Folks, let’s do an experiment. Australian economist Steve Kates posted this on Friday, and he reckoned few Australian readers grasped the point. An important point. I reckoned NZ readers would be much smarter. See if you can prove me right in the comments …
Folks, I know no modern economist would think this way, but what worries me more is that I doubt they would even know what he is saying. This is from the great F.W. Taussig in his 1896 Wages and Capital: an Examination of the Wages Fund Doctrine. Moreover, it is from pages 26-27 of a 325-page book where he seeks to dispose of one matter right from the start before getting into any of the more difficult questions. This is mere trivia:
We are now in a position to give an answer to one part of the question with which this chapter opened; whether wages are or are not paid from present or current product. . . . Wages are certainly not paid from the product of present labor; they are paid from the product of past labor. . . . Real wages are, virtually to their full extent, the product of past labor. At this moment, or within a few days, the last touches toward completion have indeed been given to the commodities now being enjoyed. But the great bulk of the labor whose product all of us, whether laborers or idlers, now enjoy, was done in the past.
Our ability to produce is based on our capital base. If we fritter it away on the various value-losing activities that the Australian Labor Government had been indulging in, falling living standards is what you must expect. Labor had been progressively lowering our living standards by allowing our capital base to erode. This from today’s Australian indicates this is still misunderstood: ‘Joe Hockey’s sales pitch fails to reach the retail counter.’
The worst retail sales report in almost a year and the biggest foreign trade deficit on record have signalled that Australia’s superior economic performance may be short-lived.
Retail comes at the end of a very long process that modern economic theory not just ignores but virtually denies in everything it preaches. I’m afraid that economic theory will have to go back to the nineteenth century to pick up the lost threads that Keynesian economics has trampled on.
So, what’s his point?