The concept of minimum wage has its origins in the United States in a rather forgotten purpose.  Minimum wage was first proposed as part of the legislation that created the National Recovery Administration that Franklin Roosevelt’s New Deal created in 1933.  FDR pursued the NRA because he was embracing the new economic theory of progressive economists like Thorsten Veblen.  Veblen argued that the free enterprise system was inefficient and resulted in waste that harmed lower income Americans.  The solution he proposed became known as the “Corporate State.”  This economic system had become a common component of European fascist regimes in countries like Italy and Germany.  The goal of the Corporate State was to engineer the economy in pursuit of efficiency.  To that end, the NRA established a series of codes that companies had to abide by if they wished to participate.  The codes were designed to remove competition from the economy.  So, companies where told what to produce, how many, and at what price to sell their products.   Competitive advantages related to price, credit-buying schemes, etc. were strictly forbidden.  The market place was divided up with the idea that more companies could stay in business  and keep paying their employees.  As part of the codes and in an effort to eliminate competitive advantage, the codes regulated what workers would be paid and how many hours they could work.  The limit on hours was designed to allow more people access to jobs.  Each worker would work fewer hours and earn less, but more would be employed.  This outcome was sought at a time when an average of twenty-five percent of the workforce was out of work.  With the depression impacting Europe as well, it is easy to see why this fascist economic system appealed to so many.  Unfortunately, some Europeans allowed economic improvement to cloud their judgment related to the leaders of their countries and the atrocities of World War II were born.  The cultural connotations of fascism in Europe should not be carried over to the NRA in the United States, but it is important to recognize that even in the United States, this approach was sacrificing important American principles to achieve a unproven ends.

The NRA was declared unconstitutional by the Supreme Court and was never duplicated.  Congress then passed portions of the codes related to laborers, including the minimum wage.  The Fair Labor Standards Act reinstated the minimum wage and Roosevelt signed it into law.  It, too, was challenged in the courts, and in a split decision, the Supreme Court decided it was constitutional.

In today’s America, the conversation regarding minimum wage tends to revolve around a livable wage for minimum wage employees.   The minimum wage was not intended to provide such a wage.  It was originally designed to allow companies to stay open and reduce competition in an engineered economy.  It was an economic plan, by the way, that would inevitably fail.  You see, it only worked in Europe for a limited time and only under very repressive regimes.  In America, the plan was to be voluntary and FDR had to resort to various methods to try and cajole, force, or bribe companies to participate.  Though fairly conservative early in his administration, FDR quickly moved away from basic American principles about the value of the free enterprise system.  If the twentieth century has taught us anything, it should be that the free enterprise system works best when it is reasonably unfettered.  Government run economies fail to provide the opportunity for human beings to creatively produce and work as God created them.  As a result, they do not flourish and such systems, be they corporate states or socialist states, do not allow for the type of wealth creation that can help everyone better their economic condition.  The free enterprise system provides the most opportunity for everyone to benefit from wealth production.  Every time the government intervenes in the economy, whether it be through regulation or setting minimum wage, it impacts the ability of the system to produce the wealth necessary to provide a high standard of living for everyone.   There are no easy solutions here, but the question is always one of how much.  How much should the government intervene and at what level?

The Congressional Budget Office estimates that a raise in the minimum wage to $10.10 per hour would impact roughly 4.3% of the nation’s 75.9 million hourly paid workforce, or 2.6% of the total workforce.  Even though it is such a small portion of the working population, the negative impact of the increase could include the loss of upwards of 1 million jobs.  The additional costs to employers would force them, similar to the impact of the Affordable Care Act, to reduce the number of people they employ.

I have talked about the impact of such legislation on democracy in previous posts.  I won’t rehash it all here, but it is important to note how carefully our Founders created a representative democracy that would not allow a politician to offer voters a tangible government benefit.  The New Deal set the stage for changing this and the Great Society programs solidified it.  We are past the point of no return, but we must zealously work to keep government intrusion into the economy as limited as possible.

The Democratic Party has risen to power by advancing the role of government.  Minimum wage has been a favorite method of Democratic politicians because it allows them to give something to a subset of voters  that costs the government nothing.  The cost is transferred to big, bad corporations.  If the cost of raising minimum wage is the loss of jobs, it is not a problem for these politicians, because those who lose their jobs simply go into the welfare system.  For Democratic politicians, welfare programs are just another means of appealing to voters.  I don’t mean to suggest that they don’t care about those who are in need, only that at the end of the day, what can be construed to be a means of providing for the disadvantaged can become simply a means to political power.  The two can’t be separated in our political system. As a result, how is a politician to decide between what is best for the common good and what benefits his or her voters and results in reelection? It is a conundrum that even the most principled and altruistic can rationalize to secure reelection and do more “good.”  Our Founders understood this problem, and intended to prevent it from ever happening by limiting government.

But here we are, and that ship has sailed.  Let’s be honest about minimum wage.  The idea that the issue is simply about greed versus compassion is short-sighted.  It is about something much bigger and is at the root of the vast majority of political issues.   How much government is too much?  How much of the free market can we sacrifice before we lose the ability to provide the most possible for the largest percentage of the population?  Just like another program that FDR is responsible for creating, Social Security, the original intent has long been lost on us.  Today, most Americans think Social Security should provide for them in retirement.  It was only ever intended to be a supplement.  Minimum wage was only inaugurated to create a corporate state.  We have since changed its purpose and forgotten why the original legislation that created it ended in the first place.  The Corporate State would have undermined the very lifeblood of America’s economic and political success—our free enterprise system.  Minimum wage, like so many other issues, must be evaluated both for the impact it has on the overall economy and the unintended consequences, not just on the relatively few who will briefly benefit from increasing it.