The election season is upon us, and we're hearing the usual political promises about raising wages. Democrats pledge to raise the minimum wage and assure equal pay for equal work for men and women. Republicans usually oppose those things, but their explanations are typically lame. ("The burden on small business would be increased too much.") Some Republicans endorse raising the minimum wage because they think opposition will cost them elections. There's a principled stand.
In addressing this issue, we who believe in freeing the market from privilege as well as from regulation and taxes should be careful not to imply that we have free markets today. When we declare our opposition to minimum-wage or equal-pay-for-equal-work legislation, we must at the same time emphasize that the reigning corporate state compromises the market process in fundamental ways, usually to the detriment of workers. Therefore, not only should no new interference with the market be approved, but all existing interference should be repealed forthwith. If you omit that second part, you'll sound like an apologist for the corporatist status quo. Why would you want to do that?
The fact is that no politician, bureaucrat, economist, or pundit can say what anyone's labor is worth. That can only be fairly determined through the unadulterated competitive market process. Perhaps ironically (considering libertarians' individualism), it's a determination we make collectively and continuously as we enter the market and demonstrate our preferences for various kinds of services through our buying and abstaining.
If the market is free of competition-inhibiting government privileges and restrictions, we may assume that wages will roughly approximate worth according to the market participants' subjective valuations. This process isn't perfect; for one thing, preferences change and wage and price adjustments take time. Moreover, racial, ethnic, and sexual prejudice could result, for a time, in wage discrimination. (See Roderick Long's excellent discussion of the wage gap, "Platonic Productivity.")
The surest way to eliminate wage discrimination is to keep government from impeding the competitive process with such devices as occupational licensing, permits, minimum product standards, so-called intellectual property, zoning, and other land-use restrictions. All government barriers to self-employment — and these can take implicit forms, such as patents and raising the cost of living through inflation, or burdening entrepreneurs with protectionist regulation — make workers vulnerable to exploitation. Being able to tell a boss, "Take this job and shove it," because alternatives, including self-employment, are available, is an effective way to establish the true market value of one's labor in the marketplace. With the collapsing price of what Kevin Carson calls the "technologies of abundance" (think of information technology and digital machine tools), sophisticated small-scale enterprise — and the independence it represents — is more feasible than ever.
One thinker who understood how the worth of labor is determined in the market was the radical libertarian English writer Thomas Hodgskin (1787–1869). Hodgskin is often misunderstood. Wikipedia calls him a "socialist writer on political economy, critic of capitalism and defender of free trade and early trade unions." To the modern ear that will sound odd: a socialist critic of capitalism who defended free trade and unions.
Hodgskin is usually labeled a Ricardian socialist, but Hodgskin criticized David Ricardo while lauding Adam Smith. Moreover, socialism didn't always mean what it means today. In earlier times, socialist was an umbrella term identifying those who thought workers were denied their full just reward under the prevailing political economy. The remedy for this injustice varied with particular socialists. Some advocated state control of the means of production; others wanted collective control without the state; and still others — Benjamin R. Tucker most prominently — favored private ownership and free competition under laissez-faire.
What these self-styled socialists had in common was their conviction that capitalism, which was understood as a political economy of privilege for employers, cheated workers of their proper reward. By this definition, even an adherent of subjectivist and marginalist Austrian economics could have qualified as a socialist. (See my article "Austrian Exploitation Theory.")
By the way, Hodgskin used the word capitalist disparagingly before Karl Marx ever wrote about capitalism. As George H. Smith notes, Marx called the laissez-faireist Hodgskin "one of the most important modern English economists." It was not the first time the author of Capitalcomplimented radical pro-market liberals. He credited class theory to French liberal historians. (Marx then proceeded to mangle their libertarian theory.)
As a libertarian champion of labor against state-privileged capital, Hodgskin had much to say about how just wages should be determined. In his 1825 book, Labor Defended Against the Claims of Capital, he first noted that many goods are the product of joint efforts, which would seem to make it difficult to reward individual workers properly. He wrote,
Though the defective nature of the claims of capital may now be satisfactorily proved, the question as to the wages of labour is by no means decided. Political economists, indeed, who have insisted very strongly on the necessity of giving security to property, and have ably demonstrated how much that security promotes general happiness, will not hesitate to agree with me when I say that whatever labour produces ought to belong to it. They have always embraced the maxim of permitting those to "reap who sow," and they have maintained that the labour of a man's body and the work of his hands are to be considered as exclusively his own. I take it for granted, therefore, that they will henceforth maintain that the whole produce of labour ought to belong to the labourer. But though this, as a general proposition, is quite evident, and quite true, there is a difficulty, in its practical application, which no individual can surmount. There is no principle or rule, as far as I know, for dividing the produce of joint labour among the different individuals who concur in production, but the judgment of the individuals themselves; that judgment depending on the value men may set on different species of labour can never be known, nor can any rule be given for its application by any single person. As well might a man say what others shall hate or what they shall like.
Whatever division of labour exists, and the further it is carried the more evident does this truth become, scarcely any individual completes of himself any species of produce. Almost any product of art and skill is the result of joint and combined labour. So dependent is man on man, and so much does this dependence increase as society advances, that hardly any labour of any single individual, however much it may contribute to the whole produce of society, is of the least value but as forming a part of the great social task. In the manufacture of a piece of cloth, the spinner, the weaver, the bleacher and the dyer are all different persons. All of them except the first is dependent for his supply of materials on him, and of what use would his thread be unless the others took it from him, and each performed that part of the task which is necessary to complete the cloth? Wherever the spinner purchases the cotton or wool, the price which he can obtain for his thread, over and above what he paid for the raw material, is the reward of his labour. But it is quite plain that the sum the weaver will be disposed to give for the thread will depend on his view of its utility. Wherever the division of labour is introduced, therefore, the judgment of other men intervenes before the labourer can realise his earnings, and there is no longer any thing which we can call the natural reward of individual labour. Each labourer produces only some part of a whole, and each part having no value or utility of itself, there is nothing on which the labourer can seize, and say: "This is my product, this will I keep to myself." Between the commencement of any joint operation, such as that of making cloth, and the division of its product among the different persons whose combined exertions have produced it, the judgment of men must intervene several times, and the question is, how much of this joint product should go to each of the individuals whose united labourers produce it?
Observe Hodgskin's Austrian-style subjectivism: How much someone is willing to pay for a product "will depend on his view of its utility." (The way this fits with his labor theory of value is an interesting matter that we cannot take up today.)
How then does he propose that the wage problem be solved? Here's how:
I know no way of deciding this but by leaving it to be settled by the unfettered judgments of the labourers themselves. If all kinds of labour were perfectly free, if no unfounded prejudice invested some parts, and perhaps the least useful, of the social task with great honour, while other parts are very improperly branded with disgrace, there would be no difficulty on this point, and the wages of individual labour would be justly settled by what Dr Smith calls the "higgling of the market."
Thus free competition among industrious individuals, who ultimately are trying to serve consumers, is the only way to reveal the worth of labor services and products. This is both just and efficient. There is no way for a legislator or bureaucrat to divine the correct minimum wage or to decide if "equal work" is being paid equally. Only the free market process can discover this information.
"Unfortunately," Hodgskin added, "labour is not, in general, free." What keeps it from being free? The state, which serves special interests.
Hodgskin emphasized that labor includes "mental exertion":
Far be it, therefore, from the manual labourer, while he claims the reward due to his own productive powers, to deny its appropriate reward to any other species of labour, whether it be of the head or the hands. The labour and skill of the contriver, or of the man who arranges and adapts a whole, are as necessary as the labour and skill of him who executes only a part, and they must be paid accordingly.
Perhaps Marx should have read his Hodgskin more closely, and those who would legislate the level of wages today should read him for the first time. (I've also written about Hodgskin hereand here.) So-called progressives who look to the state to set wages do a disservice to those who fare worst in the corporate state, because while progressives work on behalf of measures that must price marginal workers out of the market, truly radical reforms are overlooked.
Rather than empowering our rulers further, let's empower individuals by freeing the market.
This article originally appeared at the Future of Freedom Foundation.