Explorers and adventurers from long ago had no phones to call anyone if they got lost or stuck. There was no wifi and no google maps to see where you were - perhaps you were the first person to try and map the terrain. I say terrain because there were no roads as we understand the meaning of a 'road' today; just a dirt track across the wilderness. Sounds risky, and it was. This is a helpful analogy for what happens if you let markets distribute wealth: you are in unchartered territory and you have no idea what will happen. Things could go in any direction. What happens when free individuals, with no safety nets or minimum wage laws whatsoever, are left at the mercy of untidy and chaotic markets when it comes to earning a wage?
Well, the truth is that things don't always end well. It's a huge risk. Letting the price of labour be determined by the market relies on a theory of distribution that is only embraced by adventurers who love nothing more than having a go, to see what is to be seen, and strongly resist the idea that they ought to be shielded from the associated risks for their own good. These are the people, quite mad in many cases, who value self-reliance and are willing to pay for it.
The theory of market distribution holds that wages are fixed by demand and supply. Academics call this the ‘have a go, dumbo’ theory of distribution because it involves flinging yourself head first into life without any safety nets. No ‘employment protection’. No ‘minimum wages’. Just you and your zest for life: ‘I’ll try anything once,’ and ‘Sure, I’ll take a chance!’ It's like standing at the crossroads of some wild and dangerous place beyond the reach of telephones, emergency services, medical help, or such things, no help or comfort anywhere. Just little old you, trying to decide which path to follow. It's a very individual choice to make.
These are the risks explorers used to take long ago, before wisdom prevailed and everybody learned that it's better to sit safely at home watching the telly, risking nothing. In countries where people are too poor to own televisions, they obviously have to all get into an overcrowded leaky boat and cross the sea to find safe haven in a country where the government will supply them with free televisions so they too can sit at home, catching up on what they missed.
For those who want to have a go at working to earn their daily crust, what happens if markets fix wages? Let’s say you’re a widget maker in an untidy and chaotic unregulated market. Making widgets is what you like doing. But you need a factory for that, and you don’t own a factory yourself. So you need someone with a factory to hire you to make widgets. The employer thinks that your work, making widgets for him to sell, is worth 5 cents an hour, so that’s the wage you’ll get paid for making widgets at this job or you’re free to take a hike. If the employer next door will pay you more for the same widget work that’s exactly what you’ll do: take a hike and try to do a deal with the next guy. If all the other employers you can find are paying 2 to 3 cents an hour for widget work, you’ll go with the first employer and be glad for your pittance wages. At least for today. Tomorrow will be another day.
A number of things will happen tomorrow. First, change. It is not in the nature of things to remain static over time. Second, growth. You put more in, the thing grows. That’s what happens to things when they are fed. They grow over time. This is what will happen to your widget-making skills as you feed them at work every day with practice. Third, improvement. You are getting better at making widgets every day. Hopefully you are engaging your brain and thinking all the time about how to learn and improve. As every day goes by, you become someone who knows more and more about widget-making. The quality of your widgets is improving, the speed with which you can make them is increasing, and your widgets are becoming more and more valuable by the second. Whatever value the employer was deriving from your widgets on day one, that value is growing by the day.
The result of all this is that the day inevitably dawns when your widget-making capacity is by definition worth more to the employer than the 5 cents an hour it was worth on day one. This is the day you have been striving towards all this time. You now have an amazing thing called Options. Option one is to ask for a pay rise. Option two is to revisit other employers again, see if they will offer more for your demonstrably improved product. Option three is to get on your bike and go on an adventure to places in the world where they understand the value of good widgets. Going on adventures is really easy these days. Option four is to fly your own kite. Put your widgets in a basket and flog them door to door. Sure as eggs is eggs, there'll be someone out there who likes your widgets.
Having options is very exciting and is possibly the highest calling that a human being can aspire to. It is linked to values of freedom, happiness, autonomy, and being the author of your own life. But there are two downsides that must be pointed out. First, working for only 5 cents an hour while you wait for a new day to dawn really sucks. It is only tolerable by remembering that it is in the nature of life to change. Nothing ever stays the same. Tomorrow will be another day. Second, even when you achieve the nirvana of finally having options, you discover that having options sucks too. Now you have to choose your path, darn it, and when you have to choose you are immediately overcome by the fear of making the wrong choice and having only yourself to blame when it all goes belly up. That’s some scary business.
This is why we do not let unregulated markets fix wages. It would be too scary. Like bungee jumping, but without the bungee. Not everyone wants to make their own choices in life, especially because there’s nobody to blame but yourself when you come a cropper. Splat! Oh dear. It must be pointed out that not all of Rose Wilder Lane's pioneers ended up in a good place. There was her uncle, who was jailed for stealing a cow. There were the ones who could never pay their rent, and had regularly to do a midnight flit to stay one town ahead of the landlord. She herself once had the electricity at her house cut off, when she couldn't pay the bill. There are risks, for sure. People end up on the verge of bankruptcy, with the creditors leaning on the door bell. Some of them lose everything. The risks are real, and they are grave.
That's why most people prefer the theories of distribution which rely on government assistance, which come with inbuilt safety nets constructed by the legal system. That way, if it goes wrong, it’s the fault of the government and they will come and fix it for you. Much better that way. Flying free and relying on nothing but your own wings is just too incredibly risky.
Scholar, Writer, Friend