Dr. David Cowan
Some years back, I preached a sermon at a Cambridge University college on one of what I call the Economic Parables, which later became my book Economic Parables: The Monetary Teachings of Jesus Christ. These are parables where Jesus talked about economic things. Our economy is quite different from the economy in the time of Jesus. However, the church has frequently become involved in economic questions and offered a theological or moral view on a range of topics. One of the most popular topics in church moral anguish circles today is the so-called “minimum wage.”
After the sermon, as is the custom, I was invited to High Table. This gives the preacher an opportunity to eat, and the guests an opportunity to dine with the preacher. This night I did not get much of a chance to eat. Two of the guests kept me very occupied. One was on a board of the Church of England on social matters, the other worked in an inner city area with poor kids. The subject, you guessed right, was the minimum wage, that de rigueur topic in conversations about capitalism today.
The committee member guests demanded I should support the minimum wage; the one who actually worked with the poor had a somewhat more realistic view of the matter. I responded that naturally I did, but it depends what definition one uses. They asked me then what definition I meant, to which I replied the minimum wage is the minimum at which someone is prepared to work, and the minimum an employer will offer. This, as you can well imagine, did not go down too well.
My interlocutor followed the popular conception of the minimum wage, which as a moral concern has a 125-year pedigree. It goes back to Pope Leo XIII and his exposition of a “just” wage in his encyclical, Rerum Novarum in 1891. He defined the just wage as an amount needed to support a thrifty and upright worker plus his family, and he offered the prescription that a just wage be sufficient to allow the worker to save and acquire property of his own. Having raised a moral flag, he left economists and policy-makers to fight amongst themselves as to how this should be implemented, and they’re been fighting ever since.
The problem with the just wage theory, as Pope Leo XIII discussed it, is that it derives from an error in the thinking of Karl Marx, who didn’t worry about such things as his own living wage, he had Engels for that – rather like public sector workers have government and academics have tenure. Marx believed “the capitalist” compels “the worker” to produce an amount greater that his pay in wages. Marx called this addition “surplus value,” and is he wrote the source of the capitalist’s profit.
So, while many in the church seem happy enough to dismiss the resurrection as myth, and thus not requiring belief, they are happy to cling on to secular myth, such as the Marxian myth that “profit” is a species of “surplus,” and demand the people in the pews pledge allegiance as a moral duty or face ridicule. In the 20th Century and now into the 21st, the just wage has become a central doctrine to the modern church and it fights mightily for it. Thus doctrines of Christ’s divinity and the notions of the family get dumped on a regular basis, and the “social justice” doctrines come to the fore.
Walk into many mainstream churches now and one is increasingly likely to hear a sermon about the minimum wage or other social dogma rather than core Christian doctrine. Even entering churches, one is often invited into a “Social Justice and Peace Center” rather than a place of worship. What one does has supplanted what one believes, a triumph of Pelagianism. The dogma of the minimum wage is one that is conflated in the preaching of justice and peace, it is about the minimum wage, living wage, and just wage. Yet, justice, in the classical sense, means to render to each what each is due. In this sense, a just wage is rendered according to the contribution of the worker and their needs.
So, what are the needs? Well there is the cost of living. This depends upon where one is. Manhattan is more expensive than Gary Indiana, which is more expensive than a village in Bangladesh, for instance. Another need is the aggregate income of the household. Is the worker the sole breadwinner? A joint-income earner? Who is dependent on the household income? Another is to what extent can we separate needs form desires and wants, not easily achieved. And so on. Rising wages are a good thing, but the question is how this is achieved, to which the answer is not the minimum wage
The problem is that much of the thinking about minimum wage is done on two extravagant horizons. First, society, which is a big tent with a definition that depends upon whom one is talking to, and second, the individual, who is the person you’re actually talking to. The moralist concern, however, for the former is quickly outed as the selfishness of the latter. This is because, the individual complains about the big wage earners and says, “Look at what they’re earning!” while muttering under their breath, “but don’t touch mine.” Like much welfarist thinking, it promotes a selfishness in society, because it is always about others and not themselves.
The problem ultimately is an economic one, as the economist Wilhelm Röpke stated in A Humane Economy, linking the minimum wage to an estimated living wage leads to “a wage-price spiral in which rising wages and prices keep pushing each other up, especially and most effectively in the presence of the fatal system of a sliding scale of wages determined by the cost-of-living index.”
This means everyone’s wage needs to go up; it is not the simple arithmetic of taking big bonuses from top earners and transferring it to the lowest earners. The economy of the firm and society is much more complicated than this. Of course, the big earners or the 1%, make great headlines, but they are treated as if they are all the same people. In fact, this so-called 1% is a shifting population, as rewards such as stock options, for instance, are only paid out in certain years ann inflate the numbers, and often are never paid at all. Yes, some individuals do stay in the 1%, and of course not all of them are bankers, they are the celebrities and politicians that many social advocates seem to fawn over.
Ultimately, the economy is about how humans organize to deal with scarcity, and it is a task bedeviled by desire. As human beings we have different desires, beliefs and much else in contrast. Some workers only desire to go to work and earn a living, it is a necessary evil. While for others they desire a career, their work is part of who they are. In different ways they sacrifice other choices in life. The market is just such a place in which we all act out our choices, all limited to a greater or lesser degree, in part by family origins, natural endowment and pure luck.
The last, and perhaps the most important aspect of the question to consider, is wealth itself. To use an analogy, do we see wealth as a pie to be cut, or do we find ways to make more pies? Socialism tends to see a pie, whereas the market sees multiple pies. How do we create this wealth, in other words more pies? Well, we don’t do it by thinking like Marx and church campaigners there is a greedy big capitalist, like the Wizard of OZ, behind the economic curtain. It is the entrepreneurs and small businesses which are the engine of wealth, and the minimum wage forces them either to reduce the workforce or go out of business, it is pretty much as simple as this.
The economist Frank H. Knight, the subject of my book Frank H. Knight: Prophet of Freedom out next month, was one of the pioneers of the orthodox view today that profits come from entrepreneurial activity where profit is earned by forgoing current consumption, by taking risks, and by organizing production. He argued, the ultimate source of wealth is the entrepreneur, and the risks they take.
Hence, the internet, iphones and designer sneakers desired by protesters at Occupy Wall Street and the rest of us do not come about by everyone holding hands round a factory and singing Kumbaya. All this talk of socialistic solutions in America, and elsewhere, is killing the one thing that creates the wealth and built America in the first place: the entrepreneur. Without wealth, our fights over justice become much more problematic than wages, it becomes a war on scarcity, and we can look to many parts of the world to see how that turns out. This blog is dramatically entitled “The Immorality of the Minimum Wage,” because the policy is the worse moralism of all, self-indulgent good intentions leading to dangerous economic consequences.