In an exchange economy everybody’s money income is…
““In an exchange economy everybody’s money income is somebody else’s cost. Every increase in hourly wages, unless or until compensated by an equal increase in hourly productivity, is an increase in costs of production. An increase in costs of production, where the government controls prices and forbids any price increase, takes the profit from marginal producers, forces them out of business, means a shrinkage in production and a growth in unemployment. Even where a price increase is possible, the higher price discourages buyers, shrinks the market, and also leads to unemployment. If a 30 percent increase in hourly wages all around the circle forces a 30 percent increase in prices, labor can buy no more of the product than it could at the beginning; and the merry-go-round must start all over again.””
About This Quote
This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation.
Wage hikes without matching productivity raise costs, shrink markets, and cause unemployment under price controls or competitive pricing.
In simple terms: Higher wages without productivity hurt jobs.
Key Takeaway
Match productivity to wage growth.
Themes
economics
labor markets
inflation
price controls
unemployment
Mood
analytical
cautious
Type
economic
policy.
When to use this quote
- policy making
- business planning
- salary negotiations
- government regulation
Key Concepts
productivity
cost-push inflation
market equilibrium
Questions to Reflect On
- Can wages rise sustainably without inflation?
- How do price controls affect market health?
A Different Perspective
If productivity rises, wages can increase without harming employment.