Re: National Socio-Economic Security Need for Encr

[Bart Croughs <bart.croughs@tip.nl>]

Chris Adams wrote:

>On 12 Aug 96 19:17:00 -0800, bart.croughs@tip.nl wrote:

>Now I will explain why the austrian economists are right.
Imagine Robinson Crusoe. In the beginning, he catches fish with his bare hands. He has no capital investment, and consequently he is not very productive. His wage will be low (he will not catch much fish). If there is more capital investment - if, for example, he has a fishing rod - he will catch more fish in less time. His productivity is higher. His wage is higher (more fish). If there is still more capital investment - if, for example, he has a boat and fishing nets - he will catch even more fish. His productivity is higher. His wage is higher. Etcetera. So, it's really not difficult to see that the Robin's standard of living depends on the amount of capital available on his island. The same goes for the rest of humanity.<


To a limited extent, that holds water.  However, how would you explain,
say, some of the construction work around here where a huge, expensive
piece of equipment is being run by some guy making less than the Cal
Trans worker with the flags?  Or guys I know who are making low-middle
class wages working on a $10,000 computer hooked up to a $1,500,000+
molding machine?  Also: lawyers -  You're getting charged $200 a billing
hour by someone who probably doesn't even use a typewriter (After all,
secretaries aren't just for oggling).  Although legal references might be
somewhat expensive, it doesn't compare to the money gained.
Also: computers.  I know people who are making an incredible amount on
old machines.  They might be using a few dollars in software (probably
2-3 hours worth at most)  and are working on a cheesy old machine. 
However, because some of these $6.25/hr typists have been putting useful
information into it, it is worth the trouble to pay someone $50/hr to fix
it.  Neither of them has invested much compared to what they're getting
in return.<

When economists say that wages depend on the amount of capital invested, 
they mean on a regional/national level, not on the level of individuals.

>Your argument only works with 2 givens: 1) A larger investment will
return at least a corresponding increase in productivity.<

This tends to be the case. If a larger investment doesn't return a corresponding
 increase in productivity, the investment will generally not be made. Happily, no
 one wants to waste his money on investments that are not productive. 

>and 2) the worker is self-employed - otherwise there are too many factors involved.
If #1 is true, *someone* will be making more money, but not necessarily
the worker.<

Yes, it's the worker who will make more money. Why? As I explained in
 another post on this subject:

"Increased productivity of workers leads to higher wages for workers because
of competition between employers. If a worker produces the worth of $3000 
per month for his employer, and his employer is only willing to give him a wage of $2000 , then there are other employers who would be happy to give this man
a job at a higher wage. They still profit if they give him a wage of $2100 
instead of $2000. This process goes on until the salary of the worker equals 
his marginal productivity."

Bart Croughs