What is happening instead is that workers are getting higher money wages, which are lower real wages because the value of the monetary unit is constantly being diluted. We are going into progressive inflation. Savers are being liquidated. Their property is being confiscated. New savers are scared away. Politicians are constantly afraid, and rightly so, of doing things that are unpopular. They endorse popular spending measures but they shun the resulting costs, and to stay popular they have resorted to inflation. This is the so-called Keynesian policy. It is set forth in Keynes' book, The General Theory of Employment, Interest and Money. The key sentence is: "A movement by employers to revise money-wage bargains downward will be more strongly resisted than a gradual and automatic lowering of real wages as a result of rising prices."
This was the policy endorsed by Keynes. It is the policy of most governments in the Western world today. Keynes knew, as every economist does, that the only way that you can employ more people is to lower the wage rate. But ever since World War I this had become politically more difficult in Great Britain. Powerful British labor unions, with the help of the Fabian Socialists, had built up public pressures which opposed any lowering of any money wages. British politicians of all parties were afraid to resist this popular union policy. So in 1931, when the number of unemployed became unbearable, the politicians in office preferred to lower wages by devaluing the British pound. The workers kept their puffed-up pound wages, but their pounds bought less.
In 1936, Keynes gave this political policy academic sanction in the book and sentence just quoted. Since then, most Western nations have adopted this "full employment" policy. In essence, when unemployment is considered too high, wages are lowered by lowering the value of the monetary unit. This is done by increasing the quantity of the monetary units. This will be the subject of the next lectures. We will then discuss money and the government handling of this monetary problem. We have gotten into a situation of ever-rising wages and prices, with more and more workers paid less than they would earn in a free market. It is very difficult to get out of such a situation. The real answer, of course, is economic education.
Neither union leaders nor union workers are stupid people. Keynes and the British politicians were able to fool the employees in England when they first tried this scheme in 1931. They changed all the index numbers, making it difficult to document the price rises reflecting the lower purchasing power of the pound. But now every union has a statistician. They may call him an economist, but he can see from the official cost of living indices that prices are going up. And when they go up, the unions demand still higher wages. This system of Keynes' has just about reached the end of the road. You can no longer fool the workers by lowering the value of the monetary unit. They are on to what is happening and they are not going to take it much longer. The only final answer to this problem is more economic education, showing that the only way to keep raising wages permanently is to increase production, and the way to do this is to encourage savings. For it is only increased savings that can provide workers with more and better education and more and better tools, with which they can produce and buy more and better products that they want most.
(bold emphasis added)
This is from the must read transcribed lecture by economist Percy L. Greaves, Jr. (1906–1984) at the Mises.org.
No comments:
Post a Comment