The Wise Investor
First, the labour market. We have already discussed how
your job is simply selling your time and labour to someone, in
return for money.
Millions of people sell their time through jobs, and millions
of people buy time and labour by hiring employees.
This system has all the ingredients of a market. Say, for
example, that there is a low demand for employees.
Unemployment will be high, as there are few jobs to go
around. Employers will be able to offer lower wages, since
there may be several people competing for each job.
Take the opposite situation, where there is a strong
demand for new employees but there are few people looking
for work. Employers will be forced to offer higher wages to
attract employees, as each person will have the choice of
In this way, the average level of wages is determined by
the supply and demand for labour. If there is a big demand
for labour but the supply is low, in other words the number
of unemployed people is small, then the wages offered will
be high. The opposite, of course, applies when the number of
unemployed people is higher than the number of positions.
My second example relates to interest rates. Interest is
simply a fee that is charged for borrowing money for a
period of time. Like borrowing anything else of value, if you
want to borrow money, then you must pay for the privilege.
Now, at any one time, there will be a certain number of
people who want to borrow money and a certain number
who want to lend money. If there are a large number of
borrowers, but a small number of lenders, then the lenders
can charge high interest rates. They will get away with this
because there are several people wishing to borrow their
money, and whoever is most desperate will pay the high rate
of interest in return for the money.
In the opposite situation, where there are more lenders
than borrowers, the lenders will have to offer lower rates in
order to attract customers. Interest rates, then, are simply
the cost of borrowing money. Like everything else, interest