By: Mike Maharrey
The U.S. House recently passed a bill to gradually raise the minimum wage to $15 per hour by 2025. The move simultaneously taps into both constitutional and economic foolishness.
In the first place, Congress doesn’t have any constitutional authority to legislate wages. This power is “reserved to the States respectively, or to the people.” More significantly, the “Fight for 15” obscures a more fundamental issue: The United States doesn’t really have a wage problem. It has a money problem.
Congress claims the authority to set a national minimum wage under the commerce clause. But this stretches the meaning of commerce far beyond its breaking point.
Courts, politicians and pundits have redefined the meaning of commerce to encompass every conceivable economic activity. But during the drafting and ratification of the Constitution, commerce had a very specific and limited meaning. In a nutshell, commerce means trade — the act of exchanging goods. The power to regulate “interstate commerce” only empowers the federal government to make laws relating to the movement of physical goods – in commerce – across state lines.
The Commerce Clause was never intended to give the federal government the power to regulate or control manufacturing, agriculture, labor laws, wages, healthcare or a host of other activities claimed by the federal government today.
The framers wanted the federal government to possess the power to stop states from inhibiting trade through levying tariffs on neighbors. For instance, they wanted to be able to prevent Tennessee from slapping a fee on bourbon imported from Kentucky. It was a power intended to protect free and robust trade. The commerce clause also gave the federal government the authority to pursue a unified trade policy with other nations, as opposed to each state enforcing its own policy.
James Madison explained the intent of the commerce clause in a letter to J. C. Cabell dated February 13, 1829.
It is very certain it grew out of the abuse of the power of the importing states in taxing the non-importing, and was intended as a negative and preventative provision against injustice amongst the states themselves, rather than as a power to be used for the positive purposes of the General Government, in which alone, however, the remedial power could be lodged. And it will be safer to leave the power with this key to it, than to extend it all the qualities and incidental means belonging to the power over foreign commerce.
In simplest terms, the power to regulate commerce does not give Congress the authority to set wage floors. Under the original, legal meaning of the Constitution, the minimum wage bill is blatantly unconstitutional.
THE BIGGER PICTURE
Even if Congress had the power to set minimum wages, current efforts to impose a $15 per hour wage floor ignore the more fundamental problem. In effect, a minimum wage is like putting a bandaid on a severed artery.
The problem isn’t wages. The United States have a money problem.
Government devaluation of the dollar over the years has stolen money from average people. But instead of dealing with the core issue, the “Fight for 15” centers around wage policy and offers a solution that will just exacerbate the problem because it’s based on shoddy economics.
A recent study by the Congressional Budget Office confirms this. It projected that increasing the minimum wage would boost pay for about 17 million workers, but it would eliminate up to 3.7 million jobs. The median job-loss – the number you probably saw touted in headlines – was estimated at 1.3 million.
The CBO concluded that the job losses would have the biggest impact on women, workers without high school degrees and part-time employees. According to a report published by The Hill on the study, the CBO estimated that a $15 minimum wage would reduce family incomes by $9 billion.
None of this should come as any surprise. The fundamental economic laws of supply and demand tell us that artificially raising the wage level will decrease the demand for low-wage employees. From this simple economic truth, we can safely say that employment levels for low-skilled workers will be lower with a higher minimum wage than it otherwise would have been. The CBO study confirms this reality. But we really didn’t need a study to tell us this.
Raising the minimum wage might make for good politics, but it’s bad economics. As with any government policy, it will produce winners and losers. People who keep their jobs will benefit from higher wages. But some people will suddenly have their wages cut to zero. Advocates of government intervention love to highlight the winners, even as they sweep the losers under the rug.
But economic illiteracy shouldn’t obscure the fact that minimum wage advocates do seek to solve a legitimate problem facing U.S. workers: their dollars buy less and less every year.
The money system is broken, and it needs to be fixed.
The U.S. government’s monetary policy devalues our currency, and that means less purchasing power for you and me. Simply put, when the government effectively prints currency out of thin air, a dollar no longer buys the same amount of stuff it once did. In effect, Federal Reserve quantitative easing is like printing money. It debases the currency. The Fed has engaged in the practice for years.
So, what does this have to do with wages? Well, consider this: in 1964, the minimum wage stood at $1.25. To put it another way, a minimum wage worker earned five silver quarters for every hour worked. Today, you can’t even buy a cup of coffee with those five quarters.
But the silver melt-value of those five quarters today stands at around $14.80
That’s getting close to your $15 per hour minimum wage.
This vividly illustrates currency debasement. In terms of purchasing power, the value of the silver remains relatively stable, but the value of a dollar shrinks. The long-term rise in the price of silver reflects this reality.
Now flip things around. Today, it takes 60 quarters to make up the $15 minimum wage advocates want. If you paid that in 1964 silver quarters, the value of the metal would be over $175.
In an economy with stable money, prices tend to fall, not rise. That means more purchasing power to the poor, low-wage workers, those on fixed incomes, and savers. But the government currently debases the currency. Politicians and central bankers claim their policies stabilize economies and protect the people from currency debasement. But in truth, these policies only enrich the politically well-connected at the expense of you and me.
Minimum wage hikes only mask the problem. We need to fix the money. The only way to do that is through currency competition – encouraging the use of gold, silver and crypto to compete with Federal Reserve notes.
Constitutional tender expert Professor William Greene said when people in multiple states actually start using gold and silver instead of Federal Reserve Notes, it could create a “reverse Gresham’s effect,” drive out bad money, effectively nullify the Federal Reserve, and end the federal government’s monopoly on money.
“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”
Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level can move us in that direction.