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I've wondered about this for many, many, years..... maybe there's an answer (or several answers?) after all.

As the global economy is set up, one reason a person in the US and EU can afford a nice new \$400 smartphone is because the cost is much lower than \$400. The cost is much lower in part due to mechanisation of the process (assembly line robotics, efficient bulk transport, etc) but largely because the people assembling it (summing down the supply chain) are paid at a rate that equates to considerably less than $400 per device pro-rata.

Put another way, some people's ability to buy expensive items is because (largely for historical reasons) many people in other places live in economies where the average earnings, cost of living, and expectations of things needed to be bought, are a lot less. And put another way again, it's essentially akin to the laws of thermodynamics - a bit like a consequence of some kind of "work being done as a result of non-entropy"; the living standard and expectation of being able to buy such things, in some countries, is a result of differentials between those countries and other countries. (This also would apply to all items that can be transported - food, for example, as well).

But suppose these differentials didn't exist. Suppose the person who mined the copper and gold and rare earths, the person who shipped it, the assembly factory and sellers and other persons involved in its production, were to have wages with the same buying power (on average) as those who buy the devices? Equivalently, suppose everyone on the planet were to have parity of buying power with their wages. Ignore disruptions such as trade barriers, differences in health and age, etc, and any transient effects that will level out over time, for simplicity.

Or put it another way, suppose one created a city with a closed economy, and in which all people can afford to buy the same things (same wages).

Now, your factory worker making iPhones wants to buy an iPhone, and can - because all persons in the supply chain are paid in the same dollars and with the same amount as the end consumers of iPhones for their various works), do we get a situation where everything is inevitably pushed out of price reach (due to resulting inherent inflation)? Does the sum of people's time equating to the sum of people's income (in some sense) mean that the community as a whole can only afford to buy things at cost? Does the ability actually to buy things depend inherently on differences between different people (and groups of people) having higher and lower purchasing power or value of money? What would happen?

So a factory can mechanise, but the persons designing and creating the mechanisation (computers, software, factory robotics) also have wages of identical value, so that might be no solution.

Would the removal of value-of-money differentials, wage differentials, and buying power (and freedom to buy) differentials, kill the ability of an economy to work? If not, what happens?

(Sorry if the question is poorly phrased, I don't know how to rigorously define the point I'm asking about)

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  • $\begingroup$ Not an answer, but look at software. Software developers are expensive, but the products they produce are often very cheap (for example 'free'). The mechanisation used to do this (e.g. software libraries and computer hardware) are also often created in high cost environments. $\endgroup$ – NPSF3000 Mar 15 '18 at 8:08

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