google blogger on Wednesday, October 12, 2011
Imagine two islands, one where everyone is living in a nice hut with a lot of preserved meat, cheese, wine, spices, etc, and another were everyone lives on the beach and fishes to eat each day. If men on the rich island want to hire others to work in their factory, they'll need to pay them more because both of them have more assets. Rich men can pay more, and rich men demand more for their time. On the poor island, a worker might be available for two fish per day. On the wealthy island that has a lot of preserved fish and a lot of fishing boats, food is easier to acquire and the amount offered for a day of work will have to be higher.
Further, imagine that the supply of fish and food did not rise faster than the amount of other material goods and people on the islands over time. Even if each man pulls two fish from the sea each day for life, and they use fish as money, the richer island would demand more fish per hour of labor, lowering the value of money when compared to labor and services (inflation). Because most things today require human labor to create, their price has risen vs most things that require very little human effort. Fishing nets are now made by machines and their price has fallen over time, but the price to hire a fisherman for a day has steadily gone up since 1774.
This is not to say that labor is the reason that anything is valuable, or is based on the labor that goes into it. It is only to state that as society becomes richer, each rich man demands more assets from other rich men in order to labor for them, raising the cost to produce new assets in terms of what already exists.
If tomorrow everyone suddenly had ten times more of everything they owned yesterday, what would be the only thing that would rise in value? Labor. And as we became richer, we got more of everything we previously had, including money.
Posted by google blogger at 9:44 AM