Category Archives: The Free Market

Minimum wage: a barrier, not a benefit.

Anarcho-Ichthus

Government regulations use force to make us do what we might not otherwise do, supposedly for our own good. The irony of the minimum wage–like most government regulation–it that it causes more harm than good; and that the harm falls on those who can least afford it.

No one will disagree that a person ought to earn a “just wage.” The trouble is that government uses force to make employers pay a wage it deems “just,” an arbitrary figure arrived at by warring political factions. In reality, the minimum wage is neither a “just” wage nor a free market wage (one agreed to by both parties), except by occasional accident.

The first thing to notice about the minimum wage is that it applies only to those at the bottom of the pay ladder, unskilled, mostly younger people limited by their abilities or lack of experience.

Jeffrey Tucker tells how the minimum wage put his friend Tad out of work:

The minimum wage is nothing more than a barrier separating unskilled workers from a job. There is no requirement that employers hire low-skilled workers. What the minimum wage laws tell employers is they cannot hire anyone whose skill or ability prevents them from producing at the level of the minimum wage. For that person, the minimum wage is not a benefit; it is a door slammed in his face.

If his abilities enable him to produce $7 an hour, how can any employer afford to hire him at $8 an hour? The result is that these low-skilled workers cannot be hired even though they would benefit from the job.

Consider a small businessman who can buy a machine that can accomplish a task at a cost of $7 an hour or hire someone to do the job at a minimum wage of $8 an hour. If the machine and the worker can both do the job for $7, the employer may prefer to give the job to the worker, but he cannot because the government makes that a crime. He could pay the worker $8, but that would last only as long as it takes his competitor (who does buy the machine) to bankrupt him with lower prices.

The minimum wage is the reason some unskilled people will never find work. Just as clearly, if both employer and employee were free to agree on a wage, almost anyone could be employed, no matter how inexperienced, or how mentally or physically handicapped. Government, however, would rather give disability payments to the poor than see them working below whatever the minimum wage happens to be.

Some fear that the unskilled could be exploited without a minimum wage, but the harm in creating a permanent welfare class is far more damaging. John Paul II, in his encyclical Centesimus Annus, encouraged the fuller “participation” of needy people in the economy, “to acquire expertise, to enter the circle of exchange, and to develop their skills in order to make the best use of their capacities and resources.” For those on the lowest economic rung, the minimum wage prevents such participation.

It is curious that much of the pressure on politicians to increase the minimum wage comes not from the poor, but from the unions, whose members have no interest in working for minimum wage. They do have an interest, however, in preventing competition from workers further down the ladder.  Larger corporations may also favor the minimum wage as a barrier against competition. Companies that are either better situated to absorb a minimum wage increase or that already pay their lowest-skilled workers more than the minimum wage are thus given an advantage over their smaller competitors.

Mandatory minimum wages are ineffective because they are price controls by another name. While the real beneficiaries of the minimum wage laws are people with skills and experience, many people are genuinely concerned that without a minimum wage, employers will be able to pay wages that are even below a free market wage.
Such an outcome could never exist for a significant time in a free market.

Simple math dictates that no merchant can pay employees more (or less) than those employees produce. Competition from similar businesses will quickly force the over-paying merchant to lower his wages or he will: a) lose his customers due to the higher prices he must charge; or b) lose his profits if he does not raise prices.

What will happen if the merchant is stingy and somehow manages to hire employees at $6 an hour when the market rate for unskilled labor is around $8 for similar work? Such a variance will quickly be resolved when the $6 employees learn they can earn more with a competitor across the street; or when the merchant across the street learns he can hire away as many employees as he needs from the stingy merchant at $6.50, or $7 or $8.

The stingy merchant will be able to hang on to his employees only if he pays $8 (the market wage). If he pays $6.50, the merchant further up the street will hire them away at $7, but only until the next merchant hires them away at $7.50, and so it goes. The market itself will correct inequities in pay rates—and unlike government—will do so without causing unemployment of the least productive and vocationally handicapped workers.

[excerpted from Chapter 6 of Free is Beautiful: Why Catholics should be libertarian]

Catholic libertarian

 

 

FREE IS BEAUTIFUL is available at Amazon $12.95. DRM-free ebook available at Smashwords $2.99. All formats.

 

 

Price Gouging is a Public Service

Price gouging is back in the news thanks to Hurricane Sandra. Citizen cry-babies have been reporting price increases for gasoline, cabs, hotel rooms, electrical generators and other necessities to the state governments which in turn have mobilized to enforce anti-price gouging laws.

Politicians are falling over one another to grandstand on the issue.  Continue reading

Casket-making monks win over Louisiana Funeral Directors

FINAL UPDATE: On October 15, 2013, the Benedictine monks of Saint Joseph Abbey won their final victory over the State of Louisiana and the Louisiana State Board of Embalmers and Funeral Directors. The U.S. Supreme Court rejected the morticians’ petition for certiorari and let stand the monks’ decisive win in the lower federal courts.

Occupational licensing—like all government meddling—continues to prevent more and more Americans from earning an honest living. In the 19th century, few barriers existed to prevent a person from pursuing an occupation. By the early 1950s, about 4.5 percent of occupations required a government-issued license. In 2000, the number of licensed occupations ran from a low of 47 in Kansas, all the way to 178 occupations in California. By 2009, the percentage of American jobs that required the government’s blessing was about 29 percent.

Licensing legislation is sought—not by the consumers it purports to protect—but by the doctors, lawyers and funeral directors that are regulated by it. It’s a racket designed to transfer money to those who gain the legislature’s ear. Continue reading

Occupational Licensing and the monks’ caskets


I
government is ever to get out of the welfare business, few things are more important than removing the government regulations that prevent people–especially the poor and the weak—from supporting themselves. Prohibitions against home businesses and street vending are not helpful to anyone except existing businesses.

Another big barrier to individual success is occupational licensing which limits employment opportunities and raises prices. Like every governmental power, licensing grows with each passing year. In the 19th century, few barriers existed to prevent a person from pursuing an occupation. By the early 1950s, about 4.5 percent of occupations required a government-issued license. In 2000, the number of licensed occupations ran from a low of 47 in Kansas, all the way to 178 occupations in California. By 2009, the percentage of American jobs that required the government’s blessing was about 29 percent.

Those who favor licensing claim to be protecting the health, safety and welfare of the people, but what they do is create monopolies which eliminate competition and raise prices. Numerous studies reveal that mandatory licensing (as opposed to voluntary certification) does not raise quality, but does keep consumer products and services more expensive. Licensing legislation is sought—not by the consumers it purports to protect—but by the doctors, lawyers and funeral directors that are regulated by it.

The monks of Saint Joseph Abbey

A real-life example of government protection of a favored business through licensing is the persecution of the brothers of Saint Joseph Abbey in Louisiana. The monks earn their living building and selling wooden burial caskets but were threatened by the state of Louisiana for selling those handmade caskets to the public. The reason the monks got into trouble was because they were not government-licensed funeral directors.

It seems that casket sales are a profit center for which the directors had secured a monopoly from the state government. The monks had twice petitioned the legislature to reform the law, but each time the funeral-director lobby mobilized to protect its lucrative monopoly.

The monks finally sued in federal court to strike down the Louisiana law. After a trial, the district court ruled:

There is no rational basis for the State of Louisiana to require persons who seek to enter into the retailing of caskets to undergo the training and expense necessary to comply with these rules. Simply put there is nothing in the licensing procedures that bestows any benefit to the public in the context of the retail sale of caskets. The license has no bearing on the manufacturing and sale of coffins. It appears that the sole reason for these laws is the economic protection of the funeral industry.

–Saint Joseph Abbey, et al. v. Castille, et al.

The funeral directors and their state board have appealed the ruling. A decision is expected soon. Meanwhile, the monks continue to support themselves as they turn out their beautiful cypress caskets.

Frédéric Bastiat, Catholic Libertarian

“The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”

–Frédéric Bastiat, Selected Essays on Political Economy

Frédéric Bastiat (pronounced “bahst-ja”) (1801 – 1850) was a French Catholic, born in the Atlantic seaport of Bayonne, France near the border with Spain. He was orphaned at the age of nine and raised to work in his family’s export business.

Bastiat had a youthful fling with religious skepticism, but that “skepticism was short lived and Bastiat soon returned to the traditional catholic faith.” George Charles Rocher III, Frédéric Bastiat: A Man Alone

At twenty-four, his grandfather died, leaving him the family estate in the inland town of Mugron where he would spend twenty years as a gentleman farmer, reading widely and developing intellectual interests in philosophy, religion, history, political theory and biography. He became active in the local government and was elected as justice of the peace and as a county councilman.

Bastiat’s business experiences and his studies coalesced to form an unshakable conviction that free trade was essential to economic prosperity. He began to write essays opposing protective tariffs and he closely followed Richard Cobden’s free trade movement in England. In 1844, with the publication of Bastiat’s piece on English and French tariffs he finally became recognized in French economic circles. Numerous lectures, books and articles followed, not only on tariffs and free trade, but much economic analysis that holds up as well in the 21st century as in the 19th.

One of Bastiat’s best known contributions is his “fable of the broken window,” in which he demolished the still popular idea that events like war, natural disasters and the destruction of perfectly good automobiles will stimulate the economy. Bastiat tells the story of an unfortunate shopkeeper whose window is broken out by his careless son:

If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation: “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade — that it encourages that trade to the amount of six francs — I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way which this accident has prevented.

In the end, the glazier has traded his labor and a pane of glass for six francs, a fair trade. The shopkeeper, however, gains nothing he did not have before the window was broken, but also suffers a loss of six francs. Destruction never stimulates the economy; it only diverts resources from a desired activity to a remedial one.

Bastiat explained how the free market–based on self-interest and competition–works better than any other system; how even the greedy man is compelled to serve his fellow man:

[S]elf-interest is that indomitable individualistic force within us that urges us on to progress and discovery, but at the same time disposes us to monopolize our discoveries. Competition is that no less indomitable humanitarian force that wrests progress, as fast as it is made, from the hands of the individual and places it at the disposal of all mankind. Economic Harmonies

By virtue of exchange, one man’s prosperity is beneficial to all others. Economic harmonies

While Frédéric Bastiat’s public fame was based on free trade and economic issues, he recognized that the underlying issue was human freedom. He believed that the role of government was limited to the protection of life, liberty and property because any authority of the state could only be derived from individual men:

If every person has the right to defend – even by force – his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. This principle of collective right – its reason for existing, its lawfulness – is based on individual right. And the common force that protects this collective right cannot logically have any other purpose or any other mission than that for which it acts as a substitute. Thus, since an individual cannot lawfully use force against the person, liberty, or property of another individual, then the common force – for the same reason – cannot lawfully be used to destroy the person, liberty, or property of individuals or groups.  The Law

Government that exceeds this defensive role thereby becomes an unjust aggressor, such that “The law is no longer a shield, but a sword!Selected Essays.

Bastiat’s view of human freedom was grounded in his Catholic worldview and his works show his “deep and abiding belief in God as the source of human dignity.”  Frederic Bastiat: A Man Alone. Believing the purpose of law was to protect life, liberty and property, it follows that only an unjust government infringes those rights by benefiting some at the expense of others: “Let us never forget that, in fact, the state has no resources of its own. It has nothing, it possesses nothing that it does not take from the workers.” Selected Essays.

By the time Bastiat became well known in France he was suffering from the tuberculosis which would kill him. His doctors prescribed rest, but there was no time to rest, for in 1848 his country was being torn apart from within.

Bastiat was elected to the French legislative assembly as he poured himself into finishing his life’s work. Bastiat’s greatest efforts for liberty and the role of law came at the very end of his life. His short but influential book, The Law, was completed the year that he died. He regretted that he had yet more work to do. “Before his death he declared that if God would but grant him a new lease of life he would devote his energy to the development of Christian harmony and political economy, but he did not live to fulfill his vow.” Catholic Encyclopedia, 1914.

Frédéric Bastiat died in Rome on Christmas Eve, 1850 of tuberculosis at the age of 49. He is buried in the Church of San Luigi dei Francesi.

 

The Candlemakers’ Petition, Frédéric Bastiat

More Readings on Bastiat:

Bastiat for the Ages
Frederic Bastiat: A Man Alone
Frederic Bastiat (1801-1850): Between the French and Marginalist 

Freedom to live a moral life

In previous posts [here and here] we reviewed misconceptions about the nature of a libertarian society and how businesses could better serve us. In a free society, private property would enable people live in an environment of their own choosing. No longer would we be forced to pay for the immoral conduct of government and those it subsidizes. Freedom of association is a fundamental human right and this would be reflected in a variety of communities which could arise.

Such communities would come about through the use of civil contract law, which has a long tradition in the use of covenants that run with the land, binding subsequent owners by voluntary agreement. These are enforceable under contract law and impose duties or restrictions that follow the land when it is sold to a new owner. This works without criminal laws because residents agree to bind themselves in various ways. Both homeowners and their guests would be required to follow the rules. Those who do not could be removed as trespassers.

Property-based rights would enable groups of like-minded people to buy land for the purpose of establishing communities according to their favorite principles. A group of distributists might establish a city of small businesses where property agreements provide that each landowner must own the means of their livelihood and which prevent the massing of property in few hands. Every square inch of the city would be under the covenant, which all buyers would agree to when they bought the land.

A Catholic entrepreneur might have a vision of a Catholic city where public morals would reflect Catholic moral teaching. Residents and visitors alike would abide by the covenants, which would apply everywhere. In that society, guests might be hard-pressed to buy recreational drugs, pornography, contraceptives or abortion pills. On a Sunday, nothing would for be sale. One might search the yellow pages in vain for a “gentleman’s club,” abortion clinic, or escort service. Drunkenness, public lewdness or taking the Lord’s name in vain might result in fines or expulsion.

Monks and nuns would still live in voluntary community in personal poverty as they always have, but without the harassment of government. As in social communes that exist today, the assortment of these arrangements would be vast, and one can imagine Mormon towns, “no corporal punishment” towns and vegetarian towns.

In fact, socialists, even communists, could band together to undertake voluntarily what has failed so miserably under the guns of government. No one would stop them from trying. Surely, there would be some real oddballs out enjoying the freedom, but we are not talking about utopia, just the exercise of free will restrained only by the universal prohibition against initiating force against others.

In the end it may be that most people would gravitate to less controlled living arrangements where the ideal is simply to be left alone and to live their lives in peace.

Private property and a moral society

In the last post, we noted that a free society–far from being an amoral nightmare–would be one where people have more control over their lives and neighborhoods and be better able to live as they ought.

This can be accomplished by eliminating public property. Every town has one or more streets in its business district. What would happen if the town deeded one street and its sidewalks back to the landowners along that street? It would be child’s play for the merchants to make alternative arrangements for security and upkeep, assuming they no longer have to pay for those through taxes. The most visible change would be that the now-private street owners are not bound by the rules that bind the state in policing that street. In public places, conduct that is not criminal must be tolerated no matter how obnoxious. The police—bound by the laws that protect us all—are powerless to act.

When the street is public property, then drug dealers, troublemakers and thieves must be tolerated even if it drives the rest of us out of the neighborhood. Only if such people are caught breaking the law can they be removed (temporarily) from public property.

If a business district were fully owned by the merchants of the district, they would see that it was well maintained with good access and plenty of parking. They would want the sidewalks to be free of people who harass or drive away customers. If the property included a formerly public park, the merchants would want it clean, safe and attractive to their customers. Individuals would conduct themselves by the rules or be barred from the property.

The private business district—like a private mall—would have the same rights as a person in their own home. Even in today’s society, we can do just about anything inside our homes as long as we do not infringe the rights of others. On the other hand, we have almost no rights inside another man’s home. We cannot smoke, drink the water, use the toilet, speak or even move without the owner’s leave. As much as we value our freedom of speech, our right to peaceably assemble or to bear arms, no such rights exist on another man’s property. If we do not abide by the owner’s rules, no matter how stupid or arbitrary, we are trespassers and can be made to leave.

Of course, a business owner does not want to exclude people. He wants them to come in and spend money. Whether he allows smoking, guns or alcohol is no one’s business but his . By these choices he caters to some and not to others. Such privatization would let the merchant control the entire environment and allow customers to choose those businesses or districts that meet their needs. The same sort of choice—now forbidden by government—would become the norm if private property replaced public ownership and voluntary agreements replaced governmental aggression.

In the next post, we will see how these principles might extend to our homes, neighborhoods and entire cities.

What is a just wage? And who decides?

The Catechism of the Catholic Church provides that a just wage is one that takes in account “the needs and contributions” of the people involved. Those who favor interference  with voluntary wage agreements cite the Catechism for the proposition that “agreement between the parties is not sufficient to justify morally the amount to be received in wages.” CCC 2434. Agreements made under force or fraud certainly are unjust, but further meddling by others is unlikely to yield a more just result.

It is difficult to see how an outsider to any wage agreement will have more competence to judge what is fair and just. This kind of meddling reminds me of the sort of courtroom judge whose conceit overpowers common sense and a proper humility.

An Unwise Judge

In a criminal case there are two parties: the state, represented by the prosecutor, and the defendant, represented by his own attorney. In most cases, they reach a settlement of the case without a trial. Each considers the evidence supporting their side and the likelihood of success and punishment. By the time they reach a plea agreement, each side has carefully weighed the issues, sometimes over a period of many months.

The deal is made and they appear before the judge. The agreement is announced. It typically involves a compromise regarding the charges, or the sentence, or both; and unless something seems dishonest or fraudulent, the judge accepts the plea and sentences the defendant according to the agreement. The judge will often accept a deal that is more harsh or more lenient than the sentence they would ordinarily give. It may not be a perfect solution, but the wise judge knows that the precious few minutes he spends with this case is dwarfed by the hours and months that the parties have invested to understand the issues and the evidence.

The foolish judge sweeps all of this aside and substitutes his own views and prejudices. His arrogance blinds him to the fact the parties to the case have far better reasons to believe that the agreement is fair. The foolish judge does not care, nor does he have to live with the result. He is pleased with his judgment, even if no one else is.

When it comes to the free market, the parties in a transaction, will do their best to reach agreement regarding a fair wage (or price). There is no assurance that their agreement is perfect, but–absent force or fraud–it seems likely that neither they, nor society, will benefit from interference by the government.