Currently, we operate in a word that some would characterize
as an infinite paradigm. This means that GDP must grow each year, prices must
rise to reflect the fact that the economy is heating up in a positive way and
the money supply must constantly grow to foster commerce.
All of these things were taught in college. Every student in
economics was taught the above. Like parrots, they repeat the same thing over
and over. Each generation from the 30’s onward has looked upon recessions and
other “animal spirits” as inexplicable variables that the human being just
happens to create. All of this is nonsense, just as the idea that higher
nominal wages are a function of productivity.
To clarify things, higher REAL wages are a function of
productivity. It’s the ability to have a higher living standard with the same
amount of the “generally accepted medium of exchange” is your pocket/bank account/vault.
I couldn’t care less if my paycheck was 100 dollars, but I
could buy all the amenities of life and have something left over. But if my
paycheck was 100 dollars, and each subsequent month, the REAL value (not face
value) went down, I would demand an explanation. (In the short run, it is true
that the certain fluctuations might impact wages that they fall nominally; but
only because of the frictional transition of employment from one industry to
the other.)
In a fixed money supply environment, money would just shift
through different stages of production, impacting the NOMINAL levels throughout
the process, making them smaller in nominal terms. The goal is to have the
funds/money/savings invested in higher order goods (furthest from consumption)
to create a situation of lesser scarcity in the consumer goods industry later. The
funds are tied up in the higher order sectors, leading to a DROP in consumer
prices (goods not sold after fund transfer) and to a RISE in wages.
In a free market, there would be possibly increases in the
money supply, as people’s preferences would shift and the demand and supply of
money would change, bringing to an increase or decrease in the money supply.
The difference between that system and this one we have now is the entrepreneurial
possibility of foreseeing these changes in advance in a freely priced market,
while in the current system, the market does not convey such information, but a
bureau of government officials (university professors).
In my opinion, a general rise in wages is indicative of a
bubble in a certain sector of the economy. As additional created credit flows
to wage earners, they bid up the prices of consumer goods (a bottleneck effect
occurs due to funds being wrapped in higher order goods along the productive
line), forcing the acceleration of wage increases to match the increases in the
prices of consumer goods. This, unfortunately, never happens, as wage earners
are always a step behind the price increase.
