L. Neil Smith's

Number 12, August 14, 1996

Letter to the Editors

Rick Tompkins' Reply to Issue 11's Letter ...

         Bart Croughs, in his criticism of Vin Suprynowicz' "faulty economic reasoning," missed a couple of crucial points.
         First, the evidence of history. Most employers have, in fact, found a way to pay the new minimum wage to their employees every time the minimum has been increased (though some were put out of business, most were not). And, they have, indeed, generally passed on the increased cost to their customers in higher pricing. The reason employers do not jack up their prices without a new increase in minimum wage (or any other cost increase) is simply the second missed point, to wit: competition.
         Prices are, of course, set to maximize profits, but not in a vacuum. The constraints of competition always control that process.
         A mandated general increase in minimum wages acts in the same way as a general tax increase. It raises the cost of doing business, so all competing businesses have to raise prices to survive. A new 'floor' will have been created, but profit margins will still be subject to market forces, as before.
         As to the quibble about what inflation is, and what are its causes, it was obvious to me that Suprynowicz was referring to price inflation, rather than inflation per se, although price inflation generated by government fiat often provides "justification" for increased production of fiat money, which completes the inflationary cycle in such an instance.

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