Rocco: Happy anniversary, economic illiteracy!

This year we celebrated the 15 year anniversary of the minimum wage. I think it’s safe to say it’s been a rip-roaring success. In just 15 years, we have seen the elimination of low pay in Britain. And all because the government outlawed it. Yeah, turns out it’s that simple. If the government doesn’t like something it can just pass a law commanding it to stop, and it stops. Makes you wonder why they didn’t just pass the law sooner, really. I mean that’s how we ended up getting rid of murder, rape, assault, robbery and fraud, isn’t it? Oh, hang on…

The 15 year anniversary is traditionally referred to as the “Crystal Anniversary”. Which, in this case, seems about right, I suppose. Because just as there are plenty of folk who believe in the magical powers of crystals, there are plenty of folk who believe in the magical powers of minimum wage laws. But contrary to the mystics, you can’t just legislate something out of existence. No politician would try to legislate gravity out of existence. No politician would try to legislate sunsets out of existence. That story about King Canute commanding the sea to stop – that was meant to demonstrate the powerlessness of even the most powerful men in the face of laws of nature. No politician messes with generally recognised laws of nature these days.

The problem – and it is a grave one – is that very few people recognise economics as being concerned with laws of nature. That is, laws of human action. Most people believe it’s simply a matter of the State passing a law here, a law there; regulating this more heavily, that more lightly; finding just the right balance. When we reach that balance, we’ll be set. We just have to keep searching.

This is nonsense. What the State should be doing to help the economy, is nothing. Those things that it is currently doing, it should stop doing immediately. No good can come of State intervention in the economy, none whatsoever. If this sounds melodramatic to you, just imagine what would happen if the State determined upon acting as if gravity didn’t exist (perhaps in the name of improving journey times between London and Birmingham, or something equally preposterous). Do you think that would turn out well? How much wealth would have to be destroyed before the farce was abandoned? No one would attempt to act as if gravity didn’t exist, of course – it’s immediately obvious that it would be stupid to try. However, it’s equally stupid to pass legislation that attempts to act as if economic law doesn’t exist, and yet…

So why is a minimum wage law so wrong? Why shouldn’t it be attempted at all? Why don’t we need to wait “until the data is in”?

Well, what is a wage? It’s a price for labour. The only reason to pay for labour is that it adds value to a product or service. Paying more for the labour than it would add in value leads to the employer making a loss. Therefore, an employer will not hire someone at a wage which is too high. (Those employers that persist in hiring workers at too high a wage will tend towards bankruptcy and cease to be employers.) Therefore a State enforced minimum wage must increase unemployment. It is, in Murray Rothbard’s phrase, “compulsory unemployment”.

Perhaps the word ‘wage’ is the troublesome part. Perhaps it’s down to not recognising that a ‘wage’ is merely a ‘price’. No one, after all, continues to buy a thing after its price exceeds the value gained from buying it. Going to the chippie once a fortnight is out of the question now they’ve put the ‘price’ up. That’s reasonable. But the owner didn’t have to sack the Saturday girl just because the State forced her ‘wage’ up, did he?

But have politicians got the King Canute story backwards, though? Do they really think they can safely ignore economic laws? Maybe not. Maybe they have a much better understanding of economics than they are letting on. After all, why is the minimum wage the amount it is? Why isn’t it much, much higher? If we can force employers to pay more than they currently do without any risk, why isn’t the minimum wage, say, £10 an hour? Or £20? Or £200, £2000, £20,000 an hour? Perhaps politicians understand full well that you can’t just command wealth into existence. Perhaps that’s why the minimum wage is so low – so that its effects are only felt by people at the margins, people who don’t count, who can be safely ignored: the uneducated; the unskilled; ethnic minorities; the handicapped. Something to ponder, at least.

The minimum wage could be said to be more about “social” issues, than “economic” ones. What about in a Libertarian society, without a minimum wage, without employment laws of any kind, even ones outlawing discrimination? What would be the fate of, say, racial minorities? Don’t we need the State to make the world a more harmonious place? No. No, we don’t.

For example, an employer only hires whites. He has all white staff, all doing unskilled work of the type that would presently be paid at the legal minimum. A job opens up. A non-white man applies. He is turned down, as you’d expect. What can this fellow do? Must he search elsewhere for employment? But it is not illegal for him to offer to work for less than what the employer currently pays his workers. That is, he has not been legally stripped of his power to compete for the job. In the absence of the State, he could offer to work for a lower wage, say £20 a week less, thereby undercutting his competition. But he would be doing much more than this: he would be making clear to the employer that there is a cost involved in maintaining a racist hiring policy. It now costs the employer £20 a week, £80 a month, and over £900 a year to be racist. Which is to say, the minimum wage is a subsidy to bigots.

Ah, but what if the employer is so racist that he doesn’t care about paying too much for labour? Well, we can’t guarantee he will care. But, whether he does or doesn’t, every one of his competitors that is willing to hire non-whites has an advantage over him. Either he will see reason, or he will cease trading. There is no need for the State to intervene. The self-interest of the employer, the self-interest of the employee, and the forces of competition will suffice.

Essentially though, the question to ask is this: What gives an employer the right to set wage rates? The answer is that the employer is the owner of his business. So what does a State enforced minimum wage imply? That the State is part owner of each and every business in the land. Not only that, but the State – having the monopoly on legislation, as it does – is effectively in the position of universal majority share holder. If you own a business, the State always gets the deciding vote. In fact, ‘business owners’ are nothing of the sort. They’re merely people who currently run franchises for the State. This hidden, comprehensive nationalisation – this is the principle which underlies the minimum wage law. It is the principle which underlies each and every piece of legislation or law that deals with employment. For that reason they should all be abolished immediately.

  • Roderick

    “…each and every piece of legislation or law that deals with employment…should all be abolished immediately.”

    What, no elf ‘n’ safety? No workers’ compensation insurance? I think you need to add a touch of 21st Century context to your (deliberately) provocative ideas. .

    • Rocco

      The abscence of compulsory, centralised “health and safety” or workers’ compensation does not necessarily imply their total abscence. Popular concern over dangers associated with certain types of work may very well bring in to being private firms who perform “watchdog” style roles. In fact, this is more than likely.

      To put it plainly, just because a service is performed by the State doesn’t mean only the State can perform that service.

      • Roderick

        So to put it even more plainly, “the market” will seamlessly fill the gap left by the State. I’m struggling to think of successful examples. Only the privatisation of BT comes to mind. Perhaps you could provide some.

        • Q46

          That already is the case with CE marking. Private standards companies like BSI, TuV, SGS, etc for a fee carry out inspections and certificate businesses.

          • Roderick

            Having lived through previous Labour and Conservative governments I am under no illusions about the good old days. I simply don’t like sweeping generalisations, and am (still) far from convinced that getting the state completely out of business is a Good Thing.

          • Rocco

            I’ll defer to Q46 for the ‘fact-y’ stuff, Roderick. But I’ll add that it isn’t “the market” that steps in, it’s individuals who see opportunities to provide services to their fellow men.

            Look at it like this. Clearly, you are concerned that without the State firms will all become ‘cowboys’. Aside from the fact that firms depend on goodwill to remain in business, and therefore must strive to maintain a good reputation by not acting like ‘cowboys’, there is this. Many people will share you’re concern. Hence there will be am opportunity for some people to provide a service to you, etc, by checking out health and safety. Now, as firms rely on maintaining goodwill, it seems likely that they will voluntarily submit to being checked out by private standards agencies. Those firms that don’t well get a reputation for recklessness, being dangerous etc, and as a result potential workers will be put off; it will be easier for rival companies to bid away current employees; the press will make life difficult for them; the public will trade with them less, and boycotts are possible. In the face of all this, firms will most likely choose to be checked by private standards agencies voluntarily, and pay for such checks directly. It’s just good business practise.

    • Rocco

      One more thing. I don’t like this “deliberately provocative” thing, Roderick. It makes it look like you think I’m not serious, or that I’m saying this just to wind people up.

      Also, it shows that you Right-wingers, with your absurd belief in the possibility of “limited government”, and this democratic “we the people” gibberish are the problem. You like freedom, but… You like markets, but.. You like voluntary activity, but…

      You might as well give up the charade and call yourselves what you are – socialists.

      How’s that for “deliberately provocative”?

      • Roderick

        You call me right-winger and socialist in the same post. Make your mind up. You are clearly trying to wind me up and you’re being deliberately obtuse with your absurd beliefs (to quote you).

        • Rocco

          There’s no contradiction, Roderick, conservatism is a right wing variant socialism. (Or rather, socialism is a leftwing variant on conservatism.) You want the State to intervene in the economy in order to realise your particular ideal, just as much as any “leftist”. You might have different reasons, but your methods are identical.

          Strictly speaking – government being by it’s very nature a redistributive institution – anything short of anarchism can be termed socialism. So if you’re really not keen on being called a right wing socialist, you might consider becoming an anarchist, Roderick.

          • Roderick

            I don’t need any “help” from you in deciding what to call myself, The above is so much tosh, and I can’t be bothered to demolish it.

            You clearly like the sound of your own vacuous witterings. I don’t share your tastes. Good day.

          • Rocco

            Oh, go on, just a little bit of demolishing, Roderick. Be generous – it’s almost Christmas after all!

  • Q46

    ”No politician messes with generally recognised laws of nature these days.”

    Beg to differ. I think you are forgetting. They have legislated global warming and climate change out of existence… remember the fools agreed global temperatures may not rise above 2C. They legislated the Ozone hole out of existence.

    They have legislated the wind to blow and provide the UK’s basic electrical needs.

    Of course their success rate will be the same as King Cnut, but that doesn’t stop the idiots from trying.

    • Rocco

      My mistake.

  • Mots

    Hmmmm…. should there be any banking or monopolies regulation ? are you happy with Madoff and Enron ?

    • Rocco

      Re: banking. Without any legislation banks couldn’t act like they do presently, lending out many times more money than they j hav safe in the knowledge the State will come to their rescue.
      Re: monopolies. Monopolies are only a problem if they are created/enforced by the State. Ifa firm becomes a monopoly in a completely free market, it has done so because it served peoples needs the best. Furthermore, as long as competition is not restricted, the monopoly will have to act as if it had competitors. It will have to keep quality as high as possible and prices as low a possible, otherwise competitors will enter the market. The lower the quality and the higher the price, the lower are the barriers to entry.

    • silverminer

      Banks have a State sanctioned right to create “money” out of nothing and lend it out at interest. In a true free market they would routinely be hung from lamp posts for this so the practice of fractional reserve banking (counterfeiting) would soon die out and the debt Ponzi scheme would have to end. Madoff and Enron happened despite State regulation, along with the LIBOR scandal, fixing the gold price, various “mis-selling” of products by banks, multiple “approved” poisons in the food supply etc. Seems to me that State regulation does more harm than good.

      The more regulation the less people take responsibility for their own actions. How many times do you hear people say things like “They wouldn’t allow it if it was unhealthy/risky/dangerous”. “They” being the State who are just a bunch of people, equally as fallible as the rest of us and capable of making mistakes, being bribed, not giving a shit etc. Give me a free market and access to inexpensive and impartial justice under the Law of Tort any day.

      • Rocco

        Very well put. I’m glad you’ve joined in on this Silverminer.

  • silverminer

    There would be nothing wrong (even if economically illiterate) with the State declaring a minimum wage provided compliance is voluntary for men and women and only compulsory for corporations, which are legal fictions which only exist because of the State and its regulations. However, if I, as a man, want to offer employment to another man, or a woman, then what right has the State, which (like a corporation) is just a legal fiction, to stop me, and to stop the man or woman, from accepting that offer?

    The State was created by men and women so it can’t be above men and women, i.e. it is our servant not our master. If only enough of us would realise this then most of our problems would be at an end as we, as men and women, could simply ignore those Statutes with which we did not agree. We cannot be governed without our consent.