The Case against Minimum Wage

Ho Say Peng

In this article, I argue against minimum wage laws from a moral and praxeological perspective.

For a market economy to function seamlessly and prosperously and continuously, one principle, above all, must be held sacrosanct: the principle of each individual’s right to his (or her) own property—property rights.

A property right is a causal offshoot of the right to life, the source of all rights. If a man has a right to his life, he should, by extended logic, have a right to the products procured by his own effort which are used to sustain his life. A man who has no right to the products of his effort has no means to sustain his life.

For the right to life means the right to engage in self-generated self-sustaining action, and property rights mean the rights to procure, keep, consume, sell, rent, exchange, transfer, dispose and destroy material or intangible entities—actions employed for essentially one ultimate end: one’s own life—property rights are the implementation of the right to life. A man who is denied of his property rights is ultimately denied of his right to life.

The market economy cannot function without first recognizing, implicitly or explicitly, the sanctity of property rights. It has been demonstrated by logic and historical evidence that a society’s well-being correlates to its cognizance of property rights.

Under minimum wage laws, government dictates, through coercion and compulsion, that the minimum wage an employer can pay his (or her) employee is a certain amount. Minimum wage laws are a violation of an employer’s property rights.

The employer has a right to charge any amount he wants for labor. He may determine it arbitrarily or reasonably. Whichever the case, government has no right over the employer and his business, which is his property, to coerce and compel him to charge an amount for labor in which he has no say.

The proper role of government, an agency with the monopoly of coercion and compulsion, is specific and delimited: to secure the freedom of action of and enforce the rights of each individual citizen via the police, army, and courts of law.

Charity and humanitarian goals are not part of the legislative purposes of government. If it should ever attempt to do so, then government, as James Madison wrote, “is no longer a limited one possessing enumerated power, but an indefinite one subject to particular exceptions.”

The goals of economic equality and social equality are, indeed, two of these many “particular exceptions”. Property rights are then treated as merely a hindrance to be swept aside in the pursuit of these noble ideals—if property rights are considered at all, which is often not.

Minimum wage laws are one such manifestation of these ideals.

The goal is to reduce the poverty of, attain income equality for, and improve the general welfare of the least able members of society. It surely is a noble and socially appealing goal; and if minimum wage laws are passed into law, it cannot be denied that the group of people who was earning below minimum wage would benefit, even if it is only in the short-run.

But what are the other consequences—the often unseen and unintended long-term consequences.

In my first article, “Rights: The foundation of a free society”, I wrote: “The principle of rights is a moral concept . . . that defines and sanctions man’s freedom of action in a social context.” That sentence was written from a moral perspective. Here, I will re-write the sentence from a different perspective.

Ludwig von Mises, who was the fountainhead of Austrian economics, defined economics as the “science of the means to be applied for the attainment of ends chosen”. Lionel Robbins, who was an Austrian economist before he turned Keynesian, defined economics as the “science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

Economics is as such not merely a study of inanimate goods and services. It is in fact a branch of a broader subject called praxeology, the science of human action. Economics is a specialization of praxeology; it is essentially a study of human action. (History is also considered to be a specialization of praxeology.)

From a praxeological perspective: The principle of rights is a praxeological concept that defines and sanctions man’s freedom of action in an economic context.

The perspective has changed, but the essential meaning has not: Man must be free to act.

The market economy is an abstract describing essentially a vast multitude of interrelated human exchanges, which all of us are part of. All participants of the market economy—or economic agents—are acting men. If no economic agents are free to act, the market economy would collapse.

What would happen if a few economic agents—employers, in this case—are not free to act—are not free to negotiate their employees’ wages? It would be naïve to claim that there would be no negative consequences.

Some might be bold enough to suggest that whatever negative effects minimum wage laws will incur, the price to pay is worth it, if such laws “protect workers from exploitation by employers”. Slavery is also a term quite readily bandied around.

Just as I defend the employer’s freedom of action, I also defend the employee’s freedom of action. The employee is free to choose his employment. He is neither coerced nor compelled to work for any employer.

If an employee does choose to work under an employer, it is because the employee values the salary or other non-pecuniary benefits offered by the employer more than the time and effort he would have to expend working the job or because he values the job offered more than the alternative of other jobs or of being unemployed; and if the employer hires the employee, it is because the employer values the services offered by the employee more than the services offered by other employees or the money he would have to expend as labor costs.

As such when the employee chooses to work for the employer and the employer chooses to hire the employee, it is only because both parties find it preferrable to not making such a decision on their part. The relationship between employer and employee is therefore voluntary and mutually beneficial.

Neither party is exploited; neither party is a slave. Such spurious views reflecting Marxist tendencies to think in terms of “surplus profits” due to the exploitation of labor is based on the flawed labor theory of value, which has been thoroughly and critically refuted and discredited.

Furthermore, no one, except the employee, is in a position to judge whether his wage is too low or too high. Each individual has his own subjective valuation of the price of his labor. It is for the employer to try to meet the expectations of the employee, while ensuring the wage he offers stays within budget, if he wishes to employ the services of the employee. A central plan to fix the minimum wage at some universal amount must be completely arbitrary and based not in reality but in fantasy.

It is not the purpose of this article to spell out the negative economic consequences of minimum wage laws. The economic arguments against such laws have been made excellently and succinctly by the likes of Henry Hazlitt and Thomas Sowell. However, I did demonstrate that the implementation of minimum wage laws would not come without a price—whatever the price is.

In this article, I merely want to argue from a moral perspective, which I find to be sorely lacking on the side of those arguing against minimum wage laws and other laws of such a nature, and thereby allowing the opposition to capture a moral high ground. I also offer a praxeological perspective to my argument: to demonstrate the link between the moral and the practical, and that there is no dichotomy between the two.

Property rights must be respected and upheld as an absolute principle. It is the sine qua non of a successful market economy. Austrian economists have demonstrated that whenever government interferes in the market (implying a violation of property rights), economies suffer—either from slower growth, lower standards of living, unemployment, or recessions—meaning that ultimately people suffer. More than that: Because property right is a corollary of the right to life, violation of the former is in effect a violation of the latter; and the violation of the right to life will lead to more than just lower growth, unemployment, and economic calamity. Societies have collapsed because their governments do not respect the fundamental right to life of each individual citizen.