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THE GOAL IS FREEDOMA Failure to Communicate: The Case of the Minimum Wage

JULY 21, 2006

by Sheldon Richman

Sheldon Richman is the editor of The Freeman and In brief.

Many of us have been trying to teach the public that the laws of economics operate no matter what anyone thinks of them. They grow out of the nature of human action. But the message hasn’t gotten through. Around the country people are enthusiastically voting in referendums to raise their state's minimum wage above the federal $5.15 level. Petition campaigns to put the question on state ballots never fail, says the Ballot Initiative Strategy Center. As NPR's Mara Liasson reported on Morning Edition recently, It's not hard to get people to sign.

What's going on? Haven't we been led to believe that the fall of communism and the failure of democratic state socialism to deliver the goods have persuaded most people to support the market economy? But they can't, without logical contradiction, support the market and a legislated minimum wage.

Well, they can — if by the market they mean simply an arena in which people buy and sell goods services within boundaries set by the voters or their representatives. Thus people who would never think of themselves as anti-market can favor not only minimum-wage laws, but anti-price-gouging laws, rent control, and other government intervention.

In other words, most people have, at best, only an incomplete idea of what the market really is. What is it? We usually say it's where people exercise their property rights in buying and selling goods and services from one another. That's accurate as far as it goes, but it doesn't go far enough, and this is where most people's knowledge is deficient. What's missing is that this place is governed by natural regularities, or laws, most prominent of which is the law of supply and demand.

We are justified in calling this a law because, like the laws of physics, it operates whether we recognize it or not — whether we like it or not. The consequences of ignoring it are usually not as immediate as the consequences of ignoring, say, the law of gravity, but unpleasant consequences ensue nonetheless. If the government says sellers must charge less than the market price for a product, it will be in short supply. That law can't be repealed. This is what Israel Kirzner has in mind when he credits Ludwig von Mises with seeing the intellectually revolutionary character of economics. (See Kirzner's Ludwig von Mises: The Man and His Economics, ISI Books, 2001, pp. 71-73.)

What was so revolutionary? Kirzner writes:

Mises . . . expressed his belief in words of striking almost dramatic directness. The development of economics . . from Cantillon and Hume to Bentham and Ricardo did more to transform human thinking than any other scientific theory before or since (. . . emphasis supplied). Until the emergence of economic thought in the eighteenth century, it was taken for granted that anyone (or any government) wishing to change features of the social landscape was limited only by the laws of physical nature on the one hand and by the strength of will (and brute force available to enforce, if needed, that will) on the other. With good men and strong governments everything was feasible. But with the advent of economic science, Now it was learned that in the social realm too there is something operative which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success, in precisely the same way as they must take into account the laws of nature. [Citations omitted.]

Thus, the idea that there exist in society laws which operate regardless of the will of the rulers was a genuinely revolutionary idea.

Unfortunately, it is a revolutionary idea with which most people have yet to become acquainted.

Most people who eagerly sign a petition to put a minimum-wage hike on the ballot, and then who vote yes, do so entirely out of good will. Undoubtedly some promoters of the minimum wage (professional union organizers or big companies trying to harm little companies, for example) understand that by pricing low-skilled workers out of jobs, they can protect higher skilled, higher paid workers from competition. But few people have enough economic understanding to know that. All they think they know is that voting yes will raise the pay of people making a meager $5.15 an hour. They want to help those at the bottom, and they have no reason to suspect that helping them that way will hurt. (They are encouraged in this belief by the savvy first group, which skillfully uses the media and political system to propagandize their views.) Most supporters would be incredulous if told that the mandated pay increase would a) cause some people to lose their jobs, b) prevent new jobs from emerging, c) make some jobs more unpleasant as employers pile on duties and cut other costs to neutralize the increase, and d) push surplus workers into jobs not covered by the minimum wage, driving those wages lower. (They would also be surprised to learn that most people who make $5.15 are young and inexperienced, and that it is unlikely that anyone who made the minimum wage ten years ago is making it today.)

What besides greed can frustrate our will to raise the pay of the working poor a dollar or two more? people of good will might ask. The answer — the laws of economics — is not obvious. It requires understanding.

This is why minimum-wage ballot initiatives have been so successful. The Ballot Initiative Strategy Center says that in the last six years, no petition drive has failed and no state ballot question has lost. This November six states will likely have a minimum-wage hike on the ballot. In the last several years voters in three states have approved such hikes. In two states Republican legislators raised the minimum wage themselves rather than leave the question to the voters. In one of those states, Arkansas, a Republican governor signed the bill. (The statewide newspaper reported that the legislature was ready to give the state's lowest paid workers a raise.) Business groups in some states have chosen not to oppose the increase — it's that popular.

New Strategy

Our work is cut out for us advocates of the free market. Since the educational strategy we have pursued until now has failed with large numbers of lay people, I suggest a modified strategy: It is essential that principled opponents of the minimum wage not appear insensitive to the plight of low-income workers. Some people of course are responsible for their economic plight, but many others are put at a disadvantage by the mercantilist, mixed economy we live in. (Let's not forget, it's not laissez faire out there.) In opposing the minimum wage we should champion the disadvantaged by emphasizing that:

Any regulation, tax, and trade restriction that stifles the formation of new businesses, and thus competition, reduces the bargaining power and self-employment options of workers — low-income workers most of all. Less bargaining power equals lower wages.

Every intervention that raises the price of housing, clothing, food, and medicine harms low-income people most of all.

Every land-use rule and all government landholding keeps the price of real estate and rents artificially high, harming low-income people most of all.

The actions of the central bank devalue people's money, harming low-income (and fixed-income) people most of all.

A rotten education system harms the children of low-income people most of all.

Simply put, every interference with free people in the free market is first and foremost an attack on the poorest, most vulnerable in society. But notice that each intervention has its beneficiaries; together they constitute the privileged class. The chief enemy of the vulnerable is the corporate state, the system of mercantilist privilege for the politically connected that constrains the creation and diffusion of wealth. In this light the welfare state (the minimum wage and such) is revealed as a way to keep the vulnerable from catching on and rocking the boat. The Manchester liberals Richard Cobden and John Bright put these considerations at the heart of their nineteenth-century peace-and-free-trade movement.

People of good will never stop voting for the minimum wage until they realize, first, that economic laws are implacable; second, that pretending the laws don't exist hurts those they wish to help; and third, that the best way to help is to sweep away all government privilege. Genuine liberals must rededicate themselves to making their movement a people's movement.

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