Monday, September 6, 2010

The Case for Falling for Prices in a Growing Economy

A few weeks ago I made the following claim:

I didn't plan to go into detail, but in free-market economies prices go down, wages go up, and standards of living go up. This is contrary to what other schools of economic thought believe. Don't believe the myth that says that "capitalism necessarily requires permanently low-wages to be successful." It is a lie and anti-capitalist propaganda.

Here is the real-life evidence:

This is what Henry Ford did with the Model T. He constantly lowered the price of the Model T, and in doing so, he increased demand. This increase in demand let him adopt new techniques of mass production. He was then able to purchase raw materials, transportation services, and other factors of production at ever-lower prices. The one thing he did not cut was wages. In 1914, he increased wages in order to gain a steady labor force. Immediately, absenteeism disappeared. Nobody wanted to lose his job at the Ford Motor Company, so everybody showed up at work on time. Nobody quit if he didn't have to. He wanted to keep his job. So, for a system of mass production, Ford cut the cost of production per unit, lowered the price of the model T, and raised the income of workers who showed up on time.

In 2002, Less than Zero: The Case For Falling Prices in a Growing Economy covered this very topic. It is available on as well as the Mises Store. Now ask yourself, why are the prices of every good and service going up? Are we growing?

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