When welfare and wages collide

I read this article by a famous Scottish Economist Adam Smith and in 2023 I believe it shapes my entire ideas surrounding economics. I intrinsically believed this before discovering his work.

adam smith

“We know Adam Smith today as the father of laissez faire (“to leave alone”) economics. This is the idea that government should leave the economy alone and not interfere with the “natural course” of free markets and free trade.”

This article firmly backs up my belief that the minimum wage in hair and beauty is holding back thousands of creatives.

The notion that third parties can pick the right starting wage for every employee, in every job, in every business, in every industry is folly.

Those who support increases in the minimum wage do so with the best of intentions, but they should be aware of the substantial hidden costs and negative consequences which are often ignored in the public debate and should be aware that there are much better alternatives for helping those in need.

In 18th century America a similar power struggle emerged to what we are seeing today. In the hair and beauty industry.

The fight was between the protectionists and it’s competition. The goal was to artificially handicap the competition.

At the conclusion was that the battle was concluded but the slope that had been uncovered in the negotiations was slippery and ended up  handicapping everyone. (More government, more taxes etc. )

When they look to protect themselves only the consumers get hurt. The following excerpt is from a piece written by famous economist Murray Rothbard and it outlines the battle between special interests groups for privilege.

The example shows how in 18th century America they were wise enough to vote against the federal import tariffs for 2 reasons the inevitable growth in Government and the bureaucracy that follows (creating more expense for everyone) And the imbalance it created between competing manufacturers and artisans.

Every depression generates a clamor among many groups for special privileges at the expense of the rest of society—and the American depression that struck in 1784–1785 was no exception. If excess imports were the culprit, then voluntary economizing could help matters, and the press was filled with silly fulminations against ladies wearing imported finery. Less foolish and more pernicious was a drive by the beleaguered and often sub-marginal artisans and manufacturers for the special privilege of protective tariffs.

As early as July 1783, a group of manufacturers from Philadelphia met to petition the Assembly for protection against foreign imports. The following year, a group of Boston manufacturers submitted a similar plea.

During the depression year of 1785, the urban artisans banded together in earnest. The Boston manufacturers in twenty-six trades formed The Association of Tradesmen and Manufacturers of the Town of Boston in the spring of 1785 to agitate for a protective tariff in their state, and they were followed by the formation of a General Committee of Mechanics in New York, which soon merged with the Manufacturers Society of New York to fight for protection. Mechanics from Philadelphia, Baltimore, Providence, and Charleston were also active though not formally organized.

In particularly hard-hit New England, the town of Nantucket actually asked the state legislature in 1785 for permission to secede and rejoin Great Britain in order to try and regain prosperity.

In Philadelphia, the master cordwainers, the shoemakers of the city, decided in March 1785 to engage in concerted economic pressure to try and block further imports of boots and shoes. They agreed not to buy, sell, or mend any imported shoes, and they obtained the support of their employees, the journeymen cordwainers.

Since the bulk of the country’s imports came from Great Britain, it was easy for the protectionists to employ anti-British demagogy and denounce American economic troubles as a British plot. For their part, the urban merchants were of course happy to ban British importers or British ships, but did not want any restrictions on British goods; in short, each group sought its own special privileges.

Thus, when the Boston merchants agreed to boycott all British merchants, the Boston manufacturers bluntly pointed out that they didn’t care whether British goods were imported by British or American merchants, and they petitioned for a comprehensive protective tariff in Massachusetts.

Finally, in the summer of 1785 the Massachusetts General Court passed a protective tariff for artisans and a navigation act for the merchants. The navigation act banned any exports from Massachusetts in a British vessel, and goods imported in all foreign vessels were to pay double duties as well as a special levy. Import duties, for their part, were raised to a new high and were levied on almost every type of manufactured good; excise taxes were also levied on the consumption of luxuries.

While the merchants chafed at the protective tariff, the Boston artisans maintained their organization as a pressure group and a vigilance committee to check upon local merchants. In August 1785, the Boston artisans wrote to “tradesmen and manufacturers” of the other large towns, urging them to put equivalent pressure for a protective tariff upon their legislature.

Massachusetts raised the tariff rates again the following year. However, because its navigation law had also injured French shipping while all French ports were open to American vessels, Massachusetts was pressured into repealing her navigation act in 1786.

As in Massachusetts, the opposition to the impost rested with the inland towns, while the urban interests, merchants, and mechanics favored the tax.

By August of 1786, every state but New York had approved the impost. While the oligarchs and the urban artisans united to favor the impost, the opposition was led by Abraham Yates, the Albany lawyer and cobbler who had risen to leadership of the radical forces in New York State. Yates stressed the thirst-for-power theme and, along with other opponents of the impost, cited the English theorist James Burgh in warning of the inner tendency toward the expansion of government power.

Unerringly, Yates centered on the central importance of the taxing power and warned that it “is the first, nay, I may say the only object of tyrants. … This power is the center of gravity, for it will eventually draw into its vortex all other powers.”

6 Yates also warned that true republicanism can only be preserved in small states, and keenly pointed out that in the successful republics of Switzerland and the Netherlands the local provinces retained full control over their finances.

A taxing power in Congress would demolish state sovereignty and reduce the states, where the people could keep watch on their representatives, to mere adjuncts of congressional power, and liberty would be gone.

In New York the struggle was over congressional versus state control of collecting the proposed impost. In the critical vote in the spring of 1786, and again the following year, the New York legislature refused to grant Congress any control over collection, and insisted that New York’s paper money be accepted in payment of duties.

Congress refused to accept these conditions, and the impost of 1783 was defeated. Thus, the unanimity principle under the Articles of Confederation had made all attempts to impose a congressional taxing power impotent.

The votes of the New York legislature aligned with the merchants of New York City and Albany, led by Alexander Hamilton and Philip Schuyler, and the bulk of urban mechanics, in favor of the impost, while the followers of Governor George Clinton from the other upstate counties, led by Abraham Yates, were overwhelmingly opposed. Similar lines would be drawn in the ratification debates over the Constitution.7

Central control demolishes sovereignty. IS The first step towards tyranny and leads to feeding special interests and picking winners. The removal of competition by taxing your opposition’s (in this case the British exporters) would have made the yanks fat, lazy and slow.

Their neighbours who didn’t impose as high taxes also came out ahead. Ultimately The public/consumers suffered and the consequence was they had to pay over the market prices for the things that they were accustomed too.

This increase in Government to implement the taxes collection had lead to inflation and a decrease in competition temporarily until this was reversed and the individual US states started to compete not with the British exporters but each other.

The playing field was levelled between each republic. And before long the import tariffs were added to with income taxes. Now we have the USA today the largest economy in the world built because of the competition between the Republics not protectionism for the special interests.

The legislature for more duties was dismissed in 1783 as they couldn’t agree to take NYC paper money as payment. However in 3 years every state had imposed the tax apart from NYC. As they couldn’t agree who collected them.

Notes in NYC the fight was over who got to collect the taxes. The state or the feds. (Local authority Vs the national authority)