Cutting prices in the market is the same as raising wages. However, it doesn't help in the long run. Ricardo's Iron Law of Wages is ever present. That's the economic law that postulates the continual downward trend in wages.
If production increases steadily, it may hide the downward pressure - but it doesn't stop it. As Henry George asked: "Why in spite of the enormous increase in the power to produce do wages constantly tend to a minimum which will give a bare living."
The market will do its job of getting the best quality at the lowest cost.
However, it does that with labor too. One of the problems with the libertarian free market is that it will produce full employment with the General Level of Labor (those at the bottom) enjoying (sic) subsistence level wages.
The reason for this is that land is not controlled by the free market - as are Capital and Labor. So, as Interest and Wages drop, so does Rent go up.
This is why, as I've said before, Assessors tell us that in the US the land cost of housing is between 50-70%. (Australia recently did a survey of land costs across the country and found they averaged 65% of the total cost.)
It means that with a modest (hah!) $200,000 house, $70,000 went to the labor, capital, and materials that went into the house, while the right to build on the lot cost $130,000.
But, one must wonder what the $130,000 was paid for. What did the landholder give for the money? Surely the land was provided by nature, or by God. How did it suddenly become worth $130,000?
When you start thinking about that, you'll begin the process of finding the problem.
Once you have that, solutions cannot be far behind.
Harry
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Thomas Lunde wrote about my comment:
- Just remember that everyone prefers to cut costs - including you,
- Harry
- Thomas:
- There is an alternative. Raise wages! For the working person, it is only take home pay that counts. If the wages stay the same and costs keep increasing, then the net effect is the loss of income and lifestyle. Business has tried to promise the working person by implying that if we allow them free competitive reign they will lower prices so we can have more goods - and there has been a lot of truth in that assumption - in many cases lower costs have made a working man's paycheck buy more. But costs cannot be cut indefinetly, there is a place where cost cutting leads to lower quality and more planned obeslence which means that savings from quality and durability are lost. It would be better to build a car that was easy to repair and upgrade and had a life span of 20 or 30 years, rather than 10.
- Respectfully,
- Thomas Lunde
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Harry Pollard
Henry George School of LA
Box 655
Tujunga CA 91042
[EMAIL PROTECTED]
Tel: (818) 352-4141
Fax: (818) 353-2242
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