Freeman

ARTICLE

The Fallacy of The Minimum Wage

MAY 01, 1960 by THURMAN SENSING

Mr. Sensing is Executive Vice-president of Southern States Industrial Council, Nashville, Tennessee.

None of the advocates of a guar­anteed minimum wage tie any strings to the wage; they simply advocate it as the wage to be paid to all those who work. One of their claims is that an increase in the minimum wage will produce greater prosperity.

If that argument is correct, why not make the minimum wage $12.50 per hour? Surely $12.50 per hour would produce ten times as much prosperity as $1.25 per hour. Actually, of course, hardly anybody would work any more—but when he did, just think how prosperous he would feel!

The whole argument of a guar­anteed minimum wage is falla­cious. It is wrong in principle, therefore it is wrong in practice. It leads to evils much worse than those it proposes to cure.

The whole trouble is that it is so easy to confuse the end with the means. The main objective, its proponents say, is to give every­body a living wage. Well, everyone wants at least a living wage—and should have it, if he deserves it. Most everyone wants a great deal more than a living wage—and should have that, too, if he earns it.

But no one who believes in free­dom will argue that a person should have a certain wage whether he earns it or not. The only real guarantee behind a wage in a free country is the produc­tivity of the person who receives the wage.

Our whole way of life in this country is opposed to any sort of planned economy by government. This means that our way of life is opposed to the fixing of mini­mum wages—because, deny it though we may, the fixing of wages by legislative action can be regarded as nothing else than part and parcel of a planned economy. Moreover, we must not forget that if the government is allowed to assume the power to fix minimum wages and maximum hours, there is nothing to keep the government from reversing this process and fixing maximum wages and mini­mum hours. When that happens, where is your freedom?

Also, the result of fixing mini­mum wages must not be over­looked. The law states that the employer must pay this wage to whomever he employs. If the em­ployer is unable to pay the wage, however, the law doesn’t force him to employ anyone at all. By putting a strait-jacket on the wages he must pay, it is very easily possible that the employer would have no other recourse than to close down.

Two Ways To Socialize

The government then is faced with two alternatives; either the business must be taken over by the government and the workers paid without any reference to the earnings of the business; or the workers go on relief and are issued a dole at the expense of the general public.

Under the first of these two alternatives, of course, we have state socialism, a system of gov­ernment which it is inconceivable that the people of the United States, employees or employers, would willingly or knowingly en­dorse. Socialism never has brought, and never will bring, a high standard of living. We have only to look at what happened un­der the socialist government in Great Britain, where it promised happiness and produced misery. Socialism is rich in promise but poor in performance.

Under the second alternative, we find ourselves with a great body of unemployed. They are un­employed not through any fault of their own but simply because the laws of the land have made it unprofitable for them to be em­ployed—but they are still unem­ployed.

But here again, the advocates of the planned economy step in and say the government must also guarantee full employment. So who takes over? The government again, of course, and the first thing we know we are led straight into socialism or communism or dictatorship—all totalitarian in nature and all equally bad.

There is no question here of the chicken or the egg. In this case, productivity comes first; the wage comes second. Otherwise, we have socialism—which drags everybody down.

 

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May 1960

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Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
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