Basic Market Ethics

People need a set of guiding principles to help them decide difficult political questions. My guiding principles have to do with market ethics. If some action would violate basic market ethics, then I can be sure it is the wrong action.

For thousands of years man has been improving his well-being through the action of the marketplace. All great cities developed to promote trade. The rules of trade are what I call the ethics of the marketplace. The rules are few and simple. Here they are.

Buyers and sellers come together in the marketplace of their own free will, motivated only by self-interest. Buyers and sellers decide on price, which may change with time and place. No force, coercion, or intimidation is allowed in the marketplace. No one must buy or sell anything they don’t want to, for any reason. Everyone is free to come and go from the marketplace at any time. When a transaction occurs, it is because both buyer and seller believe it is to their own advantage.

The two groups of people who do use force in the marketplace are robbers and government. It is the government’s job to remove robbers from the marketplace, using force if necessary. On that we can all agree. It is when government uses force on the peaceful buyers and sellers in the marketplace that the controversy begins.

Today our government uses a lot of force on the peaceful buyers and sellers in the marketplace. For example, it uses force to set prices (minimum wage and rent control). It coerces some buyers to buy (mandated insurance like social security and workers’ comp). It coerces some sellers to sell (civil rights ban on discrimination). It prevents some transactions from taking place (insider trading and child labor laws).

If you carefully examine each case where government uses force in the marketplace, you will find that government force is not beneficial to society. In each case, market ethics are a reliable guide to proper action. That is why Adam Smith recommended in 1776 that government adapt a policy of laissez-faire. What to do about the marketplace: leave it alone.

Abolish Minimum Wage Laws

Put yourself in the place of union leaders who have managed to increase wages of union workers to artificially high levels. What is to prevent jobs from going to non-union contractors? Answer: minimum wage and prevailing wage laws.

Perhaps you thought unions just want to give poor people a raise. No, what they really want to do is keep poor people unemployed, reserving more jobs for themselves. Of course unions would never admit to such a thing; political agendas are always advanced for noble reasons.

But once in a while someone blurts the truth. That was the case when Dick Gephardt revealed the true agenda behind his support for minimum wages during his 2004 presidential campaign. He told Teamsters Local 238 in Cedar Rapids, Iowa, that he favors an international minimum wage -- one that he says is high enough so that American workers are not competing with slave, sweat-shop and child labor around the world. Apparently candidate Gephardt would like to un-employ all the world’s poor, not just the poor in his country.

Minimum wage is just one example of how government meddling into the marketplace hurts the very people they claim to be helping. Rent control is another. Both have to do with dictating price, which always upsets the balance of supply and demand. When you dictate a minimum price for labor, it causes the supply of jobs to be reduced. This is just basic economics that no economist would dispute. Isn’t it ironic that the same politicians who support minimum wage are the ones boasting how they are going to create jobs! Go figure.

Now suppose you are working at minimum wage. Would you be in favor of the minimum wage being raised? Maybe so, because you might get a raise. On the other hand, your employer might respond by laying you off. Do you want to risk it? If so, you don’t need a law. You can set your own minimum wage. Go to your employer and demand a higher wage now. Tell him you refuse to work for less. If he thinks you are worth it, he will give you what you demand. If not, he will dismiss you.

But wait a minute! If you have set your own minimum wage and it is refused, you can negotiate a lower wage if you want to. But if you let the government set your minimum wage for you, you are out of a job – period; the government has taken away your freedom to negotiate.

If minimum wage is not the answer to increasing wages, what is? Wages are governed by worker productivity, because employers will hire workers only if their productivity is enough to show a profit after wages are paid. Productivity is improved by innovation and capital investment; government has no part in the process except to get out of the way. Again, no economist would disagree, yet this is an answer politicians can’t live with because it doesn’t make them appear important.

Libertarians oppose minimum wage on moral principles; it is wrong to use force in the marketplace to dictate prices to buyers and sellers. Interesting how good moral principles turn out to be best for everyone in a practical sense as well.