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

From: Mark Monson (m_monson_at_ztech.com)
Date: 11/12/04 

Date: Fri, 12 Nov 2004 18:42:25 -0500

"David Friedman" <ddfr@daviddfriedman.nospam.com> wrote in message
news:ddfr-D4E67C.14092212112004@newsread1.mlpsca01.us.to.verio.net...
> 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.

Not so.

Ricardo's theory of rent includes the idea of the lowering of the margin of
production. That is, as the community grows, land of inferior quality must be
resorted to. Reduced production at the fringe means reduced wages at the fringe.
Landlords on all locations of better quality can then raise rents to take all but
fringe wages. Workers must pay because no cheaper alternative exists.

In reality, the growth of the community makes possible a greater division of labor
that more than makes up for any reduction in land quality at the expanding fringe.
The reason rents devour increasing production is appropriation by land owners of all
locations including those not in use. Because the rent-free alternative is
starvation, land owners can raise rents to skim productive surplus. Only an ad
valorem tax on land can convert the land collection market to the land use market
and thus restore to labor its full wage.

MM
>
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