Because it would be wonderful if we all knew Adam Smith, I was delighted that President Obama quoted him in a recent speech.
However, Smith’s relevance to a minimum wage boost is a bit of a leap.
Discussing economic mobility, the President quoted Adam Smith to prove that even “the father of free-market economics” would have supported an increase in the minimum wage. His excerpt was from Book 1, Chapter 8 in The Wealth of Nations (1776):
“’They who feed, clothe, and lodge the whole body of the people should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed, and lodged.’ And for those of you who don’t speak old-English — (laughter) — let me translate. It means if you work hard, you should make a decent living. (Applause.) If you work hard, you should be able to support a family.”
Explained by Timothy Taylor in his Conversable Economist blog, the context of the quote was a Smith discussion of rising wages. Because of some concern that higher wages could harm businesses, Smith sought to display the opposite was the case.
“But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”
The problem though is that Smith’s purpose was to relate worker pay to economic growth. Saying that wages in the North American colonies are higher than in Great Britain, he informs the reader that the reason is economic growth.
“ It is not, accordingly, in the richest countries, but in the most thriving, or in those which are growing rich the fastest, that the wages of labour are highest.”
As Dr. Taylor concludes, quoting Smith to display the importance of economic growth might have been more accurate.
Sources and resources: For more detail on Adam Smith, Dr. Taylor discusses President Obama’s speech in his blog while you can read excerpts from Smith’s Wealth of Nations and Theory of Moral Sentiments here.