The Secret History of the Minimum Wage

The eugenicists' favorite economic regulation

Illiberal Reformers: Race, Eugenics and American Economics in the Progressive Era, by Thomas C. Leonard, Princeton University Press, 264 pages, $35

What to do with George, your dear progressive friend who stoutly defends the minimum wage? One idea is to point out how it excludes low-productivity workers from jobs. (To the smart-aleck supposition that "monopsony" is widespread, and so the minimum wage raises employment, Café Hayek's Don Boudreaux has challenged George to pick up the unlimited profits implied by the supposition. No dice so far.) Another idea is to try to explain the difference between a minimum wage, which interferes in voluntary deals, and a minimum income, which economists such as Milton Friedman and James Tobin have proposed. If you don't like the income that poor people have, then tax yourself to give them money; don't make it impossible for them to get employment by making it illegal to offer them the amount their labor is worth.

In his elegant and persuasive book Illiberal Reformers, the Princeton economist Thomas C. Leonard presents a third idea: Tell him where the minimum wage came from. After all, George uses the historical argument that the Industrial Revolution was caused by exploiting workers, and he thinks that we got rich subsequently by struggling against the exploitation. As 1066 and All That put it, "Many remarkable discoveries and inventions were made [in the early 19th century]. Most remarkable among these was the discovery (made by all the rich men in England at once) that women and children could work for 25 hours a day…without many of them dying or becoming excessively deformed. This was known as the Industrial Revelation." It's mistaken, but no matter. George clearly believes a history is relevant to the assessment of a present result.

All right. Leonard shows in detail that the minimum wage arose in the early 20th century as a Progressive policy designed to screw low-wage workers. Designed. And unlike many other laws "designed" to achieve a result (for example, protective tariffs designed to enrich America), the minimum wage achieved what it was after.

The first minimum wage was in Victoria, Australia, in 1894, but it quickly spread to other places. The minimum wage, writes Leonard, was "the holy grail of American progressive labor reform, and a Who's Who of progressive economists and their reform allies championed it." The inability to command a wage 50 percent above the going unskilled rate would keep out the riffraff. "Removing the inferior from work benefited society by protecting American wages and Anglo-Saxon racial purity."

"Of all ways of dealing with these unfortunate parasites," wrote the British socialist Sidney Webb in 1912 in the University of Chicago's Journal of Political Economy, "the most ruinous to the community is to allow them to unrestrainedly compete as wage earners." What was to become of them when the minimum wage excluded them from employment? Henry Rogers Seager, a Progressive economist at Columbia, gave in 1913 the usual reply: "If we are to maintain a race that is to be made up of capable, efficient and independent individuals and family groups we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization."

By 1919, 15 American states had enacted minimum wages, focused especially on women. In the U.K. a minimum wage, supported by Sidney and Beatrice Webb, was instituted in 1907. Back in the U.S., E.L. Godkin of The Nation had articulated the now-libertarian complaint that the minimum wage is a bad interference in what workers are worth, and that if income is undignified taxpayers should make it up. The present-day readers of The Nation, among them George, would not agree. In 1923, the Supreme Court's decision in Adkins v. Children's Hospital briefly challenged the doctrine that it's a good and proper purpose of public policy to prevent the allegedly inferior (women, blacks, immigrants from Eastern and Southern Europe, the third "generation of imbeciles") from having a job. But in 1938 a non-packed Court reversed itself and acceded to the federal minimum for men and women.

"Race suicide" theory, adopted with rare exceptions by most social scientists before National Socialism shamed it, held that the inferior races with low wage "standards" would drive down wages of "Saxons," thus reducing their fertility—unlike the wretched blacks and immigrants, who would always have large families. Leonard notes that the low-wage folk, including women, were simultaneously objects of pity and objects of fear, a "strange and unstable compound of compassion and contempt." He summarizes the argument about a "race to the bottom," that "the decent capitalist…who wanted his workers to have a living wage…could not compete with unscrupulous rivals, who hired low-standard women, children, immigrants, blacks, and the feeble-minded."

The race-to-bottom argument is still heard from amiable and well-meaning people on the left, such as former Labor Secretary Robert Reich and Harvard professor Michael Sandel. But not only on the left. That economic growth started in Northwestern Europe has often been spun into a theory of racial superiority of the Saxons, despite the crushing evidence that highly non-Saxon folk, such as the Chinese and the Indians, if they adopt libertarian policies, can do it too. The Euro-centric theory is still heard in conservative circles, a notion that European superiority started deep in history, back in the Germanic forest.

The minimum wage was the easiest to administer of a host of eugenic proposals put forward a century ago, such as Oriental exclusion (the oldest), literacy tests (for Jim Crow), voter registration, head taxes, the outlawing of contract labor, celibate labor colonies, deportation, restrictive union rules, and sterilization. By the end fully 30 states had forcible sterilization laws, Indiana being the pioneer in 1907. Democratic Gov. Woodrow Wilson signed New Jersey's law in 1911. It was not Nazi Germany that led the way: Progressive Norway and Sweden down to 1970 sterilized more people as a percentage of their populations.

American Progressivism was part of a worldwide rejection of laissez faire, briefly regnant among the clerisy of artists, intellectuals, journalists, professionals, and bureaucrats in the mid-19th century. "By the late nineteenth century," notes the historian Jürgen Kocka, "capitalism was no longer thought to be a carrier of progress." The ethical case against "capitalism" was summarized by Reverend H.H. Williams of Oxford, writing on "Ethics" in the 11th edition of the Encyclopædia Britannica in 1910: "The failure of 'laissez-faire' individualism in politics to produce that common prosperity and happiness which its advocates hoped for caused men to question the egoistic basis upon which its ethical counterpart was constructed."

Even in 1910 Reverend Williams' mistake was factual. Trade-tested betterment had by then begun to yield common prosperity and happiness. Yet the clerisy, such as Williams, had long since turned against the bourgeoisie and its doctrine of spontaneous order. According to the Progressives, who were disproportionately the children of Protestant preachers, laissez faire was too slow in its eugenic effects—and amorally so, rewarding market-tested betterment, which the Progressives such as Thorstein Veblen regarded as a wholly irrelevant guide to social efficiency. The Progressives wanted to speed up social evolution, and to moralize it, and to engineer it, as in Prohibition.

They wanted in short to "interfere on behalf of the really fittest" (as argued by the Progressive writer Herbert Croly—who later turned against social engineering, too late, too late). One of the numerous problems with such engineering lies in the phrase "really fittest": How do you know? A defect now may turn out to be an advantage later. In Darwin's theory you know what works only after the event. The alleged inferiority of people with sub-Saharan African blood, for example, is about to be radically embarrassed. The genetic variability of such people means that when laissez faire has raised their income to European levels, the world's leading mathematicians, entrepreneurs, novelists, musicians, and athletes will have high levels of skin melanin.

American economists were in the lead—influenced, Leonard shows, by the German Historical School against "English" laissez faire economics. A distressingly high percentage of the restrictionists were elected from the leading universities to the presidency of the American Economic Association.

"Liberal"—a word that libertarians can now seize back, because their friend George has fled it in favor of "progressive"—means equality, both before the law and in social hierarchy. The Progressives in the United States favored inequalities and hierarchies in all directions, such as race, class, gender, IQ, expertise, wages. No one who reads the Progressives can doubt their illiberality. Read any dozen pages of Leonard's book and a true liberal will weep. "It is well known," Leonard notes, "that modern liberalism permanently demoted economic liberties." Then for good measure, in aid of a eugenic program, the Progressives "assaulted political and civil liberties, too." The right to open a shop was hedged by zoning and building codes, because after all economic rights are trivial, and then the right to make a wage bargain or to keep one's income or to keep one's property was similarly restricted in furtherance of the general will. No problem. Eminent domain and civil forfeiture, hurrah.

Today, the greatest threat is not terrorism or global warning or the race to the bottom or a low minimum wage or America's decline. The greatest threat is youth joblessness, worldwide. Unemployment was 47 percent among young black men in Chicago in 2015. Greece and Spain and South Africa show equally stunning statistics. Unemployment is not caused by insufficient aggregate demand or by inadequate education, the policy excuses of progressives nowadays, as in 1910. The problem has been that all manner of "job protection" for the middle-aged—the impossibility in South Africa, for example, to fire anyone once they are employed—has extended the Progressive list of unemployables from immigrants, blacks, women, and the handicapped to, now, youth. As Eric Hoffer, the San Francisco dockworker and sage, argued in The True Believer, it is unemployed young men who constitute the storm troopers and communist cadres.

Beware. Wake up, George. Read Leonard.