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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: GraceZ who wrote (59068)1/18/2001 3:58:31 AM
From: Don Lloyd  Read Replies (1) of 436258
 
Grace -

...Some goods and services in the economy are on a track approaching free, while other prices are rising disproportionately. This was my point in my original post which got lost in the productivity debate. While great for consumers, it's not great for corporate profits. ...

This is a point that I've been emphasizing for some time. In almost any functional economy, productivity advances are the widespread rule. However, the benefits must be distributed between increased corporate profits, increased real wages or returns to other factors of production, and reduced consumer prices. In a competitive free market, excess rates of profit are temporary and exist only to the extent that a sustainable competitive advantage is maintained.

As a subset of consumer prices fall, the total consumer dollars that are spent in that given sector decline, and any proper method of accounting must let that sector decline in relative importance to the GDP as it trends towards becoming a free good. This is one of the major distortions in measurements that exists.

In a free market hard money economy, the normal trend of productivity leads to ever decreasing prices of existing goods as their consumer prices are forced to track reduced costs through the agency of competition. This would mean that the normal track is one of deflation, with the purchasing power of the hard currency constantly increasing in terms of existing goods. However, this is offset by the entry of new goods with higher initial prices. This means that a proper accounting of the purchasing power of money must be a weighted average between existing and new goods, with any subset of existing goods falling in weight as its prices fall and its proportion of total expenditures falls.

Regards, Don
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