Liberty of Contract

BRIAN: But first, let’s return to today’s debate about the minimum wage. Obviously, this is an economic debate and you’re going to see all kinds of numbers thrown around. But it seems to me that underlying that economic issue is a basic conflict over values, really. On one side of that values debate people are saying, it’s obvious, everybody should be entitled to a minimum wage, a wage that they can live on. But on the other side people say, there’s a fundamental value that has to do with the rights of individuals to decide for themselves. People are smart enough to know whether they want to take a job or whether they don’t want to take a job because it pays too little. And they certainly don’t need any nanny state telling them what the job should pay.

Ed, Peter, my sense is there’s a very long history to that latter position, the right to contract with your employer. Why don’t we take a few minutes and explore that history.

PETER: Hey, Brian! It’s American history, OK.

BRIAN: Oh, darn.

PETER: You know, the Declaration of Independence– consent, the social contract, that basic idea that a republic is based on contracting, consenting, individuals who are fully independent and capable of expressing their will. And that notion is so fundamental and it happens to coincide and map neatly on to conceptions of market behavior in a truly free market– now that’s all problematic, concept or construct. But I think that reinforcement of the political character of the regime, based on consent and contract. And the way we make deals and marketplaces, well it seems fundamental.

And let me add just one thing, and that is overthrowing the British state was supposedly overthrowing monopoly, aristocracy, guilds, all kinds of privileged interference in political and economic life. So I think we start with that original– I’ll call it a fundamental distortion, because we’re not looking at the thing itself. We are not looking at the terms of work, what we’re looking at is this big relationship we have with government, with a capital G, with the state. And that interferes with all of our thinking about wealth distribution and wages.

ED: Yeah, Peter, you call it, sort of a distortion, or whatever. But I’d like to suggest that it actually seemed to be a very organic outgrowth of the American experience, right. So after you guys throw off the British yoke, for which we are very grateful there in the 18th century. In the 19th century we go, all right, now if it’s great to have contract and freedom, let’s try to extend it to every facet of life.

And basically, that’s the story of the first several decades of the new American nation for economics and politics, is that at the same time the government has helped us is expand to the west and removing Indians. Back in the developed economies of the East, we’re saying, great get the government out of this, no special provisions for any particular business.

PETER: And the significant thing is that the language of anti-aristocracy, anti-monopoly, survives from before the American Revolution. And so you are carrying on that same notion. Maybe I shouldn’t have said distortion. I’ll say, an enduring idea about the nature of the state and a fear for the loss of liberty that’s so deeply embedded in the American psyche.

BRIAN: OK, I get the anti-monopoly, knocking down privilege, but what about the privilege of owning slaves and paying them no wages whatsoever, Ed?

ED: And I say this, not to adroitly dodge your question, it actually is key to this entire question. It is the very prevalence of slavery over a large part of the American nation that makes everyone who’s not in slavery–

PETER: They’re free.

[LAUGHTER]

ED: They’re free. And what are they free to do, Brian? They are free to contract, to sell their labor.

BRIAN: That’s very interesting.

ED: And so the entire Republican Party of Abraham Lincoln is built around this idea of we are free labor. We are either free to work for ourselves because we own our own land, or we are free to enter into contracts and withdraw from them as we wish. We are the opposite of slaves. And matter of fact, that is probably the one vocabulary that working people and employers in the North can agree upon that would bind the North together. It’s not slavery. And it goes in to the Civil War precisely because the South and it’s slavery is a violation of that. Not only for the enslaved people, they say, but for the white people in the South who are prevented from living in a land that’s ruled by contract.

PETER: And that’s what I meant by distorting. And that is a powerful effect of this kind of black and white binary of slavery and freedom. No nuance in this analysis, and the nuance that’s lost is the possibility that the state could intervene for benign purposes.

ED: Well if you want a nuance, I’ve got a bunch of it for you. This is what happens when the Civil War ends, and slavery ends, and suddenly the white North gets its dream of an entire nation ruled by contract. But what do you do when there are workers who own nothing but the shirt’s on their backs? And you have landowners, the former masters, who own everything else. Can you have anything that looks like freedom of contract–

PETER: And so the Civil War should have been a great victory for the forces of freedom, or free labor. But this is also, of course, a great period of capital formation and industrialization. And the terms of work are no longer as favorable as they used to be.

ED: Yeah as these corporations just get bigger and bigger, and they can draw on an infinite pool of labor and all these immigrants coming in. And they could run shifts and all these kinds of things, it just seems to play havoc with the principles for which the North went to war only 30 years earlier.

BRIAN: Yet, at that very moment it seems that’s when the courts intervene and pronounce this theory of liberty of contract. And it’s as late as 1905 in the Lochner decision, that the court says, hey New York State can’t limit the number of hours that men in bakeries work. Because that violates their ability to contract for their own labor– 1905. So, [LAUGHS] be careful what you wish for. Because those ideas were really powerful, and they didn’t get imbibed by the court. But just as the reality on the ground was changing, the courts came and said, no people have to be able to make their own deals even though it was becoming increasingly absurd notion the individual could make a deal with Andrew Carnegie or with Rockefeller.

ED: And Brian, I think that goes right back to the question that you began this segment with. Why are skeptics today so skeptical [LAUGHS] of this idea about minimum wage? It’s because they’re drawing on a very deep well of indigenous American thinking, that for awhile described the reality of American life. And ever since has still been a cherished dream even as the material conditions change.

PETER: I think it still defines the aspirations for many Americans when you talk about freedom and liberty. You don’t want to think that you’re enabled to pursue your happiness or that the happiness is going to be provided by the state. You want to think it comes from you.

BRIAN: And you want to believe that you’re dealing with an individual, not with some multinational corporation.

ED: And that is the very reason that the language that you use at the beginning, Brian, is the language that critics of this use– ‘The Nanny State’. Because what it is suggesting is that, you are not enough of an individual to stand up for yourself, and that if you want a higher wage just go somewhere else and get it. You don’t need the government handing you something. So it strikes me we’re likely to have this debate with us for quite awhile.

PETER: It’s what America’s all about.

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BRIAN: We’re going to take a short break, but don’t go away. When we get back, we’ll hear why some early feminists thought minimum wage laws were not such a good idea.

PETER: You’re listening to BackStory. We’ll be back in a minute.

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