Column 436          January 5, 2024

Everything comes with a price tag. Everyday billions of decisions are being made regarding the price of something. Most people don’t think about that, nor do they understand that the value of everything is based solely on labor. The classic example is the price of a wood graphite pencil. A pencil, when bought in bulk for a classroom, costs about eight cents. In a 30-pack one pencil costs about 20 cents. Obviously pencils are cheap. Therefore, they must be very simple to make.

But hold on there. First a tree has to be cut down and transported to a lumber mill. That required an iron mine, steel mill, a manufactured saw, loading machine, truck, road, and finally the mill with its many parts. The graphite may be from China. The rubber eraser tip may be synthetic or natural. Synthetic rubber is made from a range of materials, including butadiene and styrene. Natural rubber is made from latex produced by rubber trees in Southeast Asia and India. Obviously, ships are involved too.

Every step in making a pencil required a human to make investments in development, production, marketing, banking, insurance, labor, communications, and more. As you can see, the complexity of free market capitalism knows no boundaries. Since human activity is required to bring any product to market, the cost of human activity is the most important factor in determining the value of the final product. In somewhat the same vein, monetary savings in whatever form is unspent labor. Monetary savings are like a pile of wood a human may store for the winter. It took effort to chop and stack the wood, but the results of that effort are stored for later consumption.¹

Whenever the government gets involved in the economies’ decision making process (price controls and regulations), the fluidity of the marketplace is restricted. Unless workarounds are quickly created, the impacted products may disappear or increase dramatically in price. This happens because it’s impossible for a government bureaucrat to make all the billions of decisions required to bring all of civilization’s necessary products to market. Yet when eight billion people are independently involved, the task of providing products and services is so fluid it becomes invisible.

Most of the countries of the world have set minimum wage laws. Here in America the national minimum wage is $7.25 per hour. Prior to 1933 there was no minimum wage law. Yet during our country’s first 150 years the citizens still prospered, advancements were made, and prices remained stable. That means the purchasing power of the dollar was the same in 1880 as it was in 1932—yet the gross national product kept growing that entire time. A great benefit for all citizens was that saving accounts retained their purchasing power.

Currently all states have their own minimum wage laws. Nineteen of them are $7.25 an hour and the rest are higher. Generally, states with higher costs of living have the highest minimum wages. Interestingly, some of the states with slowest growing populations have the highest minimum wages. Surprisingly, and this is also a generalization, states with higher minimums have higher unemployment. It’s quite possible that when minimum wages in a state or country are too high, that discourages investment in those states or country.^{2 3 4}

Starting in April 2024, California is raising its minimum wage for California-based fast-food chains, with 60 or more locations around the nation, to pay its workers at least $20 an hour. In June, health care workers will earn a minimum of $18, $21 or $23 an hour, depending on the facility.

Based on MSM reporting, it’s said that California’s anticipated increases in labor costs are expected to be minimal because labor alone in a fast food franchise only accounts for about 25% of costs. Also it’s expected that higher wages in fast food will push up lower wages in other entry level positions and improve living standards for all the citizens of California.

Naturally, there are numerous flaws to this type of thinking. For starters, raising the wage at the entry level requires a raise for all positions above that level. In addition, as wage costs ripple outward throughout the state or nation, costs for all products and services involved in fast food establishments will increase. In addition, when only certain sectors of the marketplace experience an increase in the minimum wage, their products are then priced out of reach for some buyers. In addition, exempt businesses gain a competitive advantage in producing and marketing their goods over those businesses forced to raise prices to pay for higher cost labor. Exempt businesses then expand while the businesses with higher costs are forced to contract.

In other words, California’s woke government is causing tremendous turmoil for all businesses in the state by dictating the price of labor. In the process of businesses being forced to make millions of adjustments to the new wage laws, eventually labor costs and product costs will increase across the board and the purchasing power of all incomes and savings of California consumers will be less. At least that’s been the case since 1950.

Prosperity can’t be legislated into existence. The idea is totally stupid and without precedence. It’s beyond woke. But it’s a way for politicians to con the citizens into thinking they are beholding to politicians for their existence. Yet every simpleton knows that there is no such thing as a free lunch. If man is involved there is a cost associated with whatever. It’s like the graphite for the pencil. Graphite in the ground has no value. But the act of mining it creates its value.

The values of all things (products and services) are relative based on the labor required to bring them to market. Consumers of those products and services will weigh the value differences based on cost, quality, and availability. Decisions will be made accordingly. A silly example that illustrates this is for California to raise the minimum hourly wage for cooking fast food burgers to $1,000 per hour. Afterwards not one consumer in California will find a fast food burger to be a good value. Consequently, nobody will be hired to cook them and fast food burgers will no longer be available in California—until after a black market for imported fast food burgers is created.^{5 6}

So let’s get back to governments meddling in the marketplace. Between 1966 and 1982 price inflation was a menace. It kept getting worse as time progressed until it came to a crashing end. For those 16 years the stock market moved essentially sideways. But in constant dollars the DJIA average fell 72.4%. The debasing of the dollar’s purchasing power has been a constant since 1932 and, just since 1966, the dollar has lost 90.3% of it’s purchasing power. That means since 1966 the government has confiscated 90% of all of the dollar-denominated saved labor that was accumulated from 1776 to 1966.^{7 8}

The period 1966 to 1982 is also interesting because of what it accomplished. Our consumer economy has been debt-based since the end of WWII. By 1966 the consumer was pretty well tapped out. So, the powers-that-be inflated the currency to the point where it lost 67.5% of it’s purchasing power in those 16 years. That essentially shrank all 1966 debts relative to 1982 incomes by 67.5%. That set off another debt-based spending spree that persisted to recent times. Now most consumers are beyond tapped out again and the Federal government is running on fumes.

This happens to be similar to the financial structure that existed in 1929.

Maybe that’s why there is a rush to increase minimum wages and debase the dollar. If that’s the case, during the inflating period don’t look for stock and bond values to provide a hedge against the debasement of the currency. There’s no free lunch and governments still can’t legislate in prosperity—other than by not interfering in the marketplace with regulations and printing money.

To your health.

Ted Slanker

Ted Slanker has been reporting on the fundamentals of nutritional research in publications, television and radio appearances, and at conferences since 1999. He condenses complex studies into the basics required for health and well-being. His eBook, The Real Diet of Man, is available online.

For additional reading:

1. "I, Pencil" Revisited from Foundation for Economic Freedom

2. List of Minimum Wage Rates by State 2024 from Minimum-Wage.org

3. The 10 Fastest Growing States In America For 2023 by: Chris Kolmar from HomeSnacks

4. Unemployment Rates By State: See Your State Rank by Natalie Campisi from Forbes Magazine

5. The Real Minimum Wage Is Always Zero by Michael Maharrey from SchiffGold.com

6. The Trouble With a $5 Coke by Nick Giambruno from International Man

7. Dow Jones - DJIA - 100 Year Historical Chart from Macrotrends

8. Consumer Price Index Data from 1913 to 2023 from U.S. Inflation Calculator