Minimum wage laws have been in the news lately. The talk is on raising the minimum wage to $15 per hour. Political slogans are invoked: “Living Wage.”
As a slogan, the “living wage” is imbecilic for anyone who thinks about it even a little. Protesting for a living wage implies that what you are getting paid now is not a living wage. No one is going to work for a “death wage.” If they did, they would soon die. The pool of workers would become scarce, and wages would rise in response.
Do protesters holding “living wage” signs look like they are dying to you? They may be dying of cancer or disease, but they don’t look like they are wanting for the basic necessities of life.
Instead, what they want is to be paid more without increasing the value of their output. They are claiming that the free market does not value their labor enough. The evidence that it does not value their labor enough is that they aren’t getting paid $15 an hour in the fast-food service industry (or wherever).
The $15 movement has been gaining momentum. It’s first victory was in 2013 in Seatac, Washington. Voters approved a measure to raise the minimum wage to $15 in 2013. The campaign behind the movement was funded by the Service Employees International Union. Its influence has now spread to Seattle, San Francisco, and Los Angeles.
Before that, it was already in New York City in 2012.
When this kind of law is passed, there are winners and losers. The winners are the workers who have jobs. The new wage rates motivate their employers to find cost-saving machines and computer software that will soon replace them.
The losers tend to be black teenage males. “They cannot afford to drive to a part of town where there may be job offers at the minimum wage. Their one tool of employment in their neighborhoods is their willingness to work at a below-market wage. This way, they can gain the experience and skills required to get better job offers. But it is now illegal for employers to accept such offers.”
Trade unions seek to gain above-market wages for its members. It seeks to use federal law to override the free market. In both cases — labor unions and minimum wage laws — the theoretical basis and justification for the movement is an erroneous economic theory called the “labor theory of value.”
The labor theory of value is an economic theory that describes how we are supposed to set product prices. In basic terms, the theory says that the more manual labor invested in producing the product, the more valuable the product becomes. The theory has been refuted and dead for almost 200 years, but people seem to inherently subscribe to it without realizing that they do.
It’s because of sin. The theory is also inconsistent with a Christian worldview.
Gary North recently described the sentiment concisely and accurately. As he put it, people adopt a phrase like this: “But I work so hard!”
He then told a story from a lesson he remembers when he was in the seventh grade:
I remember the first time I ever encountered this argument. It was in the seventh grade. The teacher gave an example of Mexican laborers. He discussed the enormous amount of work that went into weaving a basket. He asked the class: “How is it that basket weavers are paid so little money?”
The class really could not figure it out. We had been hypnotized by the labor theory of value. Finally, he explained the basis of pricing. It was supply and demand. Not many people wanted to buy baskets. So, the market for baskets was limited, and prices were low. Also, he said a lot of women in Mexico knew how to weave baskets, so the supply was high.
The result, he explained, was a low price for baskets weaved by hard-working Mexican women. I never forgot that example. He did not go into the details of the subjective imputation of value by consumers, but at least he understood that supply and demand set prices, not the number of hours that it took a Mexican woman to weave a basket.
The truth of the matter is this: customers determine how valuable labor output is. Labor output comes in a variety of forms: services like janitorial work, yard maintenance, nail polishing, accounting, and fast-food jobs; finished products are things like houses, cars, computers, software programs.
The prices of all these items are determined by the consumers, not by the people who produce or sell them.
In some sense the producers set the prices by specifically registering the price in their database and attaching a price sticker. But if the price is so high that there is no consumer demand, then the product won’t sell. If the producer ever hopes to move his inventory, he will be forced to lower the price in order to gain a market.
In the ultimate sense, then, consumers determine prices. They have the most marketable commodity: money. They bid against each other for various products and services by voting with their pocketbook. It’s, admittedly, difficult to observe this process when buying anything from a store like Wal-Mart, but it becomes immenently visible when buying houses. If the housing sector is in a boom, and consumer demand is high for houses (what we call a seller’s market), then anyone who puts an offer on a house is going to face active competition from other potential buyers. This happens on HGTV’s “House Hunters” program all the time. Demand outstrips supply.
But, during an economic downturn, or just any general “buyer’s market,” housing demand is low. A seller may only receive a single bid at his asking price. In fact, the bid will probably come in lower than his asking price. If he is desperate to sell his house, then he will be forced to sell it at the lower price because consumers have determined that his house just isn’t very desirable at the asking price. Demand is low, but supply is not.
REDUCTIO AD ABSURDUM
An absurd example reveals the absurdity of the labor theory of value. Think of a typical flatscreen HDTV. You can buy very large, high-quality televisions for under $1,000. These products are mass-produced by robots and assembly lines in factories.
What if a single individual hand-made a single TV comparable in quality and priced it at $1,000,000 because of how hard he worked in making that single unit. Would it sell?
No way, Jose. It doesn’t matter how hard or how many hours he worked to make the tv. Consumers are clear: most HDTVs should be priced around $1000. There is evidently a market for $2 million TVs, but they are built out of gold and have diamonds for buttons.
What’s clear is this: some rich people with more money than sense like gawdy televisions. They are willing to pay for them. They impute value commensurate with a $2 million price tag to these gawdy televisions.
This is the key: consumers impute value. This means that the consumer determines how much something is worth. If a product or device is priced at a particular price point, but consumers think it’s worthless, then they won’t buy it. This value imputation shows up in reality through total units sold.
Sometimes a company produces a product that they can sell at a premium above what it cost them to produce it; if they can, they will reap a profit.
Other times, the company must sell the product at a loss, meaning they must sell it for less than what it cost them (in labor and everything else) to make it. Sony rather famously lost over $250 on each Playstation 3 they sold.
Sony built and delivered a product that consumers liked, but only at a price point where they were willing to buy it. They took losses to deliver it (though they could probably have launched with a higher price since it seems demand outstripped supply during that time).
Consumer imputation of value follows from God’s created order. God imputes value to his creation. People are made in his image, and he gave us a mind which is able to interpret his creation and make sense of it. We think God’s thoughts after him. Gold has historically been the favored metal with regards to precious jewelry and the most marketable commodity, money. Why? It’s because people impute high value to it. They impute high value to it because God does:
The name of the first is the Pishon. It is the one that flowed around the whole land of Havilah, where there is gold. And the gold of that land is good; bdellium and onyx stone are there. (Genesis 2:11-12)
God imputes value, and we are subordinate to God. He determines what is good and bad. He imputes righteousness and unrighteousness based on his law. We should do the same to conform ourselves to God’s standards, to identify right and wrong, good and evil, using the same standard he does: his law. He imputes righteousness to us only because of Christ’s sacrifice. He imputes Christ’s righteousness to us. If he were to look at our works, he would see nothing but sin. He would impute reprobation to us, as he does all who have not bowed their knee to King Jesus.
Similarly, in the economy, consumers impute value, and producers are subordinate to the consumer’s desires and tastes. Producers have to create products and services to supply products and services to stimulate demand, but economic sovereignty ultimately rests with the consumer, not the producer.
The producer cannot create a product and force us to buy it. The producer creates a product and tries to persuade the consumer to buy it.
The minimum wage is an attempt by the producer to usurp the consumer’s authority. Normally, the producer establishes a wage and hopes to sell his product at a profit. If he makes a profit, it means he correctly predicted consumer tastes, and they have awarded him for it. He can then take these profits and invest in his company to produce better products at lower prices. Consumers like lower prices, but the equipment and labor required to increase production efficiency is usually expensive.
The company is willing to pay higher prices on the front end to get increased production value on the back end. They can produce more units faster, which means they can reach a wider market and generate more sales. Profit may decrease, but volume increases. The labor and the machines they invest in are more highly specialized. The labor is more skilled in a particularly important area.
OVERRIDING CONSUMER SOVEREIGNTY
Minimum wage laws interfere with this process. The impulse for demanding increased minimum wage is to extract above-market labor rates from consumers. In this case, workers are producers, and the consumers are those companies that hire them.
The desire to interfere is steeped in sin. It’s greed. It’s wanting to take the seat at the head of the table when it is not really yours. It’s theft.
To imagine that you should get paid more because you think you work really hard is to imagine that you have authority over the economy. It is to imagine that your desires establish value, not the consumers’ desires. It means you think that your definitions of “hard work” and “quality” should be the basis for everyone else’s.
It’s a desire to be as God.
People complain that it is impossible to support yourself and your family on the minimum wage. This may be true. But one of the reasons it is true is because of other areas of government interference in the economy. Various regulations artificially raise some prices but lower others. The definition of “sustenance” becomes distorted. So does the definition of “poverty.” Government subsidies supplement minimum wage jobs. Government subsidies stimulate demand in certain sectors of the economy which raises prices. The modern Western economy is a mixed economy: free market with government intervention. This intervention distorts supply and demand.
It is not surprising that minimum wage may not be enough to support a household. Minimum wage workers face price competition from fully subsidized non-workers.
Demanding that the government pass laws to raise minimum wage rates is an impulse to usurp the consumer’s economic sovereignty. This hearkens back to the garden, when the serpent tried to usurp God’s sovereignty by manipulating Adam and Eve.
The impulse stems from bad morals: greed and envy. Instead, we should seek to supply high-quality service to certain markets, to continually improve our skills so that we can improve the quality and, thus, the value of our output in the eyes of consumers.
To demand federally-mandated wage increases without improving our performance is to demand something for nothing. Jesus rejected this desire to turn stones into bread. We should, too.
We should seek continual improvement, but we should always do so in accordance with God’s moral code. It may be within your ability to become a better stripper. Consumers may impute higher value in your improved dancing ability. The extra money you make may be invested in plastic surgery that leads to even greater profits. But God will frown on this.
Jesus asked: what does it profit a man to gain the whole world but suffer the loss of his soul? Similarly, we may ask: what does it profit us to gain the approval of debased consumers if we simultaneously draw the ire brought on by God’s displeasure?