The two moralities of the minimum wage.

• Author: Lee, Dwight R.
• Position: Essay

If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e., of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilization), as our instincts and sentimental yearnings often make us wish to do, we would destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of worlds at once.

--F. A. Hayek, The Fatal Conceit (emphasis in original)

Most supporters of the minimum wage see it as a moral issue. Even when they follow arguments based on the logic of supply-and-demand analysis and unintended consequences (although most don't bother), they remain convinced that having a minimum wage and increasing it occasionally is the moral thing to do. As Joseph Schumpeter pointed out, "The stock exchange is a poor substitute for the Holy Grail" (1950, 137). The importance of morality over economic logic in motivating political support for the minimum wage and many other government policies is accentuated by the ability to express one's moral virtue at little personal cost through voting.

The purpose of this paper is to put forth a convincing moral case against the minimum wage. Accomplishing this purpose is more difficult than pointing out that the minimum wage results in outcomes counter to those supporters consider moral, although doing the latter is also important. Making a convincing moral case against the minimum-wage legislation requires that we consider two moralities, the first of which explains the political popularity of the legislation and the second of which explains why it harms low-wage workers, in particular those most in need of help. The first morality is appropriate for families or small groups in which members are familiar with and have personal concern for each other. I call this "magnanimous morality." The second morality is suitable for large groups in which members have little knowledge of or personal concern for each other. I call this "mundane morality." Both moralities, when practiced within their proper spheres of human interaction, make the world a better place. But the strong emotional appeal of magnanimous morality creates temptations to apply it to large-number situations, such as markets, where it does more harm than good by hampering the cooperation between large numbers of strangers that cannot be achieved without reliance on mundane morality. (1)

After discussing magnanimous and mundane morality, I argue that much, though not all, of the political support for minimum-wage legislation comes from its being seen as motivated by the former morality. I then point out that it is the exercise of markets' mundane morality rather than a minimum wage that provides the only serious hope for low-wage workers to improve their real incomes. Indeed, most of us would earn less than the current minimum wage if it were not for the impressive social cooperation that would be impossible without mundane morality. Our general wellbeing is eroded when politicians attempt to substitute policies motivated by magnanimous morality for the extended cooperation made possible by mundane morality, as is the case with minimum-wage legislation, which inflicts the greatest harm on those we want to help: low-wage workers.

Magnanimous versus Mundane Morality

Magnanimous morality can be described briefly as helping others intentionally and doing so at some personal cost with the help going to identifiable individuals or small groups. This willingness to assist others clearly had survival value during most of human history when we subsisted in small groups of hunters and gatherers, and it became reinforced through the evolution of strong emotional responses that favored this behavior and identified it as moral. The emotional appeal of people making personal sacrifices to intentionally help identifiable others is evident from literature, news stories, and our personal experiences. Magnanimously moral behavior by others elevates them in our estimation, and we experience a sense of moral satisfaction when we engage in or convince ourselves that we are engaging in such behavior. As desirable as magnanimous morality continues to be in small groups, it is important to recognize that its strong appeal in comparison to that of mundane morality can and commonly does motivate unfortunate public policy.

Mundane morality is briefly described as obeying general rules that promote the common welfare when widely adhered to. The best example of mundane morality for purposes of this paper is obeying the rules of private property and voluntary exchange upon which Adam Smith's "invisible hand" metaphor is based ([1776] 1981, 456). Paraphrasing Smith: by pursuing our own interests, subject to the rules of the marketplace, we are led by an invisible hand to unintentionally do more to promote the public interest than if we intended to promote it. Economists applaud Smith's invisible hand of the market and the mundane morality that helps enforce the general rules necessary for its operation because they understand the difficulty of getting multitudes of strangers to cooperate with each other in mutually beneficial ways. (2) Of course, anyone who has read Smith's first book, The Theory of Moral Sentiments ([1759] 1982), realizes that he also understood the importance of magnanimous morality in our everyday activities, including market exchanges. The impersonal exchanges among strangers that rely almost completely on mundane morality and from which we all benefit are commonly connected with and depend on exchanges that rely on very personal and long-lasting relationships that are greatly facilitated by magnanimous morality.

For many people, however, relying on mundane morality and the invisible hand of impersonal exchange dominates their view of what motivates market behavior and the benefits...