Recently, The New York Times posted an article of how a businessman in China is able to create beautiful pearls at lower costs using what The Times called “new techniques.” It’s amazing to see just how industrialization and the development of capital is so vital to a growing economy. Women who are even in the poorest brackets of society have the chance to own beautiful pearls. Before long, pearl necklaces will no longer be a luxury, but a style as common as blue jeans. Surely the consumer benefits, whether it is a woman who can afford to own a beautiful pearl necklace or a husband happy that he can get his wife a gift. Of course (and The Times does talk about this), what happens to the workers in the pearl factory?
The Times notes that “wages [have] surge[d], particularly for blue-collar workers” due to the lack of supply of workers, who prefer to attend universities rather than toil decades in a dirty cog. It is true that a supply decrease does tend to increase wages, but what about the increased industrialization? Long story short, industrialization leads to an increase in capital, which raises living standards. As a result, prices are supposed to fall as wages rise (prices can rise due to inflation, but they will grow at a slower pace than real wage rates).
The Times, therefore, forgets to mention that the main reason for the wage surge is the fact that the actual number of workers may be increasing while the rate in the growth of the number of workers slowly dwindles. There is a distinction that The Times conveniently ignores. The Times further ends with the sentence: “Each of the [sorting] machines can run 24 hours a day… and will replace 15 workers.” So rather than argue that industrialization increases wage rates over the long run, The Times believes that industrialization is the reason for unemployment. Of course, this a common fallacy. This development is good for the economy in the sense that workers will have to move to a place in the market where their labor is most needed. In the short term, workers are hurt. But if the market is allowed to work without interference, those same workers will continue to see a gradual growth in their wages while being able to purchase more at the store.
Of course, The New York Times‘ report has an editorial perspective, but this article is a great example of just how free markets ought to work. What is striking is the location: When we need to take advice on capitalism from communist and totalitarian China, we know that we have to do some reexamination of the economic system that we all take for granted.Published in