Of course, that's capital formation. You're not going to get more capital formation as a result of artificially raising manufacturing costs.
>>You're assuming that money directly represents current-day resource allocation with a lack of flexibility.
I don't understand what you mean and how it relates to my point.
>>But that's exactly what you're arguing. You're currently making revenue equivalent to $15/hour on labor cost of $9/hour. You could make the $15/hour on automation cost of $10/hour instead if the labor cost rises to $11, and you will, because you still want the $15 which is enough more than $10 to be worth your investment.
If my profit margin goes down, it's possible I close shop and invest the financial capital in real estate. Making manufacturing cost more does not cause more to be spent on manufacturing.
Let's imagine for a moment that all capital was automation capital, and that the only kind of investment was investment into new automation machinery. Will you acknowledge that in this scenario, a rise in minimum wage would lead to less output, and less investment into new automation?
But then your whole argument doesn't work, because it's possible to convert financial capital (e.g. land holdings or corporate shares) into economic capital (automation) by selling it and using the money to buy machines. The machines don't have to be diverted from some other use, they can be created when they wouldn't otherwise have existed.
> If the business has to pay $11 instead of $10, that extra $1 represents more resources being expended on accomplishing that task, which leaves less resources for other things.
You're assuming that money directly represents current-day resource allocation with a lack of flexibility.
Suppose there is a 25 year old guy who builds machines, gets paid a lot to do it, and currently works 40 hour weeks. If you want more machines, he has to put in more labor and you have to pay him enough for that. When you decide to do it, he instead works 60 hour weeks and gets paid even more, but only saves the money to put his kids through college or have a more secure retirement some decades in the future, or uses it to buy other labor instead of other capital.
You spent money, but that isn't an economic resource, it's a financial one. The person spending the economic resource is the person making the machines, and that isn't being reallocated from making other machines, it's being reallocated from going bowling and watching Netflix.
> That's an overly optimistic and unsupported assumption. The profitability of holding real estate will not go down relative to investing in manufacturing as a result of manufacturing costs increasing.
But that's exactly what you're arguing. You're currently making revenue equivalent to $15/hour on labor cost of $9/hour. You could make the $15/hour on automation cost of $10/hour instead if the labor cost rises to $11, and you will, because you still want the $15 which is enough more than $10 to be worth your investment.
The financial capital to pay for that has to come from somewhere, so it does, and demand for competing investments like real estate declines because the investors have to use more of their profits to pay for automation instead of having them to use for land speculation.