A slight twist

Now we’ll introduce a slight variation to our two producers model. One of the owner’s companies -let’s choose Richard’s- will pay him more for his services, increasing his buying power as a consumer.  Savings continue to be impossible for workers, whose wages just cover the minimum needs. Productivity remains at 24 pieces of bread and 24 glasses of milk for an 8-hour working day. The market will clear as before.

The production-costs, or expenses, of Richard’s company increase to 32F while Robert’s stay at 24F, a total of 56F, which is the total income of the social arrangement, and since we’re not considering reserves yet, the money available for demand.

For Richard’s company to make a profit, its revenue after sales must be greater than 32F, which means than Robert’s company would obtain less than 24F after sales, or a loss. If Robert wants to avoid this, which is the case in this study, the 24 glass of milk his company produces must sell for at least 24F, or one foody per glass of milk. Now Richard’s in trouble, for his company must sell 32F in bread to avoid a loss, charging at least 1.33F per piece. Then

b + m = 2.33F

Remember, however, the workers: each receives 8F per working day to cover the basic needs of their families, 4 pieces of bread and 4 glasses of milk:

8b + 8m = 16F,

and

b + m = 2F.

This means that, when we’re dealing with basic, necessary products, under the conditions here imposed, prices are determined by the income of workers -i.e., wages.

We also see that 24b +24m = 48F or less, which means that, even though both companies can sell all the product at different price-ratios, the sum of unit-prices is 2F, what we’ll call the wage-to-price index of affordability, and the aggregate price is 48F, leading to an aggregate loss of 8F. Both or either company will sustain a loss.

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