The Idea of Proportionate Flows Applied to Wages – the Stagflation of the 1970’s and 80’s

Misnamed “Keynesian” deficit financing policies applied in more recent years to “recessions” have contributed more and more to inflation and less and less to alleviating unemployment.

These policies have come to exacerbate the very disease, unemployment, they were meant to remedy.

About 1970, in the perfluent nations, money wages began rising faster than Tn (net throughput), having an ever larger ratio to it. This was the result of efforts to maintain, in an era of slower throughput increase, the rate of increase in living standards that had become familiar during two decades.

These efforts contributed further to the decline in throughput increase rate (TI), which had initially caused them to be made.

The decline in TI was triggered by the appearance and growth of a value inflation component (see earlier posts) in the general rate of price increases. This has been discussed earlier with its consequences for throughput and other economic variables.

In consequence of this straying of proportionate flows of money away from the optimum, wages became generally too large in comparison with profits, savings, and the money value of work performed. Before and during the Great Depression wages were generally too small in comparison to these things.

The rise in unemployment takes place in various ways.

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