Inflation and wages.

[howden]

If what you describe was to happen every bodys wages would decrease every year so would the price of a house eg accordingly and nobody would ever get any further on they would stay the same forever, this system is far from perfect but i know that i am a lot better off than i was in the sixties inflation and all, have you got a conclusion to your post i would be interested to read it?

 

I doubt it because it was a copy and paste from here...

http://www.energybackedmoney.com/chapter3.html

[MrSmith]

I doubt it because it was a copy and paste from here...

http://www.energybackedmoney.com/chapter3.html

 

That site starts out wrong because it talking about inflation in terms of money instead of time, if something costs more money but that money takes less time to earn then there hasn’t been any inflation. Look back through history and we had to work much harder and for much longer just to feed ourselves, now we can feed ourselves and buy nice things and still work less hours.

[Cyclone]

I think if the general worker's wage went up with inflation we would not be in the economic situation we are facing today.

Am i the only one who thinks this?

What do you think?

 

What is "a general worker"? How would they be identified and how are they different from other workers?

 

If there was legislation to enforce inflation level pay rises I expect it would feed back into the system and increase inflation, it would rapidly start a spiral and massive inflation would be the result followed by companies closing down.

[Cyclone]

You need to understand what "inflation" is.

 

There shouldn't be any inflation really. Rather there should be a tendency towards deflation. Inflation is just a hidden tax paid to the banks. It is caused by the printing of new money without there being anything to back it up. This new money is often created by high street banks and lent out at interest.

 

Consider the scenario where 100 people are magically teleported to a completely isolated island. Assume these 100 people start off with nothing but a collective bag of exactly $100 in pennies which they determine to make their island's permanent, fixed currency. They divide up the pennies equally so the citizens of the island will each start off with 100 pennies.

 

Within the first week you probably have people buying and selling firewood, coconuts, and maybe even a few huts made with palm fronds. Maybe some fish are being bought and sold as well. Would you buy a coconut for a penny? Would the person who was able to climb trees and gather coconuts pay 5 pennies for a hearty fish to get energy for tomorrow's coconut harvest? Would the coconut entrepreneur pay 50 pennies for the best hut on the island so they could get rejuvenating rest after each work day?

 

In 60 years the population might have grown to 500 people. Think of all the goods and services being bought and sold after 60 years of people creating things on the island. There would be things like furnished homes, transportation, tools for farming, boats for fishing, and the list would go on and on. How much might things on the island sell for? Keep in mind that the average amount of money per person is now only 20 pennies. Maybe a two bedroom log cabin somebody outgrew might sell for half the average net worth of the island's population which is a mere 10 pennies. That is a lot of price deflation in 60 years.

Your deflation depends entirely on population growth.

It's also impossible in your example to borrow from a 'bank' in order to hire excess labour (guy who only fishes half the day and spends the other half relaxing) in order to build your fishing business up. The reason it's impossible is that the bank isn't allowed to 'invent' some money to lend you (although this invented money has to be repaid it would allow you to grow that business initially when you don't have the funds).

Fractional capital banking doesn't cause inflation because the money created must all be paid back.

 

Imagine if a few hundred years passed and the people of the island grew to a population of a million. Imagine they produced lots of automobiles, trains, tractors, planes and skyscrapers. The 100 founders each started with 100 pennies each and, after a few hundred years of growth, the total amount of money on the entire island would be 1/100 of a penny per person. However, that fraction of a penny would have tremendous purchasing power as an average home might sell for around the average net worth of a person which is only 1/100 of a penny.

 

By introducing new money, governments and banks try and keep prices the same (or have a modest level of inflation). This new money is created by banks out of thin air and lent in to circulation, either to businesses or to the government.

It's lent though, it must be repaid, it's not real it doesn't contribute to inflation.

 

It's too simplistic to say that wage increases in line with inflation would have helped stop the financial crisis without understanding the fundamental mechanics of both inflation AND the actual causes of the crisis.

That's true. Enforcing pay increases would just increase inflation as it becomes an additional inflationary pressure, and cripple companies (the ones that genuinely can't afford to pay any more).

[Cyclone]

not really

 

demand exceeding supply pushes prices up far more

 

That's not inflation though, that's the price being adjusted to match the new supply/demand curve.

If the supply/demand stays the same but the wages of the people that produce it go up, then the price goes up a little and inflation has just happened.

[Cyclone]

It would be more likely that some of the islanders would by now have all the money and the other islanders would have to borrow money to buy things, and so debt is created and they would end up exactly where we are today with an economy driven by debt.

 

It would be debt but not based on fractional reserve banking (they couldn't lend you a virtual penny, it would have to be a real one).

 

A deflationary economy encourages you to sit on your money though, so very soon nobody would want to spend a penny, because in a year that penny will be worth more.

I think you'd see the island economy revert to barter very quickly and the currency would become meaningless. After if a coconut is worth half a fish, that won't change, if they cost a penny today, but 1/2 penny in a year then you'd hold onto that penny.

[Cyclone]

Before the NMW came in I was making £3.50 an hour, I bought two 2bed houses for £11,000 each in 1998.

After NMW came in prices started creeping up on everything

You might not have been aware of it, but prices have been creaping up for a long time before the NMW was introduced.

When the pay of workers goes up so does the cost of the products they produce so we end up paying more therefore negating any benefit due to the rise of the minimum wage per hour.

The NMW wasn't supposed to stop inflation, it was supposed to stop the very low paid being exploited.

[Grandad.Malky]

What is "a general worker"? How would they be identified and how are they different from other workers?

 

.

 

That decision as already been made by the government , the general worker isn’t in fact a worker they are those on benefits ……. They have seen increases matching inflation while the rest of us await another pay freeze ……… remember we are in this together.

[Cyclone]

I don't think the OP was talking about people on benefits.

[Grandad.Malky]

I don't think the OP was talking about people on benefits.

 

Drewstu007 I think if the general worker's wage went up with inflation we would not be in the economic situation we are facing today.

 

To which you replied

 

What is "a general worker"? How would they be identified and how are they different from other workers?

 

And I gave my answer