go around so our wages stretch further. In the absence of inflation (increase in the money supply) nominal wages wouldn't rise, the value of our money would increase so that we can afford more goods for the same amount of money. When the government prints money it takes away that increase in purchasing power.
EmperorNero is correct. Nominal wages often shrink in periods of real growth, due to population increases.
It's almost comical that human beings aren't equipped to grasp that falling nominal wages is often a good thing. We're barely out of the jungle.
Yes. See the thread on sociobiological barriers to libertarianism.
Can't find it. Can you link?
Hey Ricky, what do you think of the following idea? We appoint Rand Paul the absolute monarch. After three years he apoints a libertarian of his liking, and so on.
I can, and I shall.
Hey Ricky, what do you think of the following idea? We appoint Rand Paul the absolute monarch.
Rand Paul is more like a Taft Conservative than any kind of libertarian. I think he is bad on a number of issues, so that is one objection.
After three years he apoints a libertarian of his liking, and so on.
I think you will quickly find they are not so libertarian when in power. Remaining in power requires one to be a gangster, especially in a country where inherited right is not recognized to begin with.
Well, I could have thought of searching it with a hyphen. Talking about barely being out of the jungle.
He's conservative about what? He's like the most awesome, pretty, awesome, electable libertarian ideologue everrr.
That's why we should put libertarian ideologues in power.
I beg to differ. I also think elections are generally useless; politicians are but a cog in the machinery of bureaucracy.
They would not remain in power, and I do not think any pure libertarian would take it. I also do not think it would accomplish much, if anything, aside from corrupting libertarianism with politics. While Ron Paul may do some good on education and obstructionist grounds, he is purely useless in terms of effective control over State power. If it were possible to elect and keep a large number of libertarians it would be pointless to do so. It is only because most people are state-socialists that this might have any positive effect; if they were not then the government would wither due to a general disregard for it.
When asked asked many years ago what he would do if he were appointed dictator, Ludwig von Mises replied: "I would resign!"
That is the response of a principled libertarian ideologue.
What i was saying was, if the average income in an economy increases say from 20k to 25k, where does this extra 5k that everyone in the economy now gets come from? it obviously doesnt cancel out with someone giving it to them, so where does the physical money come from? i dont think this has been answered yet
In an economy where you don't have a central bank, that wouldn't really happen. Increased real wages would come about through a lower price for goods. In other words, if an economy is becoming more productive, in general we wouldn't see a rise in wages, in general we would see a fall in prices. In our current economy where higher real wages usually do come about with higher nominal wages, the extra money comes from the printing press.
Yes, I am a huge Dodgers fan.
Anti-state since I learned about the Cuban Revolution and why my dad had to flee the country.
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The trouble with income is that the "same dollar" can be spent more than once in a year. This is why economists speak of "velocity". However, I'm of the opinion that velocity is not that important of an idea, economically, and is mainly just a reflection of technological progress, i.e. money can be moved more quickly over electronic wires than it can be over physical land.
To answer your question, there are two scenarios:
a) The modern world of central banking. In this scenario - the real world - the extra money usually comes from the central bank and was printed up at one point of time, through one mechanism or another (however complex and obfuscatory it may be). The resulting increase in "average wages" is correlated with an increase in the average prices of lots of other things. Most of the increases in the wage rate can be put down to the inflationary illusion of rising prices created by an ever-expanding supply of money.
b) The imaginary world of sound money. In this scenario, average wages could increase as a result of one or both of two factors. The first factor is an increase in the demand for labor. As the demand for labor increases, the money used to purchase things other than labor is moved away from those goods and used to purchase labor. Hence, you would expect to see an increase in the average wage and a decrease in the average price of other things. The second factor is an increase in the supply of natural money, let's say gold (for the sake of discussion). This is similar to point a) above except that increases in the production of gold, unlike increases in the supply of fiat money, affect the rest of the economy and are affected by the rest of the economy. You can read the following article for more information.
http://mises.org/daily/3789
Hope that answers your question!
Clayton -