Monday, October 15, 2012


This selection from an early draft of the Wealth of Nations indicates that Smith could support minimum wage laws:
It is in this manner that in an opulent and commercial society labour becomes dear and work cheap, and those two events, which vulgar prejudices and superficial reflection are apt to consider as altogether incompatible, are found by experience to be perfectly consistent. | The high price of labour is to be considered not meerly as a proof of the general opulence of society which can afford to pay well all those whom it employs; it is to be regarded as what constitutes the essence of public opulence, or as the very thing in which public opulence properly consists. That state is properly opulent in which opulence is easily come at, or in which a little labour, properly and judiciously employed, is capable of procuring any man a great abundance of all the necessaries and conveniencies of life. Nothing else, it is evident, can render it general, or diffuse it universally through all the members of the society. National opulence is the opulence of the whole people, which nothing but the great reward of labour, and consequently the great facility of acquiring, can give occasion to.

From the final version of WoN, Smith writes:
The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition, and of ending his days perhaps in ease and plenty, animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious than where they are low...
UPDATE: (h/t Barry Ritholtz) Robert C. Allen has argued that the high wages in Britain were a spur to the Industrial Revolution:
British wages were exceptionally high compared with wages in others parts of Europe and in Asia, while the prices of capital and energy were exceptionally low. The price and wage structure affected the demand for technology by giving British businesses an exceptional incentive to invent technology that substituted capital and energy for labour. The high real wage also stimulated product innovation since it meant that Britain had a broader mass market for ‘luxury’ consumer goods including imports from East Asia. The supply of technology was also augmented by the high real wage. It meant that the population at large was better placed to buy education and training than their counterparts elsewhere in the world. The resulting high rates of literacy and numeracy contributed to invention and innovation.

No comments: