fun with numbers - wage "inflation"?

[Finster]

Re: fun with numbers - wage "inflation"?

the sum of money put aside represented the value of production of a year of labor with productivity determined by the technology of 20years earlier. it still represents that amount, which is less than you might produce with the latest technology...

But you have sidestepped the question - where did the difference go? Who got the benefit of the advancement in productivity?

If you had set aside some sum of money in the year 1900, and were now told all you could buy with it was buggy whips and other goods available in 1900, you could rightfully complain that your money had lost value. In between, someone else got the value you lost.

[jk]

Re: fun with numbers - wage "inflation"?

But you have sidestepped the question - where did the difference go? Who got the benefit of the advancement in productivity?

the benefit goes to the producers and consumers of the later age. rip van winkle not only can't take it beyond the grave, he can't take it beyond his coma.

[Finster]

Re: fun with numbers - wage "inflation"?

the benefit goes to the producers and consumers of the later age.

Good guess, but unfortuately, incorrect. For one thing, the saver of today we're talking about is also one of those consumers of the later age.

But more importantly, let's consider how our two scenarios would come about. The second scenario - the one in which the money buys the same about of human time - is consistent with a constant supply of money per person over the time frame. The second - where the money buys the same amount of goods - requires that (since the amount of goods per unit of human time grows) that the amount of money per person also grows. That means that someone is printing up new money.

Now if you and I both save some money, and at some later point in time we both spend it, we are on par with each other. But if I supplement my savings by printing up some new money, my purchasing power grows at the expense of yours. I have not produced anything of real value for my gain, merely produced more claims on the available real production. Althought I have not actually reached into your pocket, the effect is the same. My act of creating more claims on the same amount of production decreases the value of yours.

So the answer to the question of where the difference went is this - to the party who is printing up excess money. The government. The bottom line is that the government's use of a goods standard as its value metric is tantamount to claiming for itself all the benefit of the advancement of technology and productivity.

[jk]

Re: fun with numbers - wage "inflation"?

Good guess, but unfortuately, incorrect. For one thing, the saver of today we're talking about is also one of those consumers of the later age.

But more importantly, let's consider how our two scenarios would come about. The second scenario - the one in which the money buys the same about of human time - is consistent with a constant supply of money per person over the time frame. The second - where the money buys the same amount of goods - requires that (since the amount of goods per unit of human time grows) that the amount of money per person also grows. That means that someone is printing up new money.

Now if you and I both save some money, and at some later point in time we both spend it, we are on par with each other. But if I supplement my savings by printing up some new money, my purchasing power grows at the expense of yours. I have not produced anything of real value for my gain, merely produced more claims on the available real production. Althought I have not actually reached into your pocket, the effect is the same. My act of creating more claims on the same amount of production decreases the value of yours.

So the answer to the question of where the difference went is this - to the party who is printing up excess money. The government. The bottom line is that the government's use of a goods standard as its value metric is tantamount to claiming for itself all the benefit of the advancement of technology and productivity.

i suppose the goods standard is what is behing milton friedman's idea of just having a machine that expands the money supply by 4% per year. presumably the 4% represents the additional production each year, so that the goods/money ratio remains constant. the issue you raise relates to how this newly minted money enters the economy. somehow that money has to get to the purchasers of all the goods produced, so that they can purchase the increased production of the more productive producers. [sorry]

the creation of new money is via the credit system. one problem with friedman's machine is trying to define the money supply. to say the gov't pockets the additional value of increased productivity is to assume that the treasury literally prints the extra money and spends it for governemental purposes. but credit has grown even when the governemental budget is in balance or surplus. where does the money enter the system? it is via the creation of credit, through the banking system making loans, through the creation of mortgage debt by the gse's, etc.

to say the government "prints" more money is in fact a metaphor, not an observation. so although your theory is attractive, i am not convinced that is accurate.

[Finster]

Re: fun with numbers - wage "inflation"?

i suppose the goods standard is what is behing milton friedman's idea of just having a machine that expands the money supply by 4% per year. presumably the 4% represents the additional production each year, so that the goods/money ratio remains constant. the issue you raise relates to how this newly minted money enters the economy. somehow that money has to get to the purchasers of all the goods produced, so that they can purchase the increased production of the more productive producers. [sorry]

the creation of new money is via the credit system. one problem with friedman's machine is trying to define the money supply. to say the gov't pockets the additional value of increased productivity is to assume that the treasury literally prints the extra money and spends it for governemental purposes. but credit has grown even when the governemental budget is in balance or surplus. where does the money enter the system? it is via the creation of credit, through the banking system making loans, through the creation of mortgage debt by the gse's, etc.

to say the government "prints" more money is in fact a metaphor, not an observation. so although your theory is attractive, i am not convinced that is accurate.

The question of how the money enters the economy is somewhat of a separate issue, but an important one nevertheless. The current regime favors Washington and Wall Street. It would be possible, however (especially in this age of computers), to do it fairly and evenly, for example by increasing the balance in every bank account by some fixed proportion. Say, for example, if it were deemed necessary to increase the money supply by 0.5%, then on a given date each account is adjusted so that it now has 0.5% more dollars than it did the day before.

This nevertheless takes us full circle, as it begs the question of what is to be accomplished by increasing the money supply by 0.5% in the first place.