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Minimum Wage

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Obviously in a laissez faire capitalism economy there would be no such thing as a minimum wage law, as that requires government intervention and control. In retrospect this is a good thing, mainly because it does not put a price or limit on the minds of the employer and it will ultimately decrease unemployment, as more people could be hired based on their work ability and not their "right" to work.

But what if there was a small, rural community. Say there is 1 conglomeration of a factory there and the only thing this community produces is, say, cheese. Having a more or less "monopoly" on jobs for this community, it could do what most statists and altruists like to call "exploit" the workers, being as they would have no other place to work and they would have to find a job there.

Being as they are in this position, the factory could set its wages at, just a random amount, $1.50 an hour. In today's inflatted society, one cannot reasonably live on $1.50 per hour and therefore this would be "exploitation" and would require government intervention.

I ran into this scenario today when talking about monopolies and minimum wage with a friend and this is the story she told me. I didn't really know what to say besides the idea that they could move to a new location. She merely just presumed that people in this situation cannot even afford to move.

Knowing that minimum wage does not solve the issues here, as even if the wage was "regulated" to be a mandatory $3.00 an hour, the company would only hire back half of its employees to even out its budget. This is how I explained that minimum wages do not solve and I ran into the road block of, "And that is also why government intervention is needed, so they could be FORCED to hire back employees at the new minimum wage".

More or less I am just looking for input on this and what a good argument would sound like. Sorry if I lost some of you along the way, feel free to ask for clarification.

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People never would need the cheese factory to be their only way to make money even if moving would be difficult. There's a bunch of people there, surely they need more food than just cheese and they need clothing, housing, art, et cetera. All they have to do is start producing other things people would need and want and they then could start trading with others for what they need and want. If needed, they could even devise their own money system instead of always directly bartering and use that among themselves and only barter or use money from the cheese job in any case they somehow could get stuff from the rest of the world somehow even though they can't move. The flaw of this cheese factory scenario is it assumes people are stuck dependent on the factory and at its mercy or that of the government because it assumes to treat value like a static quantity that you've just got to get from somebody else when in fact you can create value anew where there had been less or none before. Cheese factory not paying you enough for your services? Do or make something else with what is available to you instead or in supplement.

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People never would need the cheese factory to be their only way to make money even if moving would be difficult. There's a bunch of people there, surely they need more food than just cheese and they need clothing, housing, art, et cetera. All they have to do is start producing other things people would need and want and they then could start trading with others for what they need and want. If needed, they could even devise their own money system instead of always directly bartering and use that among themselves and only barter or use money from the cheese job in any case they somehow could get stuff from the rest of the world somehow even though they can't move. The flaw of this cheese factory scenario is it assumes people are stuck dependent on the factory and at its mercy or that of the government because it assumes to treat value like a static quantity that you've just got to get from somebody else when in fact you can create value anew where there had been less or none before. Cheese factory not paying you enough for your services? Do or make something else with what is available to you instead or in supplement.

Yea I see what you are saying here. Just get the typical, "They can't do that" response so its more or less pointless to argue with ignorance. But I agree with you indeed.

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If they say, "They can't do that," then I'd say, "Why not?" Whatever crazy story they may try to make up about how desperately isolated they are, how tyrannical the cheese factory owner is, blah blah, long hours, blah blah, few natural resources, blah blah, fact is these people in this area managed to make livings before the cheese factory existed somehow, so that proves it can be done somehow. EDIT: Also, if they are able to be in contact with the government, then they can contact the outside world it seems, so they could perhaps get some loans or charity to help them move some place else or start a new career. No point in making minimum wages and forced hiring at the cheese factory, if you care that much, you voluntarily help them cut ties with the sucky cheese factory.

Edited by bluecherry
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If they say, "They can't do that," then I'd say, "Why not?" Whatever crazy story they may try to make up about how desperately isolated they are, how tyrannical the cheese factory owner is, blah blah, long hours, blah blah, few natural resources, blah blah, fact is these people in this area managed to make livings before the cheese factory existed somehow, so that proves it can be done somehow.

Very good point indeed. Its just the altruism in people that makes debating/arguing fruitless. They have been blinded all their lives by this idea that government intervention is a necessity for equilibrium and success and without government intervention, the evil capitalist will take over and exploit every living being until everyone dies.

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Say there is 1 conglomeration of a factory there and the only thing this community produces is, say, cheese.
What were these people doing before the days of the factory? Were they earning less than $1.50?

At any rate, just because you're born next door to a factory does not give you a right to a job in that factory.

Another question: why is the factory paying $1.50 in a free-market? Wouldn't it make sense to pay less? If you were a rational factory-owner wouldn't you reduce wages to (say) $1.50 per year, instead of $1 per hour, and insist that workers must work 364 days of the year, on 12 hour shifts, for that wage. On second thoughts, why not insist on all that and say you'll pay $1 after 10 years of work? Would that be feasible? If not why not? It's because not even the lethargic denizen of Inertiaville would come for those wages. The factory-owner would have to pay enough to induce folks to stay and work for him.

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Just tell him you agree and instead of $1.50 per hour the government should FORCE the business to pay $3.00 an hour.

  • Then call him back an hour later and tell him that you just found out half the cheese factory workers were let go. So, obviously, we're going to need some welfare laws to help these out of work cheese workers.
  • Then call him back again and let him know that the tax hike caused the cheese maker to fire another 20% of the workers. He's also been forced to raise the price of his cheese.
  • Next call, sales are way down, cheese factory closed.

The most important element to consider when discussing minimum wage (imo) is voluntary individual choice (for BOTH the employee and employer). A scenario like the one you describe attempts to stack the deck by setting up a coercive monopoly where no choice is possible. There are many reasons why that cannot happen in a free market. If you're unsure about those reasons, I would point you to some good essays in A.R.'s Capitalism: The Unknown Ideal. Particularly:

*America’s Persecuted Minority: Big Business, Ayn Rand

*Antitrust, Alan Greenspan

*Common Fallacies About Capitalism, Nathaniel Branden

*Notes on the History of American Free Enterprise, Ayn Rand

There are great theoretical points and historical examples in those essays. Maintaining over 50% market share even in our mixed market is not easy, and most definitely not a given.

So, turn the question around and ask your own abstract question:

I am willing to pay $2.00 per hour for someone to do a job for me. A person says he's willing to agree to do that job. Should that transaction be illegal?

Edited by freestyle
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What were these people doing before the days of the factory? Were they earning less than $1.50?

At any rate, just because you're born next door to a factory does not give you a right to a job in that factory.

Another question: why is the factory paying $1.50 in a free-market? Wouldn't it make sense to pay less? If you were a rational factory-owner wouldn't you reduce wages to (say) $1.50 per year, instead of $1 per hour, and insist that workers must work 364 days of the year, on 12 hour shifts, for that wage. On second thoughts, why not insist on all that and say you'll pay $1 after 10 years of work? Would that be feasible? If not why not? It's because not even the lethargic denizen of Inertiaville would come for those wages. The factory-owner would have to pay enough to induce folks to stay and work for him.

I see, so is this $1.50 an hour worth their time and their work effort is what you are more or less saying?

Their work and production is a product and they should sell it at a reasonable price, if they choose to work for such a little salary, that is their fault?

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That's not what "exploitation" is either. The "exploitation" according to Marxist class theory is not simply "working for low wages." It's working for any wage. Wages themselves are exploitation, they say. If I have an apple orchard and employ some guy to pick apples, if I give him anything less than 100% of the apples he picks, then I am exploiting him. If I net a 50 apple per day profit from him and only pay him 10 apples a day, I am exploiting him according to Marx.

You should tell your friend that exploition is initiating force (such as when the government exploits people via minimum wage laws) and not employing people in any voluntary scenario.

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Being as they are in this position, the factory could set its wages at, just a random amount, $1.50 an hour. In today's inflatted society, one cannot reasonably live on $1.50 per hour and therefore this would be "exploitation" and would require government intervention.

All I would really say is "so what?"

If they starve, why do I have to care? Why is the employer obligated to take care of his employees? Obviously, it is ethics based on altruism, as has been stated. Sure, $1.50 isn't enough to live off of, but who cares? If the employees don't like it, then they should quit. After all, if they can't survive as it is, what else is there to lose? And then the employer wouldn't even be able to run his business anymore because he has no more employees. So he either raises wages in order to make it worth working at his factory, or else he will starve too.

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Their work and production is a product and they should sell it at a reasonable price, if they choose to work for such a little salary, that is their fault?
"Reasonable" can sometimes be misunderstood. As employees, they should seek out the best deal for themselves. That means the best combination of wages and work-hours and benefits, given their goals, their family situation, and so on. If they can live on $1.50, and Inertiaville has some other value that makes up for the low wage, then staying there might be the right decision. Maybe it's like being paid to go camping! On the other hand, if they literally cannot live on $1.50, then they cannot live on $1.50. They will obviously die and not work in the factory for too long. If the example extends over a year or so, then we have to assume that they can, in fact, live on $1.50 Edited by softwareNerd
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its more or less pointless to argue with ignorance.
I wouldn't say it like that. It can be worthwhile to challenge your friend's premises, assuming you have the patience and free time :P

Ask your friend if a minimum donation law is just as needed as a minimum wage law – government intervention is needed to FORCE charitable people to not exploit charity cases and to FORCE charitable people to donate more money when the minimum donation is increased.

If forcing charitable people to be more charitable is ludicrous, but forcing employers to be more charitable is not… the question for your friend is “Why?”

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I wouldn't say it like that. It can be worthwhile to challenge your friend's premises, assuming you have the patience and free time :P

Ask your friend if a minimum donation law is just as needed as a minimum wage law – government intervention is needed to FORCE charitable people to not exploit charity cases and to FORCE charitable people to donate more money when the minimum donation is increased.

If forcing charitable people to be more charitable is ludicrous, but forcing employers to be more charitable is not… the question for your friend is “Why?”

This is a really good point, and people here understand why it makes sense, but people in the real world who have not been shown how to reason and rationalize morals would not understand that these two are the same in ideals and principles.

But I got what your saying, would just have to explain it.

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I wouldn't say it like that. It can be worthwhile to challenge your friend's premises, assuming you have the patience and free time :P

Ask your friend if a minimum donation law is just as needed as a minimum wage law – government intervention is needed to FORCE charitable people to not exploit charity cases and to FORCE charitable people to donate more money when the minimum donation is increased.

If forcing charitable people to be more charitable is ludicrous, but forcing employers to be more charitable is not… the question for your friend is “Why?”

This is a really good point, and people here understand why it makes sense, but people in the real world who have not been shown how to reason and rationalize morals would not understand that these two are the same in ideals and principles.

But I got what your saying, would just have to explain it.

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In today's inflatted society, one cannot reasonably live on $1.50 per hour and therefore this would be "exploitation" and would require government intervention.

Exactly. No one can survive on $1.50 an hour. So if the factory owner were really that stingy, the entire town would simply die. That's not good for the employer either.

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I'm against minimum wage laws, becausei it's pointless it is. I can either volunteer, or get paid a "living wage" whether I need it or not. I'm a 20 year old who's still living with his parents, what if I want to work $2/hr? I can't. But yeah, there is a legal way for employers not to pay you a single dime! Here's a hint: if you're not an employer, you're doing it right now!

One argument I've encounterd is that it helps the economy to have a government defined living wage, because if everyone can pay for food, it will put money back into the economy. This makes the assumption that everyone will get hired, it makes the assumption that the cost of food won't rise, it makes a lot of assumptions.

How much were people being paid before FDR decided what the pay should be? (25 cents).

Also, notice how much the minimum wage inflated since then.

Edited by Black Wolf
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Exactly. No one can survive on $1.50 an hour. So if the factory owner were really that stingy, the entire town would simply die. That's not good for the employer either.

So the real issue at hand is it would not be for the qua man of the factory owner (aka it would not be in his self interest to hire people at this price)?

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..., what if I want to work $2/hr? I can't.
The minimum wage laws are actually one reason the unemployment rate is so high among younger people today. As long as the economy was doing well, the minimum wage laws had limited impact, because they were below or close to the market-minimum. Now, with the downturn in the economy, the market minimum is often below the legal minimum.

One argument I've encounterd is that it helps the economy to have a government defined living wage, because if everyone can pay for food, it will put money back into the economy. This makes the assumption ...
More than all those assumptions, the real fallacy in this argument is this: the unspoken assumption that if that money is not "put back in the economy" by buying food, then it would just go poof! In fact, if not for food, it would have been spent for something else.
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This might be a little bit off topic for this, but I am going to go ahead and ask it here.

Currently in US History we are learning about the construction of the first transcontinental railroad and the creation of what was deemed the first "monopoly" under these railroad companies. Basically long range trips were subject to transportation and short range trips were not, therefore there was a travel monopoly.

Now, my teacher is actually a capitalist, but he claims that this is the issue with the free market, aka that is lets monopolies form unchecked, and therefore requires regulation.

After reading Capitalism TUI and other various Rand excerpts on monopolies, I am not really sure how to explain that he is wrong to people in layman terms.

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Now, my teacher is actually a capitalist, but he claims that this is the issue with the free market, aka that is lets monopolies form unchecked, and therefore requires regulation.... I am not really sure how to explain that he is wrong to people in layman terms.
Try explaining why he is right, in his own terms. Let us assume that there was no transcontinental railroad. That is option #1. Then, we have option #2, where we have a single transcontinental railroad. Why is the second option better than the first?
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What's so wrong about one or just a few railroad companies running their long distance travel systems? Even if they charged an arm and a leg, so what? Before they existed people got along without them so the creation of the companies can't detract from their quality of life generally, only add to it or at worst not alter it assuming a company that doesn't violate rights to achieve its prominence.

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What's so wrong about one or just a few railroad companies running their long distance travel systems? Even if they charged an arm and a leg, so what? Before they existed people got along without them so the creation of the companies can't detract from their quality of life generally, only add to it or at worst not alter it assuming a company that doesn't violate rights to achieve its prominence.

This is a good point indeed, I wasn't really aiming to show him the issues with the idea of the monopoly, I was just trying to find a way to explain to him that monopolies are not an issue in a free market society.

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Currently in US History we are learning about the construction of the first transcontinental railroad and the creation of what was deemed the first "monopoly" under these railroad companies. Basically long range trips were subject to transportation and short range trips were not, therefore there was a travel monopoly.

Now, my teacher is actually a capitalist, but he claims that this is the issue with the free market, aka that is lets monopolies form unchecked, and therefore requires regulation.

After reading Capitalism TUI and other various Rand excerpts on monopolies, I am not really sure how to explain that he is wrong to people in layman terms.

If you have the ability to go back to that book, there are some very interesting things about the railroads mentioned in The Unknown Ideal.

I have this one on hand because I recently cited it, but there were 3 or 4 other specific mentions of railroads.

Between 1863 and 1867, close to one hundred million

acres of public lands were granted to the railroads. Since

these grants were made to individual roads, no competing

railroads could vie for traffic in the same area in the West

Meanwhile, the alternative forms of competition (wagons,

riverboats, etc.) could not afford to challenge the railroads in

the West Thus, with the aid of the federal government, a

segment of the railroad industry was able to "break free"

from the competitive bounds which had prevailed in the

East.

As might be expected, the subsidies attracted the kind of

promoters who always exist on the fringe of the business

community and who are constantly seeking an "easy deal"

Many of the new western railroads were shabbily built: they

were not constructed to carry traffic, but to acquire land

grants.

The western railroads were true monopolies in the

textbook sense of the word. They could, and did, behave with

an aura of arbitrary power. But that power was not derived

from a free market. It stemmed from governmental subsidies

and governmental restrictions.

- Antitrust by Alan Greenspan

You should also reread the Common Fallacies of Capitalism essay by N.B. - It is all about monopolies and how it is government that enables COERCIVE monopolies to exist.

Edited by freestyle
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