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» Economics » Economic theory » Topics begins with P » Purchasing power theory

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The purchasing power theory of the wages means that with Unterauslastung of the economy by the increase by wages inflation-free the demand for consumer goods can be increased. Both directly and indirectly new jobs would develop, since the entrepreneurs the increased consumer joy as signal worth to invest more.

The purchasing power theory of the wages is represented among other things from trade unions to the justification of wage increases. As example of the validity of the purchasing power theory often to the world economic crisis into the 1930er years one refers, when wage lowerings strengthened in the opinion the trailer of the purchasing power theory the crisis. Scale effects are to bring a further positive effect to the economic growth. Since the unit cost prices sink with rising production, lead by additional purchasing power a developing strengthens demand to a prosperity gain.

Positive evaluation of the purchasing power theory is for example with Michal Kalecki in its essay Place nominalne i realne (nominal and real wages, Warsaw 1939). In the science the theory is however evaluated predominantly critically.

For the purchasing power theory of the wages stands give opposite.


As the most substantial argument against the purchasing power theory cycle considerations are stated: An increase of the Lohneinkommen lowers the profit incomes, which are likewise inquire effective. Even if profit incomes aim at possibly more strongly than Lohneinkommen capital instead of on konsumtive goods, then this concerns nevertheless only the structure, not however the overall height of the aggregated demand.

As unfounded is considered today the argument often aforementioned in the older literature, which purchasing power effect of wage increases reduced, because a part of the additional income becomes related saved, another part on demand for foreign goods (imported goods). Savings are directly inquire effective, because them over the bank system as credits and finance usually capital expenditures also konsumptive to a smaller part are sufficient. Imported goods presuppose the fact that trade partners on goods or foreign exchange markets exist, which is interested in domestic currency, i.e. wants to transact domestic demand.

The aforementioned arguments are actually unfounded, because thereby substantial points remain unconsidered. Increased savings (with continuous prices) on the way mentioned are directly inquire effective, but since they are mainly capital inquire effective, the Konsumption nevertheless less than the wage increase to rise, even saving increases far, since by the capital expenditures one rationalizes, thus the prices to sink. But increased wages mean increased costs, so that it remains everything with the old person. Also the import argument is unfounded, because a increased import makes possible also a increased export. Example Germany: Approx. 35% are realized GROS DOMESTIC PRODUCT over the foreign trade, but the export surplus amounts to naturally only little per cent GROS DOMESTIC PRODUCT, because debtors are bad buyers. An increase import leads thus to the increase of the export. Both arguments speak thus with good reason against a purchasing power theory in this form. The work time remains unconsidered in this form. A slow increasing consumption faces the productivity rising fast in the course of the years. In order to manufacture the equilibrium between consumption and production, thus unemployment must rise (with further purchasing power decrease because of income losses) or the work time is shortened, since the expansion of the Konsumption succeeds only rarely. Into Germany at present a middle course one goes: The work time is shortened around approx. and unemployment is increased over approx. In the meantime the deficit of shorter hours requires shorter hours of approx. 8% around approximate full employment to reach.

The domestic demand is given therefore always by the domestic (material) money supply - multiplies by the peripheral speed of the money. More modern forms of the purchasing power theory tie therefore rather at the possibilities of the central bank of increasing the material money supply. Since the central bank can steer however if necessary the nominal money supply, the effectiveness depends on monetary policy crucially on how quickly the price level reacts to changes of the nominal money supply. In neukeynesianischer view there are at short notice effective price stiffness, which let an influence of the demand with monetary political means appear possible. After neoclassical view prices adapt new conditions sufficiently fast; besides exist the danger that inflationary expectations would develop. Thus the prices could rise more strongly than due to the nominal change of money supply actually justified, so that the overall economic demand fell instead of steige.

Generally the control controllings of the demand are estimated today as small. Agreement consists besides of the fact that a long-term Nachfragestimulation is by monetary political means not possible and tendentious counter productive.

Against an purchasing power-oriented wage policy it speaks after agreeing view of nearly all economists that possibly available positive scale effects the direct cost effects of rising wages oppose. As a rule therefore altogether higher unit cost prices and thus negative overall economic welfare effects than are judged probably.

Exists model-independently with to strong increases of wages and high extent of utilization of the factors of production the danger of a rising inflation. In addition strong increases of wages can endanger then the international competitive ability of a country to, if the strong increases of wages lead to according to strong price increases, if they are not compensated in case of flexible rates of exchange by a devaluation of the national currency.

Empirically the data are a little clear. The world economic crisis of the 1930er years was to attribute to cooperating several factors, so that restaurant economics represent different opinions over the effectiveness of the purchasing power theory. Historically a close correlation between increase of wages and economic growth exists, but a clear causal relationship cannot be recognized. (In other argumentations straight is necessarily judged of the same critics economic growth than to reach around increase of wages.)

In particular in anglo-saxon countries has in the past years the neukeynesianische aspect strengthens trailers found. It assumes monetary political produced purchasing power effects short to medium-term (that several years can quite be) a stimulation of the economy are made long-term to quite obtain, however by an intensified inflation and a higher interest destroyed. Also with this view the work time remains unconsidered.

See also

  • Say theorem
  • Unterkonsumtionstheorie
  • Wage policy

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