I have some convincing reasons, mostly based on the idea that competition in a free-market is a rivalrous, dynamic, and entrepreneurial process. Basically, markets lead to specialization rather than centralization, and just one technological innovation can radically switch the distribution of wealth and make certain products and services completely obsolete.
But besides that, my argument is kinda bare. Any help would be appreciated, as I'm currently in a debate with my professor and some students.
Oh, and one more thing. I said that, even if wealth centralization did occur, giving a ton of power to another centralized monopoly doesn't exactly seem like a solution to that problem. Sounds like a fair point, right?
Thanks, guys.
I assume you've read the ABCT?
Only a little. What's a good source on it?
It is explained simply in
http://wiki.mises.org/wiki/Argumentation:ABCT
If you have read JJ's signature, you can find a collection of resources at
http://mises.org/Community/wikis/economics/austrian-business-cycle-theory-learning-materials.aspx
I hesitate, however, to give either of these as definitive reads. I will PM JJ and ask him what article does the best job at explaining it.
EDIT: the second link was wrong. Fixed.
So employer A is producing widgets. Widgets cost more than the employer pays his/her laborers. After producing widgets long enough, everyone that can afford one and wants one has one. So, the employer has to find a way to maintain profits. Most likely, the price will go down. We see this happen all the time with cell phones, computers, ipods, whatever.
Are you saying prices never go down? Are you saying wages never go down? I'd like to see an explanation of how employers can't cut wages and how one avoids declining prices without moving into another sector (which would still decrease prices of the original widget and therefore demand for the labor to create them).
Wheylous,
The ABCT explains a particular kind of financial crisis and why that particular crisis is caused by the fed. It does not rule out recessions, panics, crisises, or lower prices altogether.
Birthday Pony: Wheylous, The ABCT explains a particular kind of financial crisis and why that particular crisis is caused by the fed. It does not rule out recessions, panics, crisises, or lower prices altogether.
This is where your understanding is lacking. The ABCT explains the cycle of boom/bust, period. It is not about "a particular 'crisis'". "Recessions, panics, crises" are all synonyms for (yet another commonly used word) "bust"...as in "severe economic downturn" (I would have said "recession" but you already used that as a "particular kind of crisis"...which, by the way, I think it should tell you something when you have to use "crises" as a "particular type of crisis".)
"Lower prices altogether" is not inherently bad, and can come about in 4 different ways. Professor Salerno explains this here:
An Austrian Taxonomy of Deflation [PDF]
An Austrian Taxonomy of Deflation—With Applications to the U.S. [PDF]
Thanks for the resources. I was waiting for someone with more knowledge on ABCT to come in.
Wheylous, I'm not even going as far as a recession in my example. I'm simply stating that prices eventually go down. You seem to not understand this and think employers cannot do such a thing, which is still confusing me. Are you saying that A) employers do not have the power to lower wages or B) wages do not go down?
What do we mean by wages going down? Nominal wages? Real Wages?
Say a workers is paid $100 and produces 10 widgets that sell for $15 each. Later his productivity increases and he produces 20 widgets that each sell for the same price ($15) while he is still being paid $100. Has his wage gone down or remained the same?
Or let's say that his productivity remains constant but the price of the widgets increases to $20 each. His wage can now buy less widgets, so has his wage gone down?
I think the stickiness of wages only applies to the nominal value and not the real value.
FOTH, I'm simply saying that wage labor depends on centralization of capital. If the distribution of capital was such that everyone had a roughly equitable amount, no one would work for wages since they could produce something themselves for the full value of that product. As long as there already is a centralization of capital in a wage based economy there will remain one.
Birthday Pony:employers begin producing until there is less demand than there is supply
This is impossible. In our universe there is scarcity. Entrepreneurs work to ease scarcity, but no one can ever get rid of it. Your analysis comes undone right there.
Every decent man is ashamed of the government he lives under - Mencken
Birthday Pony:When profits fall, you change stuff or risk over-production.
You produce up to the point where you no longer make a profit by producing. This keeps you from overproducing and allows resources to go towards satisfying other wants. The law of supply and demand balance things in a free market.
Birthday Pony:Regardless, this generally leads to lower wages and capital investments
Earlier, you mentioned that they cut labor. Are you familiar with the law of diminishing returns? With fewer workers, the marginal product is higher, which leads to higher wages.
And it does not lead to lower capital investments, it leads to the correct amount of capital investments in a given industry, aligning it properly with what people are demanding.
Birthday Pony: This is pretty basic and general stuff, ya'll. Overproduction was the wrong word to use. It's a technical word that means a very specific thing, and that was my bad. But seriously, it goes like this: Employer pays an employee less than the yield for the product they make. That's the way profit works. When they stop making enough profit, or think they will, from whatever they're producing, they cut wages, investments, whatever to maintain profits or protect themselves against whatever drop will happen. This leads to less investment not only in capital, but in labor, meaning laborers have less money in their pockets for commodities or capital and capitalists have a bunch of capital they're not moving around. When your economy's main mode of production is wage labor this is bound to happen. When there's not enough people willing to work for less than the yield of the product they're making, then employment becomes less important or non-existant. There needs to be some centralization of capital in order for capitalism to function.
This is pretty basic and general stuff, ya'll. Overproduction was the wrong word to use. It's a technical word that means a very specific thing, and that was my bad. But seriously, it goes like this:
Employer pays an employee less than the yield for the product they make. That's the way profit works. When they stop making enough profit, or think they will, from whatever they're producing, they cut wages, investments, whatever to maintain profits or protect themselves against whatever drop will happen. This leads to less investment not only in capital, but in labor, meaning laborers have less money in their pockets for commodities or capital and capitalists have a bunch of capital they're not moving around.
When your economy's main mode of production is wage labor this is bound to happen. When there's not enough people willing to work for less than the yield of the product they're making, then employment becomes less important or non-existant. There needs to be some centralization of capital in order for capitalism to function.
This is all very silly. The price of labor works like the price of anything else in most cases, and is determined through a bargaining process. Changes in relative supply and demand can tilt the process one way or another, and so the price of anything - tomatoes, lap dances, lap tops, labor, fertilizer, massages - clears the market. An entrepreneur cannot simply cut the prices he pays without consequence. Do you think workers are mindless automatons, or something? In that case, why did he pay them any wage to begin with?
If he cuts wages, he will attract fewer workers and workers of lower quality/ability/experience/dependability. This also will affect his bottom line.
The real flaw in your analysis should be obvious. If profits are dropping, why must he resort to cutting workers' salaries? Why can he not simply jack up his prices? If you answer because people won't accept his products at those higher prices and will go instead to his competitors, that he cannot simply manipulate his prices any way he likes without consequence, then you are within an inch or two of discovering the problem with your analysis.
Also, consider that no human in a free society is destined only for labor. Anyone may try their hand at entrepreneurship. If wages are being lowered, fewer people will want to be laborers and so will leave that class to become entrepreneurs. This will lower the supply of laborers and increase the demand for them. I shall assume you know what this will do...
Birthday Pony: *face palm* You just don't listen, huh? Try again and if the economics of the situation still confuse you I can hold your hand through it.
*face palm*
You just don't listen, huh? Try again and if the economics of the situation still confuse you I can hold your hand through it.
Wow. I am regretting the restraint I showed earlier in dealing with your foolishness.
Birthday Pony:I'm simply stating that prices eventually go down.
The decrease in prices you are talking about did not come about because of a lowering of wages.
It's almost as if no one here wants to get to the substance of my argument and would rather have a fun discussion about syntax. Let's do it simply, shall we?
Firm produces, pays workers less than value of that which they produce.
Workers cannot afford said product. In order for it to be sold to the masses and maintain profits the price must go down or wages must go up.
Wages go up, price goes up. No dice. Commodities and capital of the capitalist are deinvested in said industry or the capitalist begins to hoard, or overproduction occurs if there's an idiot in the board room.
Price goes down, wages go down, or profit goes down. No dice.
Lay off a worker or two. Maintain profits, raise wages. Some workers can't afford the product because they are unemployed. Continuing this pattern leads to lower wages because the demand for work rises while the supply needed falls. Even a balance of this solution checks wages versus profit at equilibrium, maintain just enough concentration that the vast majority of the population wishes to do wage labor for a living.
And all these conclusions rely on one group having more capital than the rest. Not only that, for the premises to even make sense there already has to be concentration of capital!
Birthday Pony:Widgets cost more than the employer pays his/her laborers. After producing widgets long enough, everyone that can afford one and wants one has one. So, the employer has to find a way to maintain profits. Most likely, the price will go down. We see this happen all the time with cell phones, computers, ipods, whatever.
Computer prices haven't gone down because "everyone that can afford one and wants one has one." You do realize that products wear and break down, do you not? Some people will want them replaced, some people will want more, some people will want the latest and greatest, some people were children before but adults now and finally want to buy one.
If demand for widgets goes down, which can certainly happen, it will, as it must and should, depress the industry. But this only means that resources are freed up to produce something else, whose demand may be increasing. That's part of how the market works, coordination without central planning.