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Adam Smith Was No Proto-“Progressive”

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Here’s a letter to the Boston Globe; (I thank Peter Minowitz for alerting me to Schlefer’s article):

Claiming that labor markets are not self-regulating, Jonathan Schlefer recently demanded stronger labor unions and a higher minimum wage – and he insisted that even Adam Smith [2] shared his views (“Economists’ long-held beliefs make income inequality worse [3]” Oct. 12). According to Mr. Schlefer, who quotes from The Wealth of Nations [4], “Smith believed that each society sets a living wage to cover ‘whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without.’”

Mr. Schlefer’s seriously misinterprets Smith.

First, the quoted passage from The Wealth of Nations appears in a chapter on taxation;* it has nothing to do with labor policy. Second and more importantly, this passage is part of Smith’s explanation of how wages naturally adjust on the market in response to the demand and supply of labor. Smith’s point is exactly the opposite of Mr. Schlefer’s: Smith argued that wages in the free market rise automatically to enable workers to lead at least minimally decent lives by the standards of their time and place.

Whatever the merits or demerits of Smith’s analysis, he did not here (or anywhere else) argue that each society sets, or should set, a “living wage” through government policy or any other method of collective action. And while Smith did support workers’ freedom to organize, his understanding of (and confidence in) market forces – along with his deep skepticism of government intervention – makes it highly unlikely that Smith would have supported the minimum wage. As economist Timothy Taylor writes [5], “frankly, it is ridiculous to cite Adam Smith in support of minimum wage legislation.”

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Paragraph 148 of Book V, chapter 2: “Of the Sources of the General or Public Revenue of the Society [6].”

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