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John Reimann wrote: " A large chunk of the bailout will be going to workers, in effect raising their buying power or at least limiting the fall in their buying power. Will that lead to inflation and does it contradict the views of Karl Marx?" I had written a response to a very similar proposition where in an article (Short View) in the FT the following statement was to be found: "...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." Because it is behind a 'paywall' I have appended the FT article below my comment that was published in the FT on 12-21-15. JAI Marx’s meditation on Citizen Weston revisited https://www.ft.com/content/d3474ce2-a588-11e5-a91e-162b86790c58 December 21 2015 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...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 <https://www.marxists.org/archive/marx/works/1865/value-price-profit/>*. John A Imani Los Angeles, CA, US Short View-Jennifer Hughes 12-16-2015 *https://www.ft.com/content/e0b7db56-a3aa-11e5-8d70-42b68cfae6e4 <https://www.ft.com/content/e0b7db56-a3aa-11e5-8d70-42b68cfae6e4>* “Lower end of the market adds to China’s mass appeal Incomes for poorest 40 per cent rising at about 9 per cent a year.” “If 500 stormtroopers posing on the Great Wall of China don’t give a film a boost, then nothing will. As markets digest the implications of the Federal Reserve’s interest rate decision, the launch on Thursday of the latest Star Wars installment speaks to another key trend for next year: the Chinese consumer. Luxury goods sales there are still dropping at an alarming rate. This week Prada reported a 26 per cent slump in its China business and LVMH has begun closing some stores. But 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, according to Gavekal Dragonomics. The middle 40 per cent has greater spending power, so they drive the bulk of consumption and overall consumption growth is still likely to slow. But investors should think about sectors that could get a boost from the bottom 40 per cent. The sheer numbers involved would be significant if, as elsewhere, their extra funds go towards better quality goods and experiences. More lipsticks and cosmetics might be one example. China’s biggest beauty chain, AS Watson, is still reporting double-digit rises in skincare sales — and adding up to 1m members to its loyalty scheme each month. Another gainer could be cinemas. Only 9.2 per cent of China’s personal spending in 2013 was on “fun” experiences such as going out and travel, according to Goldman Sachs — about half the level of the US. Box office receipts have risen more than 40 per cent this year. China was responsible, for example, for a quarter of the cinema take for the seventh film in the Fast & Furious franchise, for example. Disney will still need all its skills to promote Star Wars in China, since a fan base for the Galactic Empire isn’t a given in the Middle Kingdom. It had very few consumers when the franchise launched in 1977. But the importance of China to Disney is just one example of the growing power of the country’s average consumer, not just the Prada-toting types. A few extra cinema trips by those still focused on getting by won’t change China’s economic path — but given the numbers, it doesn’t take a lot of extra “fun” being had to make a big difference to some industries.” _________________________________________________________ Full posting guidelines at: http://www.marxmail.org/sub.htm Set your options at: https://lists.csbs.utah.edu/options/marxism/archive%40mail-archive.com
