It is commonly assumed that every increase of wages must be accompanied by a rise, of prices. This is a fundamental mistake that is demonstrated by all the facts of industrial history. The last fifty years which have witnessed a greater rise of wages than all the rest of the world's history have shown, has also seen the greatest fall of prices ever known. Whether a rise of wages will involve an increase of prices depends entirely upon how the advance of wages is brought about. If wages were arbitrarily increased without any change in the standard of the laborer's living, and the consequent increase in his general consumption, of course an advance of wages would increase the cost of what he produced. But this is entirely different when the rise of wages comes from the natural consequence of a higher standard of living, and a larger general consumption. The larger the market the lower the price, is one of the best established principles in political economy as well as one of the best attested facts in industrial history.
The successful use of improved machinery, which is the only means of permanently reducing the cost of production and lowering prices, is impossible without the use of large capital and extensive production. It is equally true that the concentration of capital and extensive production are compatible only with large aggregate consumption of wealth, which nothing but a high standard of living can sustain. Therefore, whatever tends to raise wages through increasing the aggregate consumption of wealth, necessarily tends to reduce the cost of production and lower prices. This explains why the comfort and luxuries of life are cheaper in England now, with labor at five shillings a day, than they were in the middle ages with labor at less than six pence a day, and why wealth can be produced cheaper in America at two dollars a day than in China at ten cents.
Tuesday, October 28, 2008
Economic and Social Importance of the Eight-Hour Movement
"Whatever tends to raise wages through increasing the aggregate consumption of wealth, necessarily tends to reduce the cost of production and lower prices."