Re: Could increasing productivity cause wages to drop, instead of increase?

From: David Friedman (ddfr_at_daviddfriedman.nospam.com)
Date: 11/12/04 

Date: Fri, 12 Nov 2004 14:09:22 -0800

In article <41952677.15950590@news.telus.net>, royls@telus.net wrote:

> >Perhaps I have missed it, but nobody in this discussion seems to have
> >cited Chapter 31 of Ricardo's Principles, which happens to be on
> >precisely the topic of the subject line of the thread.
>
> Ch. 31 of Principles is on machinery, not productivity.

That is indeed the title.

> The two are
> linked both causally and statistically, but are not equivalent. E.g.,
> an increase of productivity could be entirely due to improved
> education, and nothing at all to do with machinery.

The chapter is, however, in part an explanation of how it is logically
possible for technological progress to lower wages, which would seem
central to the argument you are having.
 
> However, it should be clear that to the extent it is relevant to this
> discussion at all, Ch 31 supports my position and nicely exposes the
> idiocy of zerge's claim that his argument was "over my head."

My conjecture from the failure to cite it was that Ricardo was over the
heads of both of you.

> >Does that mean he is over the heads of both of you?
>
> Ricardo seems to me in Ch. 31 to be discussing a rather narrower point
> than we are discussing here. He also does not seem to twig to the
> possible relationship with rent: i.e., even an increase in gross
> product could result in lower wages if as a result of that increase,
> rents increase by more than gross product. Consider the effect of an
> innovation that increases production on good land, but leaves
> production on marginal land unaltered: increased productivity,
> increased production, increased rents, but _reduced_ wages.

Why reduced wages? The increased rent is coming out of the increased
productivity on the good land.

I am afraid that at the point when you write, about Ricardo, that he
"does not seem to twig to," you confirm my suspicions. 

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