MEDIA SPREADS SCHOLARLY MYTHS
Bill Dagnon posts to Mailbag on Baraboo New Republic HERE
“Research proves minimum wage theorists wrong”
“Last week on TV a reporter interviewed a journalist about the effects of raising the minimum wage. The journalist said, according to market theory if the wage were raised demand would lessen for the higher-priced labor and workers would lose their jobs. Next the reporter interviewed a professional economist who stated that numerous studies show that raising the minimum wage has little effect on employment.
This example shows the difference between economic theory and actual economic outcomes.
The origin of economic theory is usually attributed to Adam Smith who wrote “The Wealth of Nations” in 1776. He stated, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
This idea of self-interest was combined with the idea of an invisible hand. In theory, an invisible hand leads those who pursue their own rational self-interest in the market, through competition, to also promote what is best for the general public.”
Apart from the exaggeration using the famous ‘Butcher, Brewers, and Bakers” on self-interest paragraph (WN I.ii.2: 26-7), the next paragraph is also grossly exaggerated and quite wrong. There is nothing about “rational self interest in the market, through competition” which also "promote[s] what is best for the general public”.
The “invisible hand” metaphor “describes in a more striking and interesting manner its object” (Smith’s Lectures On Rhetoric and Belles Lettres”, 1762), to the hidden private motives of a person that leads him to act in a specific manner.
Smith only gave only two direct examples, once each in Moral Sentiments” (1759) and “Wealth Of Nations” (1776), of this metaphor, plus one other that describes its use in pagan superstition about the Roman God, Jupiter and his so-called “invisible hand” that fired visible lightning bolts at enemies of Rome, (History Of Astronomy, 1744-58). None of then mentioned “markets”, “competition” nor “rationality”.