Review of the Book
The Living Wage
by Donald R. Stabile
GroundSwell, September-October 2009]
Professor Stabile's main thesis is that most Classical Economists
cared about social justice, which he equates with a living wage. They
saw a living wage as including more than caloric survival, but three
other elements around which Stabile organizes his book. These are
Sustainability, meaning enough to survive and reproduce by supporting
a family; Capability, meaning enough to improve one's self to
participate in contemporary society (e.g. to own a car in modern
exurbia, or a suit and clean shirt in modern offices); and
Externality, meaning enough not to impose social costs on society
external to the employer. Today's rejection of the living wage idea
derives rather from neo-classical economics, and has grown even
harsher since Rose Friedman's claim that poverty today is a myth.
Stabile's style is charmingly pedagogical, aiming to stimulate
thought and dialogue without imposing any firm conclusions. His method
is to glean the ideas of past economists, back to Adam Smith, on
Sustainability, Capability, and Externality. His declared goal is not
to define either the living wage or social justice, but to consider "economic
issues", presenting both sides - i.e. to write a two-handed
textbook in the History of Economic Thought. That being so, he
naturally covers a great deal of trodden ground, but by focusing just
on the living wage he avoids either wandering aimlessly, or boring the
jaded scholar. His relaxed style lets him bring in Marx without
hysteria, which helps the questing reader see the substance behind the
overwrought oratory of both pro- and anti-Marxists.
By the end, however, it becomes clear that Stabile is pushing a
viewpoint after all: he is invoking Classical Political Economy on the
side of labor unions. This is not the same as a "pro-labor"
view - there is little about unemployment, or maximizing the demand
for labor in general per macro-economic policy. Even unemployment
insurance, lightly treated, should come from workers. The thesis is
about how to get higher wages for those who have jobs. Several pages
are devoted to two union economists, Solomon Barkin and Ben Seligman.
Bright as they may be, it is strange to juxtapose them with the giants
of economic thought. Stabile, as their biographer, knows them well,
but the rest of the world does not.
Several of the Classicals, it seems , supported a living wage. Some
even supported labor unions (but not a minimum wage law, as that would
entail government action). Smith saw employers as a tacit monopsony,
or at least cartel, against which labor needed to organize ("countervailing
power" before Galbraith). So did J.S. Mill and Alfred Marshall,
plus even R.T. Ely and J.B. Clark, whom Stabile treats with sympathy
because they professed to support unions. With a little
cherry-picking, Stabile ignores some of the extreme doctrinaires who
earned classical Political Economy the name of The Dismal Science.
That name, however, should remind us that some Classicals like Nassau
Senior invoked Political Economy to rationalize ethnic cleansing in
Ireland. Malthus is treated only briefly, and that with respect to his
wages-fund theory, not natural scarcity. Ricardo is missing. There is
nothing here for ecological economists; no concern with diminishing
returns to scarce resources. Stabile is no more worried about the
limits of The Earth than, say, Julian Simon or George Gilder on the
Classical Political Economy was the science of the Production and
Distribution of wealth. The concern with distribution invoked
Bentham's ideas on diminishing marginal utility. Bentham even had a
hierarchy of needs, 150 years before Maslow. The more liberal
Classicals therefore wrote from an implicit assumption in favor of
transferring goods from the rich to the poor. They had no respect for
what Smith called "The Parade of Riches" (125 years before
Veblen). This gave their work a vague Robin Hood quality until Pareto
persuaded many theorists, not reluctant to be led his way, that
interpersonal comparisons are not valid. Neo-classical economics began
cutting Distribution out of the discipline, limiting economics just to
"The Allocation of Scarce Resources among Competing Ends",
supposedly a less "subjective" topic.
Stabile covers Distribution without identifying those with whom labor
shares the total product. He makes them a blur, that he variously
calls "society", "the affluent", "employers",
"the community", "capitalists", "the rich, "business",
etc., without telling us how they became and remain rich without
working, and why we should care about them. The Classicals whom he is
discussing were quite plain about the roles of land and capital, terms
missing from Stabile's text or index.
As to Sustainability (reproduction) Malthus obviously opposed it, but
Stabile finds that many Classicals saw a need for wages high enough to
let workers reproduce and support families. Marx was perhaps the only
Classical to observe it is low wages that raise birthrates, as people
spawn children to work and help the family survive. Stabile does not
note that laws mandating education and outlawing child labor would
reverse those forces, enhancing the demand for immigrants to fill the
gap - a pregnant topic left outside the delivery room.
The liberal Classicals (Smith, Mill, Marshall, Pigou, et al.) saw a
living wage as one that also let workmen enjoy "decency",
according to the lights and customs of the time and place. This meant
enough to participate in society (even though debate over the Corn
Laws, which Stabile omits, was centered on food prices). Apparently
the Classicals said little about medical care or provision for
emergencies or old age - at least Stabile does not. On the point, note
that future Justice Louis Brandeis wrote in 1911 that insurance
against "accident, sickness, invalidity, premature death,
superannuation, and unemployment, should be recognized as part of the
daily cost of living ...". That was at the height of the
Progressive movement. By 1963, Progressivism had receded enough that
LBJ, as part of the War on Poverty, touted Mollie Orshansky's
poverty-line annual survival budget of $3,165 for a family of four,
with no provision at all for medical care. (Orshansky assumed, perhaps
reasonably for the times, that The Great Society would provide this.)
The glare of this omission may be judged by its having become the #1
political issue of 2009.
To liberal Classicals a living wage was just part of their wider
concerns with social justice, poverty, distribution, and ... Morality!
Most of those are missing from modern "mainstream" economics
with its sterile abstract models. Smith, of course, published on
morality before he touched economics. Marx, while seeing himself as
more "scientific" (objective?) than others, defines poverty
invidiously, comparing one's self with the very rich. Piling irony on
irony, extremes met: Rose Friedman made the same point in the 1960's.
To Marx, of course, that was part of a case for equalizing incomes; to
Friedman it was part of a case for declaring that capitalism has
conquered objective poverty, and there is no need to "War"
On "Sustainability", Stabile misses the opportunity to
speak to the "DINK" phenomenon (Double-Income, No Kids). The
sexual revolution and women's rights movements have inflated families'
ability to pay for housing. The perverse "treadmill effect"
is to inflate land and therefore housing prices, thus forcing
housewives onto the job market , so that having the double income
turns into a solution that creates its own problem. "Keeping up
with the Joneses" among old-stock Americans shuffles the matter
of reproduction off to immigrants who never read Betty Friedan, and
able to procreate on survival rations in roach motels. Stabile does
mention that Marx and Ely have touched on this matter before, but only
in passing, and without seeing the treadmill problem any more than
Stabile himself does.
Stabile uses "Externalities" to mean social costs outside
the workplace (e.g. Emergency Room medical care) that a low wage
cannot cover, and others therefore must bear. It is what J. Maurice
Clark meant by "social overhead costs". That definition
contains a hidden tendentious premise that employers per se, as
opposed to other taxpayers, should bear such costs. Clark says it in
so many words, which Stabile echoes approvingly. He does not see, or
perhaps does not care, that this is tantamount to imposing the Living
Wage as a kind of payroll tax, to relieve property, and property
income, from responsibility and taxes.
A Living Wage, seen as a payroll tax, bears on those who use their
land, capital and enterprise to make jobs, in the measure that they
make jobs. It handicaps labor-intensive firms relative to, say, an
Exxon, or a Georgia-Pacific timber company, or an Irvine Estate, or a
REIT, or a hedge fund, or a Catellus, whose profits of several million
dollars per worker come from resources, capital, tax-avoidance and
lobbying. Thus this apparently benign, socially-minded and pro-labor
Living Wage is a short step away from the most regressive and
anti-labor tax we have. Nothing is said about how the living wage
might be generalized from a lucky few to labor in general, as in the
proposals of a Keynes or a George or a Hanson that aim to raise the
demand for ALL labor.
Stabile recognizes, formally, that his use of "Externalities"
is idiosyncratic, and different from the usual meanings. He then goes
right ahead with the pollution analogy, not recognizing how it tangles
his analysis in a web of false metaphors. He even invokes The Coase
Theorem, as though it applied and supported his case. From here on his
prose grows twisty, and his findings misleading. There are several
minor errors one could nitpick, as well as new revelations worth
signalizing, but the overall evaluation has to be of good intentions
gone awry, revealing that the philosophy of modern unionism is too
narrow to engage and inspire labor as a whole.