12-18-2016, 10:49 PM
(12-18-2016, 10:15 PM)pbrower2a Wrote:(12-18-2016, 03:46 PM)Warren Dew Wrote:(12-17-2016, 04:17 PM)Mikebert Wrote:(10-28-2016, 12:16 PM)Warren Dew Wrote: I wonder if there's still a connection to demographics. Even in an industrial society, population growth should result in oversupply of labor and a decrease in the wage to capital ratio.
Why?
Basic economics. Natural population growth results in an increase in the number of people of working age, and thus in the supply of labor. Since it doesn't increase the supply of capital, that makes labor relatively more plentiful and thus less valuable. Wages will fall, while the return on capital will rise.
Production and consumer demand also rise. That also increases the amount of capital, especially if a larger population implies lower real wages (higher real estate prices and rents would themselves do the trick). A big portion of profit becomes productive capital lest the economy falter. Bubbles of course happen when capital goes into commodity and real-estate speculation, as if events of about a decade ago did not result in a very harsh lesson.
Production and consumer demand would increase the demand for capital investment, but would not in and of themselves increase the amount of capital.
As you say, though, the higher return on capital would, in time, result in growth in the capital stock. If the population growth eventually stopped, this would eventually permit a return to a high wage, low return on capital regime.