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1. Would Adam Smith have favored minimum wage legislation? In this influential article from the early nineties, Emma Rothschild argued that he would – or at least that his views would broadly support such a measure. The article as a whole repays close reading for its overall, provocative argument that Adam Smith was really a “libertarian socialist.” To Rothschild, the ‘real’ Adam Smith was a radical “subversive” sympathetic to the French Revolution. Tragically, though, conservative interpreters transformed him after his death into a mere advocate of unrestrained commerce. The minimum wage question is one component of this wider claim.

   In a House of Commons debate in 1795, Samuel Whitbread (the son of the famous brewer) proposed allowing magistrates to fix minimum wages for agricultural laborers. Whitbread deployed Smith in support of his position, citing a number of key passages from Book One of the Wealth of Nations. In the first, he quotes Smith that “when the regulation…is in favor of the workmen, it is always just and equitable; but it is sometimes otherwise when in favor of the masters” (WON, I.x.c.61). Whitbread (and Rothschild) seem to interpret his statement as a forward looking, normative claim; in its context, however, the statement seems more descriptive than prescriptive. Smith’s discussion is about maximum wage laws, and he observes that “whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters.” As throughout the Wealth of Nations, Smith is alive to the scheming of the rich and powerful to advance their interests using the power of government.

   As George Stigler has pointed out, the whole paragraph is puzzling – why would the legislature, dominated by the interests of the employers, ever pass a just and equitable law in favor of the workers? Stigler (in his 1971 polemic “Smith’s Travels on the Ship of State”) thinks Smith was simply mistaken or inconsistent in this passage. A more likely answer, though, would seem to be that the best workmen could hope for was “merely” justice and equity. They could never hope for actively favorable treatment. But such political considerations aside, would Smith think minimum wages just or favorable? We should shrink from attributing, to the founder of the discipline, an error most competent economics undergraduates can spot. Yet Smith never discusses minimum wages. We are left to infer his reaction from comments about the assize (price regulation) of bread: “Where there is an exclusive corporation [monopoly], it may perhaps be proper to regulate the price of the first necessity of life. But where there is none, the competition will regulate it much better than any assize.” (WN, I.x.c.62). Would Rothschild and like-minded scholars think this position unfriendly to the poor?

   posted 22 Apr 2010, 1:46 PM by Chris Martin