Everybody against the minimum wage?

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    Hey guys,

    Am I right that all major economic schools of thoughts, monetarists, Austrians, neoclassicals, and even Keynesians are (more or less) against the minimum wage? If yes, is there any literature which compares how those different schools can come to the same conclusion? Thanks in advance for your help! Best whises from Austria!


    I’m not exactly an economics expert, but I think your premise is a little backward. It’s not that the various schools “come to the same conclusion” but rather that the concept of price-controls being counter-intuitive is a fundamental concept of basic economics. Any introductory to macro textbook will likely address this in the first few chapters.

    As far as I know, the various economic “schools” all agree on the basic core premises of economics that are covered in an Intro textbook. It isn’t until you start getting into the more complicated issues and the question of “well what should we do about it” that the various schools of thought begin to become distinct.


    From the point of view of classical liberalism, of which the Founder’s were proud espousers, the power to determine what was a fair minimum wage was solely an individual’s power. To grant to government such a power would constitute such a gross violation of property and contract rights that to just consider such a grant of power would constitute lunacy. But of course the individual right was well recognized not just for natural persons but for entities of all kinds, including governments. For example the Federal government can require that its officers and employees will never be paid less than a certain minimum wage. It can require that companies that contract with it to abide by its minimum wage guidelines or, for that matter, its prevailing wage guidelines. It can also require that its employees, officers and contractors participate in a social insurance ponzi scheme. Or a corrupt medical insurance program! The States could adopt these guidelines for themselves and their employees and contractors, as well. Private companies which have no federal or state connections could also adopt these guidelines. But nowhere, here in America, has a grant of power been given to governments to determine what the minimum wage is for private sector individuals or companies. Or to require them to participate in Social Security or Obamacare. We are outside of their jurisdiction, but we can ignorantly enter it voluntarily. Big oppressive governments like it when we do.


    Paul Krugman, the self-anointed standard bearer for Keynesian economics, would vehemently disagree with your premise.


    The minimum wage is a favorite of labor unions and big business alike. The former approves because it prices low-skilled (read: non-unionized) labor out of the market. The latter likes it because economies of scale make the compliance costs more onerous for smaller, upstart companies than they are for larger, more entrenched firm that can absorb the costs and increase their market share when the smaller competitors go out of business.


    The idea that “the Founders” were all exponents of laissez-faire is mistaken. Several of them were mercantilists. The most obvious example is Alexander Hamilton, who favored various types of federal economic intervention.


    I wholeheartedly agree. But the idea that “the Founders” were all exponents of classical liberalism is not. Hamilton was on the fringe definitely, but still a proud proponent of the main tenet of liberalism: private property as the means of production. Did Hamilton ever suggest or support that the federal government had a power to establish minimum wage laws upon the people generally? Probably not. Or upon its employees, only? Maybe. Did he establish minimum wage guidelines for the Treasury Dept. when he was there? Maybe. Did he suggest or support that New York establish minimum wage laws generally upon the people of that state? Probably not. Or upon its employees, only? Possibly. Did he established a minimum wage for the employees of his law firm? Possibly. We’ll probably never know the answers for sure because we don’t care to look. But my hunch is that Hamilton understood the key jurisdictional issues involved with the minimum wage and never ventured into the general authority realm because the power simply doesn’t exist under a liberal system.

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