tag:blogger.com,1999:blog-6245381193993153721.post8391970815418006228..comments2024-03-17T00:23:24.896-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: S. B. Saul on the Profit Deflation of the 1873–1896 PeriodLord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6245381193993153721.post-57665020877642999682013-06-16T05:06:12.256-07:002013-06-16T05:06:12.256-07:00That doesn't make any sense. How would lower p...That doesn't make any sense. How would lower prices squeeze profits and increase wages? A decrease in nominal profits due to lower prices leads to, cet par, the same real profits. Wages will only increase if nominal wages remain sticky.<br /><br />Deflation has its distributional effects through the credit system -- it favours creditors. And it has its effects on investment mainly through animal spirits, but also due to aggregate demand falling for the reasons Keynes laid out in Chapter 19 which are as follows (my summary):<br /><br />1. If wages falls the marginal propensity to consume will also fall. Even if prices adjust downwards, workers will save more relative to their income. If investment is not increased to make up the gap – and there is no reason to assume that it will – aggregate demand will fall by the same amount.<br />2. As wages and prices fall, total real indebtedness rises. This may result in bankruptcies and otherwise put strains on companies’ balance-sheets.<br />3. Expectations are important and if wages/prices are expected to fall further entrepreneurs will postpone investing in new capital goods.<br />4. Likewise, price instability will make it very difficult for entrepreneurs to make business calculations going forward which may induce them to invest less.<br />5. If wages and prices fall, those in society with more savings – i.e. the wealthier members of society – will hold more of the wealth. Since these people probably have a lower propensity to consume, total aggregate demand will likely fall.<br />Philip Pilkingtonhttp://www.nakedcapitalism.comnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-71546689149869813952013-06-14T13:39:47.293-07:002013-06-14T13:39:47.293-07:00'“Lower prices squeezed profits to the benefit...'“Lower prices squeezed profits to the benefit of wages and probably this led to lower industrial investment.” (Saul 1985: 53)."'<br /><br />So what was the reason for lowering prices if that led to lower profits ? Why didn't they just raise them again ?<br /><br />There has to be something else going on.Rob Rawlingsnoreply@blogger.com