“Under normal conditions, reductions of wages are in our time almost impossible. Even under the worst conditions, capitalists in many cases prefer to endure a diminution of their profits rather than enter upon a struggle with their organized laborers. How many corporations maintain wages unchanged, even though the stockholders – i.e., the capitalists – get no dividends?” (Lexis 1895: 16–17).It is extraordinary that an economist regarded this as already true in the 1890s.
The empirical data here also shows it was generally true for the UK and the US by the 1890s.
It seems clear to me that if there really was strong downwards nominal wage flexibility in America during the recession of 1920 to 1921, then this was a remarkable exception to the general rule of wage stickiness that had already become established in the advanced capitalist world by the late 19th century.
The Austrian economists and libertarian idiots who make so much of this episode in 1920–1921 have mistakenly generalised from one highly anomalous case to the whole pre-1929 period.
But I’m sure that none of them will ever stop pushing the same falsehood in their endlessly derivative and discredited literature and their fantasy-world blogosphere.
Further Reading
“Malthus on Nominal Wage Rigidity,” May 25, 2015.
“Henry Thornton on Downwards Nominal Wage Rigidity,” December 1, 2014.
“Alfred Marshall on Wage Stickiness and Debt Deflation,” November 30, 2014.
“Were Nominal Wages Flexible in 1890s and Early 1900s America?,” January 31, 2014.
BIBLIOGRAPHY
Lexis, W. 1895. “The Concluding Volume of Marx’s Capital,” Quarterly Journal of Economics 10 (October): 1–33.
I hate it when New Keynesians try to dismiss Post Keynesian MMT by saying it's the "Austrian school of the left". Firstly Marxism is the Austrian school of the left, not MMT. Secondly MMT is describing our financial system as it presently is, whereas Austrian schoolers make up a bunch of econ for Anarcho-capitalist la la land.
ReplyDeleteSee the New Yok Times casually dismiss Mosler using such a tactic: http://www.nytimes.com/2013/07/05/business/economy/warren-mosler-a-deficit-lover-with-a-following.html?_r=0
I once argued with someone online about economics and brought up Steve Keen in the discussion. My opponent seemed to like monetarism a lot but the minute I brought up Steve and what he has said about neoclassical economics, he just dismissed him as being crazy and not knowing about real economics and kept giving me articles to read of these "economists" talking about milk prices as a way to refute it.
DeletePeople can be so afraid of unfamiliar ideas that they shut down and resort to straw man tactics and use the crazy card as an argument. I have seen some Marxists try to debate LK here and it's almost like reading what a lot of the hardcore Austrians have said.
Hi Roberto,
DeleteYes Roberto.The crazy label should not be applied to Keen. His economics is based on real world assumptions, not on the unrealistic world of neo-classical theory (including monetarism)which often assumes the non-existent world of a Walrasian General Equilibrium theory (Arrow Debrue model)as a microeconomic basis for their monetarist theories of macroeconomics.
John Arthur