FT, December 21, 2015 11:16 pm Marx’s meditation on Citizen Weston revisited
Sir, Jennifer Hughes’s comments on the increase in purchasing power of China’s poorest 40 per cent (Short View, December 17) illustrates why it is that a rise in the minimum wage does not result in an increase in unemployment. Nor does such an increase engender anything more than but a brief but passing inflationary episode. After describing a fall in the Chinese luxury goods market, Ms Hughes writes that “there is growing interest in the power of another type of Chinese consumer — the more regular, less flashy sort. Incomes for China’s poorest 40 per cent are rising at about 9 per cent a year — more rapidly than for the better off . . . investors should think about sectors that could get a boost from the bottom 40 per cent.” Suppose that against a given level of production such an increase occurs. The additional purchasing power then causes a rise in the price level of what AC Pigou called “wage-goods” as the pay rise does not allow ventures into “non-wage goods” (luxury items), only an increase in purchasing of the former. This rise in the price level — and through that, the profitability — in the “wage-good” sector entices some entrepreneurs to exit the “non-wage good” sector and enter into “wage-good” production. The consequent rise in the level of this production soon strips the inflation away, sending pricing, profitability and the general level of inflation back towards their pre-wage increase mean levels. Only now there is relatively more production of “wage-goods”. In addition there will be an increase in the tempo of the economy as income will have been transferred towards sectors inhabited by those with greater marginal propensity to consume. Of course some pre-existing concerns operating marginally at profitability will be unable to afford the wage rise and will exit the field. These losses will be more than compensated by the job growth in the “wage-good” industries as a portion of the market’s productive forces come to be shifted away from the fashioning of luxury items as “investors . . . think about sectors that could get a boost from the bottom”. There is nothing new in this thinking. Marx described the same almost exactly 150 years ago in his meditation on Citizen Weston in Value, Price and Profit. John A Imani Los Angeles, CA, US _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
