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Cheater Cheater Pumpkin Eater

December 24, 2009

“What had made the discovery all the more painful was that they were spending, at American prices, money which they had earned at home rates of wages – and so were really being cheated by the world!”

The preceding short passage comes from The Jungle by Upton Sinclair. I don’t necessarily think that the world is cheating anyone’s purchasing power; instead, the exchange rate coupled with people’s desire to hold U.S. dollars instead of roubles plays an important factor.

I can see how someone would feel cheated out of his or her labor. Imagine providing labor that you can do in both the United States and Lithuania such as landscaping, but you are being paid in a currency (rouble) that’s weaker than the other (U.S. dollar). Providing landscaping labor in Lithuania pays 1 rouble per hour, while providing landscaping labor in the United States pays 1 U.S. dollar per hour. If the exchange rate is 4 roubles per 1 U.S. dollar, those who hold roubles hold a weaker currency. After saving all their roubles and moving the United States, Lithuanians will now have to pay for everything based on U.S. prices, i.e. in U.S. dollars, which means they have to give up 4 roubles to get one U.S. dollar or 4 hours of labor for what they could make in the United States in 1 hour.

No wonder they feel cheated!

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