In his State of the Union address a few weeks ago President Obama called for a raise in the federally mandated minimum wage from $7.25 to $9.00 an hour. The response of the Republican Party was as swift as it was predictable: any raise in the minimum wage would destroy jobs, especially low-income jobs, thus hurting the very people it was purportedly designed to help. Raising the minimum wage, they argued, would price low-income wage earners out of the market. Such is the unavoidable implication of the iron laws of economics.
The President’s proposal was aimed at the “working poor,” a phrase that should evoke shame in any society, but when applied to the world’s richest economy it is nothing short of an obscenity. That a person working full time—eight hours a day, five days a week, fifty weeks a year—should find it impossible to put food on the table or clothes on the backs of his children, or is forced to choose between feeding her family or buying medicine for a sick child—can any word other than ‘obscene’ describe such a reality?
And yet that is the reality in America today. According to the US Census Bureau 32% of all working families fall below the poverty line, which, for a family of four, is defined as earning $23,050 a year or less. In 2010 more than forty-six million Americans, or roughly 15% of the population, were taking home wages that fell below the official poverty line. That is the highest number recorded since the Labor Department began reporting this statistic in 1987. And according to the Center on Budget and Policy Priorities, the number of American households living in “extreme poverty”—earning an income of less than two dollars per person a day—more than doubled in the fifteen years from 1996 to 2011. One in every two Americans, or 146.4 million, was classified by the latest census report as either low-income or earning a wage below the poverty line. Half of all workers in the United States earn $500 a week or less. One out of every four wage earners has a job that pays less than $10 an hour. And since the triumph of supply side economics in the Reagan era, low-income jobs in this country have risen by a third, from 30% in 1980 to 40% today.
The degradation of material life is not confined to the lower class; the middle class too has been swept up in an unrelenting spiral of diminishing fortune. According to the Census Bureau the erstwhile middle class is taking home a smaller share of national income ever recorded in our nation’s history. 20.2 million of our citizens spend more than half their incomes on housing. That represents a forty-six percent increase just since 2001. Add to this the fact that many of these families are caught in the vice of a debt peonage never seen in this country: in 1989 the debt to income ratio of the average American family was around 58%; today that number is 154%. This means that the debt load carried by the average American family is one and a half times its income for an entire year. And that is just the average; for many it is much higher, especially among the poor: for households earning $20,000 a year or less, their debt burden more than doubled between 2000 and 2010.
Were this the result of a general economic collapse, wherein the blight of plummeting living standards was spread more or less equitably throughout society, it would be sad but understandable. However this is not the case. It is the result of the largest transfer of wealth from the many to the few ever seen in this, or any other, nation. According to the Economic Policy Institute, the wealthiest one percent of Americans has a greater net worth than the bottom 90% combined. And if we can believe Forbes Magazine, four hundred Americans have more wealth than the bottom one hundred and fifty million Americans put together.
To punctuate this litany of mass misery there is one statistic that more than any underscores the growing inequality of wealth and income and goes a long way to explain it. The bottom 80% of Americans owns a meager 4.7% of financial wealth, i.e. have an ownership stake in the productive engine of our country’s economy. The top 5% owns 72%. And the top 10% owns 85% of our country’s productive assets. It is this, the productive capacity of the nation—its factories and machines, its raw materials and natural resources, its telecommunication and transportation facilities—wherein lies the source of our nation’s wealth. You just knew, when President George W. Bush began spouting slogans about America being the “ownership society,” that the greediest asset grab in history was underway, and that the ownership of what really matters, the ownership of the nation’s productive resources, was being sucked up and siphoned off by a tiny few whose hands held the levers of economic power.
On February 20th Michael Kinsley published an online article for Bloomberg View titled “The Wage-Earner’s Case for the Minimum Wage.” From both a stylistic and conceptual perspective the singular feature of the essay is its fundamental incoherence. I mention this not in an attempt to beat up on Mr. Kinsley, whose writings are in the main intelligible, if ideologically narrow, but as a paradigm case of what happens when a social liberal tries to grapple with the contradictions of our political economy.
The essay begins with a juxtaposition of the liberal and conservative views on the issue, an exercise Mr. Kinsley finds ideologically ironic. For the conservative, who stands ready to condemn any government meddling with economic laws, the argument against raising the minimum wage “sends a terrible message about the dignity of work when working full-time doesn’t earn you enough to live a decent life.” On the other hand, “even a committed liberal who’s concerned about the growing income inequality ought to have some doubts about the minimum wage… [since it] reduces employment… by pricing people out of the market.”
In the battle between labor and capital (and here Mr. Kinsley, true to his liberal instincts, refers to the antagonistic parties as “workers” and “bosses,” thereby hiding the class nature of the opposition) there are, he assures us, two equally legitimate sides of the story, to wit: “…the minimum wage restricts workers as well as bosses: It forbids both categories of economic actors from making a deal they wish to make.” Since “no one is forced to take any job… by what right and what logic” he asks rhetorically, “do we step in and say: No, this is a deal you’re not allowed to make?”
But above and beyond the questionable validity of the government’s right to interfere with the rights of the individual to freely enter into a labor contract, even one at starvation wages, such interference is tantamount to “violating the principle of free markets by having a minimum wage at any level.” His good intentions aside, the President’s proposal will assure that “anyone whose hourly work is worth more than $7.25 but less than $9 will become unemployable.” Such action would be especially onerous to those seeking entry level positions, for “if you can’t even start the great game of life until you’re worth $9 an hour, the challenge is greater.” To which Mr. Kinsley adds in summation, “What kind of favor is this to them?”
To those conservative critics who see in the minimum wage nothing more than “a sop to people who don’t believe or don’t understand the basic principles of economics,” Mr. Kinsley turns his liberal cheek and proclaims that “many government policies violate basic principles of economics and therefore reduce our prosperity,” but, he adds, “So what? A prosperous society such as the U.S. can afford to give up some prosperity in exchange for more equality or some other social goal.” So while “it’s possible that a policy such as the minimum wage might be bad for society,” it might nevertheless be desirable since “it’s good for the individuals most closely affected by it.” Concluding his analysis with a shot across the bow to the critics of a minimum wage, Mr. Kinsley challenges them to “go and tell someone making $7.25 or even a whopping $9 an hour that you want to eliminate the minimum wage for his or her own good. I’m not going to.”
Well bully for Mr. Kinsley. His reluctance to kick the lowest rungs of the economic ladder out from under the working poor is matched only by the acrobatic contortions of his liberal apologetics. When all is said and done, the case he makes for raising the minimum wage, for all its ideological meanderings, boils down to a straightforward ethical one: the laws of economics be damned if government policy can alleviate the suffering of our most economically disadvantaged. Other liberals take a different tack: they flatly deny the conservative premise. To this end they point to various states in the country that have raised their minimum wage, with no apparent damage to their economies. They are not, mind you, denying the ineluctable laws of economics; rather they question the validity of the conservative’s deduction from these laws that a $1.75 raise in the minimum wage would result in a net loss of jobs. No one, no liberal that is (and certainly no conservative), thinks to critically assess these so-called laws of economics. But this is precisely where the proverbial rubber meets the road. So what do you say we cut to the chase.
Economic laws (granting there are such) are not laws of nature like the law of gravity. They are specific to an economic system. Such laws as the inverse relation on prices brought about by changes in supply and demand, or the law of diminishing returns (a variant of the above), or Say’s Law that supply creates its own demand (an economic conjuring act that forms the cornerstone of supply side economics, known to the public as trickledown economics, but to the monied class as “I got mine, now you get yours”) are laws, if laws at all, of a free market capitalist economy.
Leaving aside the fact that a century ago free market capitalism was transformed into, or replaced by, monopoly capital, the issue nobody wants to address is that, unlike the law of gravity and other laws of nature, economic systems and their laws are manmade. Of course this is not to suggest that somewhere at some time a group of people sat down and drew up the economic principles that would govern how they went about producing and exchanging their goods and services. Rather, economic systems, like legal systems, religious institutions, ethical norms, educational practices, cultural standards, et. al. come into being, develop, mature, and decay not as the result of a social decision, much less an individual act, but “behind the backs” (so to speak) of individuals. We are, each of us, born into a society with its institutions and practices, and a major part of our education consists in having the legitimacy of these institutions and practices instilled in us from early childhood. In a word, we are taught to obey. No such deliberate inculcation is necessary to make us “obey” the laws of nature: to defy them (whatever this might mean) is a physical impossibility. Not so with society’s “laws.” Although they are revered as if they were handed down from on high, they are in fact grounded and fortified by the continual consent, in word and deed (especially in deed), of each individual living under them. But as such they are, each and every one, potentially subject to question and modification, even to the extent of being rejected and replaced.
Even so, social norms and societal practices die hard. A strong conservative instinct, manifested by a mass adherence to society’s entrenched institutions and embedded normative practices, even in light of their incipient failure, is a fundamental survival instinct for any society. That is why a flagrant transgression of an embedded norm is met with immediate sanction, be it social ostracism, or coerced consent, or punitive interdiction. Add to this the condition that a particular social set up may prove enormously beneficial to those holding the reins of political and ideological power, it becomes almost impossible not to take the “cultural laws” of society, above all its economic institutions, to be as binding as the laws of nature. So it is with our capitalist economic system: to challenge its validity, to even think of “violating the principle of free markets” (Kinsley), to even hint that it may not reflect the “natural economic order,” but in fact might be contrary to the natural needs of those subject to it, is akin to blasphemy, or is at the very least a mark of ignorance.
This compulsion to take our capitalist system, with its putative economic laws and market imperatives, as a natural social order (in the sense of being a social regime ordained by nature) is reflected in, and in turn propagated by, the academic discipline of economics. Textbooks in economics treat the economy as a mechanical apparatus whose inner workings can be expressed in mathematical formulae. The paradigm here, as is so often the case in the so-called social sciences, is a closed physical system subject to the laws of nature. By doing so two elements are automatically excluded from the outset: history and human beings.
In trying to understand economic reality in terms suited to studying an apparatus, modern economic theory fails to locate the capitalist mode of production within history, as a stage in the ongoing development of social forms, impactful but transitory. In so doing the modern economist unwittingly becomes an apologist for the current scheme, since if the laws governing the capitalist apparatus are transhistorical and are part of the natural order like the laws of physics, then to question them would be as foolish as it would be to question the law of gravity. This is what puts liberals such as Mr. Kinsley into such a bind. If it is an economic law that raising the price of a commodity reduces the demand for it, then certainly raising the price of the commodity called ‘labor’ will reduce the demand for workers: ergo fewer jobs. In the grips of this bind Mr. Kinsley, out of empathy with the plight of the working poor, can do no more than recommend raising the minimum wage despite the consequence that it will “reduce our prosperity” and will be “bad for society.” Such are the fabricated lunacies one is forced to adopt when trying to reconcile the mathematical models of modern economic theory with the conscience of a social liberal. In fact, though, what passes for economic theory in the academy is not that at all: it is in reality business cost accounting dressed up as theory.
The other consequence of treating the economy as a mechanical apparatus is that it eliminates the human element. By this I mean that it necessarily fails to comprehend the fact that at the center of any economic system are relations among human beings, and that in a capitalist economy, as in many before it, the relations are ones of domination and subordination. A capitalist economy is a hierarchical system in which a few at the top, those who own the resources and machinery of production, receive most of the market value produced by those further down whose labor creates this value. This is not an oversight: modern economic theory must, by design, hide these human economic relations; otherwise the inherently exploitative nature of the system would be exposed. The ideas and formulae found inside economic textbooks are therefore ideological concepts: their role is to feign an explanation of the reality under investigation while all the time masking its real nature. That is why the liberal, who adopts whole hog the formulations of modern economics, stands mystified before the contradictions and inequities of economic life.
To my mind the statistical facts of growing economic disenfranchisement cited at the top of this essay ought to bring into question the legitimacy of our capitalist system. The very category of the working poor should be taken as an irredeemable indictment of our socio-economic regime. That a person contributing to the social good, spending the better part of life producing goods or rendering services desired by his or her fellow citizens, should be consigned to the indignities of poverty, is not so much an argument to raise the minimum wage as it is a knockdown case against the wage system in its entirety.
What is the wage system? It is an economic regime in which work, along with the produce of that work, is reduced to a commodity. And as any commodity, work has its market price. So it is with a straight face that Mr. Kinsley can speak of someone “whose hourly work is worth more than $7.25 but less than $9 an hour;” or of the challenge “if you can’t even start the game of life until you’re worth $9 an hour;” or of the threat of being “priced out of the market.”
This is not meant to be, nor is it, an argument against markets. There were markets long before there was capitalism. In a 1944 study Karl Polanyi distinguished between a society in which there are markets and a market society. The former is one in which sites are established for the exchange of goods; the latter is one in which every aspect of social life becomes commodified, not the least of which is work itself.
Why should work be made into a commodity? It is so that those who don’t work, don’t produce, but who own the resources and machinery of production, can extract for themselves the fruits of the labor of those who do. These extracted fruits are registered in the capitalist ledger as profit. What is profit? It is the difference between the market value or price of production and the value of what is produced. And the only way that there can be a difference is for the price of labor to be lower than the market value created through that labor. In the parlance of political economy this difference is known as “surplus value.” And the only way there can be surplus value is for the price of that commodity that is a worker’s labor to be less than the value imparted to the produced commodity during its production. This is not a revolutionary idea (actually it is, but that’s another story); it is political economy 101. Study Adam Smith, or David Ricardo, or any of the classical political economists (not to mention Karl Marx), and you will see that this is so.
When you see this you will understand not only the resistance to a minimum wage, but the sustained efforts of the owning class to do everything in its power to reduce the price of a worker’s labor: from union-busting and the dismantling of collective bargaining, to lengthening the working day and lowering working conditions, to “rationalizing” the means of production and replacing workers with machines, to outsourcing production to “right to work” states and to low-wage regions of the world under the myth of global competition, to denying worker benefits such as medical insurance and retirement pensions, to pitting worker against worker (native-born workers against ”undocumented” immigrant workers, white workers against black and brown through a racial division of labor, male workers against female workers through inequitable pay levels, young workers against older workers with schemes to “reform” Medicare and Social Security, but not for those over fifty-five years of age), to the sham of a fiscal crisis and the call for economic austerity. Every dollar that can be shaved from the cost of labor goes right to the bottom line.
But there is systemic blowback to this rush to lower the market value of labor in the expectation of increasing profits. By keeping a lid on the collective wages of the working class, the pricing down of the market value of labor reduces aggregate demand. Produced goods have to be sold and paid for; services have to be rendered and their providers compensated. If the ever diminishing pool of wages is insufficient to realize the surplus value created in the wage relation of capitalist production, external means must be brought to bear. This explains two of the most conspicuous phenomena of late capitalism: the transformation of the Protestant ethic of frugality into a culture driven by a consumerist ideology, and the ubiquity of consumer credit. People must be acculturated to seek personal satisfaction not in their work (which, having been totally commodified, is nothing more than alienated labor), but in unbridled consumption, which is essentially a social activity, even though promulgated by the cult of the individual and the pursuit of personal aggrandizement. Just think how the town square of old has been replaced by the shopping mall. Yet not receiving in wages the wherewithal to consume an endless cascade of trinkets and gadgets, consumer credit (the other side of which is consumer debt) must be made readily available. This was accomplished through the creation of the credit card “industry” which began to reach a mass consumer base in the mid 1970s. Thus the debt peonage in which an entire society is held in unremitting bondage.
The ideology of consumerism, powered by virtually unlimited credit, is superimposed on older forms of profit realization such as mass advertising (which, through the manipulation of desire, creates new needs) and planned obsolescence (what Herbert Marcuse referred to as ‘methodical irrationality’), of which the fashion “industry” is an empowering component. These unrelenting social forces feed off the existential dissatisfactions that plague each individual living in a market society. They induce, through the continuous bombardment of glittering enticements, every member of such a society into being complicit in the inexhaustible drive for profit maximization that defines a capitalist social order. Marcuse called this ‘desublimated repression’, a process wherein basic psychological and emotional needs, which can never be fulfilled in a culture based on endless capital accumulation, are displaced by the manufactured satisfactions that lie at the core of the consumerist ideology. It is the modern dress of the old story of the emperor with no clothes parading among his subjects who cannot bring themselves to see that he is stark naked.
I can go on… and on… and on. Raise one issue in the tangle of contradictions that is capitalism and implicitly you raise them all. Capitalism is a house with a thousand windows: looked at from the outside, from a distance where you can gain perspective, every angle affords a view of the interior; and in every view stands an emperor with no clothes. From a theoretical point of view the only reason to engage in an analysis of an economic or political “headline issue” is to use it as a ladder, a set of rungs to stair-step your way to another window, to view the inside from yet another angle, there to encounter yet another emperor strutting and crowing in all his naked finery. I offer this essay as one of those ladders.
F. Ivan Goldberg is an independent writer living in northern New Mexico. He can be reached at [email protected]
 Named after the French economist Jean-Babtiste Say, 1767-1832,
 Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time, Farrar & Rinehart, 1944.