A dictator, it is true, can arbitrarily declare human labor to be the only thing of value in the world; and he can set a minimum or a maximum wage, or just fix prices. But he cannot enforce his dictates, because they run contrary to the rules of human behavior. As long as men harbor their own distinctive sense of values, there is no way of predetermining the price they will pay for what they want. That is set in the market place, whether it is legal or “black.”
A $5 minimum wage is indeed ridiculous, not because $5 is the wrong amount, but because it is ridiculous to try to set a minimum wage at any level. It doesn’t work. And it is an injustice to the people it is supposed to help — the less productive and less fortunate members of society. If a minimum wage is set high enough to have any effect, that effect must be a closing of the market to those persons least capable of earning a living. For the minimum wage denies such persons the right to offer their services for what they are worth. The law says in effect, “If you are not worth the legal minimum wage, you are not worth anything.” This, of course, is arbitrariness of the very worst kind. It is difficult to visualize a greater injustice than this among supposedly civilized human beings — the strong ganging up to deprive the wreak of their limited means of helping themselves.
Setting a minimum wage, below which no man may sell his services, is like setting a floor price for potatoes. The higher the floor price, the less demand there will be for potatoes. Those growers of potatoes who are least skilled in the arts of production will have been forced out of the market arbitrarily. And so will those buyers who can least afford to pay the price for potatoes.
If government intervenes to support the market at the floor price, then these two groups — the poorest producers and the poorest consumers — become the wards of the government, each dependent on a subsidy for survival. The government assumes the obligation, by means of unemployment compensation, to support those who were either directly or indirectly forced out of productive employment. The higher the minimum-wage level, the more unemployment there must be.
Denying a man the right to offer his services, by fixing the minimum wage at more than his services are worth, is to deprive him of a market for the only thing in the world he could have justified as his own. But that is not the end of the evil of the minimum wage. Those unused productive powers are lost, and society is poorer because of it. And if there is this kind of restraint upon the available supply of goods and services in the world, who suffers first and most? Why, the victims are those least able to pay the price for even the barest essentials of life!
Lessons of the Depression
The inhuman consequences of the minimum-wage idea were shown up during the Great Depression of the thirties. Labor unions, which had been gaining membership steadily during the twenties, were so bound to a philosophy of ever-rising wage rates that they could not adjust to a changed market situation, even though such rigidity forced many of their own members to join the ranks of the jobless. Equally well-meaning businessmen, lured by the promises of the National Industrial Recovery Act, pledged themselves to codes which would not let prices or wage rates find their proper level. Though most of the minimum-wage legislation did not come until later in the thirties, the early years of the Depression were nonetheless marked by government compulsions along the lines of the minimum-wage idea. And the direct consequence of this organized coercive interference with the free market was a prolonged and unnecessary period of hardship for people who sought to earn a living.
The “experts” on social problems speak glibly of the free market and open competition as forms of barbarism. They describe the individual bargaining process of price and wage determination as an outmoded application of “the law of the jungle.” But the basic law of the jungle is that might makes right; differences of opinion are subject to settlement by violence or compulsion. Perhaps the most significant departure human beings have ever made from jungle law is in the direction of a reasoned and deliberate tolerance for individuality — a mutual respect for both inherited and cultivated characteristics which make each of us different from every other person.
In the economic or material sense, this tolerance and respect for the rights of one another is reflected in the concept of private ownership and control of property. It allows and encourages exchange of goods and services among those who have something to offer and are willing to trade.
There is one big humanitarian reason for adherence to the market method of voluntary exchange, and that reason is the desire to act charitably toward those less fortunate than oneself. They are the ones who would not survive the rigors of the jungle and who would end up most permanently enslaved in any politically regulated society. The one great blessing of the market economy is that it encourages every individual to develop his talents, however limited they might be. And it assures each a full measure of value for the much or the little that he has to contribute to the satisfaction of human needs. Thus does a free society inevitably outproduce any other kind, creating more useful things the very abundance of which is the poor man’s assurance of a chance for survival.
There are sound reasons why some men should earn more for their efforts than do others — why skilled labor should be worth more than unskilled — why the successful manager of a business should receive more than any of his employees. Human beings are not all alike, in either capacities or desires. Prices and wages as determined in a free market, unrigged by political intervention, are the best means of insuring the production and equitable distribution of the goods and services all men seek. Those who have most clearly proved their productive capacity are rewarded accordingly through the voluntary acts of their fellow men in the market place. This is the signal to produce even more, and it is the incentive which attracts other men to lead more useful and productive lives.
A compulsory minimum wage, at any level, can only add to the hazards of the jungle.
This article was printed in the November 2015 edition of Future of Freedom, and is an excerpt from “Inhumanity of the Minimum Wage” in volume 2 of Essays on Liberty, published by FEE in 1958. Reprinted with permission.