In the late seventeenth century Samuel Pepys bitterly complained in his diary about how much he had to pay his cook:

...the first time I ever did give so much”. Sometime later he wrote: “wages are very considerable; a fat Welsh girl who has just come out of the country, scarce understood a word of English, capable of nothing but washing, scouring and sweeping rooms...[received] six guineas a year, besides a guinea for her tea. (Pepys’ Diary).

In 1725 Defoe expressed disgust that the scarcity of women servants was driving up wages. In his own words:

Women servants are so scarce that...their wages are of late increased to six, seven, nay eight pounds per annum and upwards.... But the greatest abuse of all is that these creatures are become their own lawgivers; they hire themselves to you at their own will. That is a month’s wages or a month’s warning.

But Defoe also delighted in describing the rising living standards of the English masses. (See Plan of the English Commerce, 1728). It has been estimated that real English wages at the time were twice as high as those of the French. A more modern version of wages and servant girls is the situation of New York maidservants from 1913-1921. Their average wage in 1913 was $US3.50. (Living expenses were provided by the employer.)

The salutary story of New York maidservants is one of my favourite examples of the market driving up the wages of unskilled labour in the absence of unions or state-sanctioned wage rates. The supply of these servants was maintained by a steady flow of young black girls from the South and young women from Ireland and Germany. In 1913 these girls’ average weekly wage was $3.50. The supply of these girls had been maintained by a stream of young black girls from the South and girls from Ireland and Germany.

WW I war cut off the foreign supply of girls while redirecting the domestic supply into factories and offices. The result was maidservants’ wages started to rise significantly as employers competed against a reduced supply. By 1918 their weekly wages averaged $18. After the 1920-21 depression they fell to an average of $14 to $15 a week. Adjusting for inflation, their real wages had more than doubled in about six or seven years.

The nineteenth century saw real wages accelerate in Britain. Between 1810 and 1850 average real wages doubled. And if it had not been for the Napoleonic Wars the increase would have been very much greater. Overall, the century saw Britain’s output of consumer goods increase by 1600 per cent, the labour force by 400 per cent and real wages quadruple. This continual increase in British living standards was entirely due to capital accumulation, not any union body or wage-setting government agency. The same process (only to a larger degree) happened in America, where unions have always been weaker than their European counterparts.

One thing is crystal clear: It is only capital accumulation that raises living standards and not union action; and the free market is the only institution capable of creating the conditions in which capital accumulation can thrive and living standards continually rise. Nevertheless, enemies of the market will fervently argue otherwise, irrespective of facts or theory. To further their cause they will dig up any number of contradicting theories, fallacious reasoning, phoney facts and individual cases as evidence that the market leads to exploitation.

Let us take a hypothetical case of workers being intimidated by the threat of dismissal in to accepting wage cuts. Now the only time this could successfully happen in a free market is when a genuine deflation (a monetary contraction) has occurred. A deflation would have the effect of raising real wages rates by pulling down prices.

In such a case widespread unemployment would rise in response to wage rigidity. This is because deflation would raise real wages above the value of labour’s marginal product even though money wages remained unchanged. If the excessive rates were not allowed to adjust to the new monetary conditions a permanent “pool of able bodied unemployed” would emerge. This is what happened in the US in the 1930s and the UK between the wars.

It’s important to bear in mind that the demand curve for labour represents general productivity and not productivity in any one firm. It therefore follows that if a particular firm tried to forces wage rates below their market rate its employees would simply move to other firms. The importance of this fact cannot be over stated. The Franciscan priest and Spanish Scholastic Henrique de Villalobos wrote in 1632 that when labourers

say that the wage is below the just minimum [the market clearing rate], it seems that we cannot believe them, because if they could find another [employer] who would pay them more, they would go and work for him, but as they cannot find one, they are like goods that one [the potential buyer] has to beg [the purchaser]. . . . For that reason they have a lower value because the services are worth less when there is a dearth of employers, as are goods when there is a lack of buyers. . . . So they have nothing to complain about.

In other words, a firm cannot permanently pay labour below its market clearing price. Any attempt to do so will cause labour to move. Villalobos also stated that

It is against reason and justice to want someone to buy or hire at a price he does not want.

Note: It is of interest to note that the state’s Liberal Party blue bloods, Michael Kroger being one of them, adamantly refuse to use the above material to challenge union accusations that labour market reforms result in the exploitation of labour. I was recently advised by a Party member that their attitude is rooted in the absurd belief that only people with the “right social connections” could possibly have opinions that could merit consideration. This probably explains why Kroger and Julian Sheezel (state director of the Liberal Party) have arranged it so that only someone, I kid you not, “who is an important and influential figure” can address Party members.

Gerard Jackson is Brookes’ economics editor