But that wasn't the issue in this protest - this was a protest of Wal-Marts wage levels independent of any legislative action (indeed, it spanned 15 cities so it was obviously much more than just the D.C. minimum wage issues).
It's very bizarre and illiberal, I think, to browbeat low-income workers simply for wanting to enjoy some of the surplus they produce above their reservation wage the way Don did. Not everyone is a marginal worker. I'm not even an especially pro-union guy, but I'm not going to write a letter to the editor and get mad about someone else's pay negotiations.
So I commented on the post with this quote from Adam Smith:
"Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people."Don responded with a common misperception that I thought I'd address. He wrote:
"Daniel: You do realize, I trust, that Smith was there complaining about the monopoly privileges granted by government to domestic suppliers - privileges justified by mercantilist principles."This is actually not true. This comes from chapter 9 of Wealth of Nations, in the section of the book where he's talking about factor income and price theory. This is in Book I - you don't get the discussion of the problems with mercantilist privileges until Book IV. So what is Smith complaining about?
His view of profits is a little unusual to the modern reader because he subscribed to the wage fund doctrine. He didn't think of "capital" in the same way we do today - capital included both "circulating" and "fixed" capital (this goes back to the Physiocrats although Adam Smith developed the idea much more carefully). Fixed capital is basically what we think of today as capital. Circulating capital is the stock advanced to workers to pay their wages while they worked. So according to Smith, capitalists expected not just a return on their fixed capital but the entire wage bill as well - the circulating capital. Think of the modern budget constraint facing the firm:
BC: wL + rK
The Smithian budget constraint (forgetting rent for a second), was:
Smithian BC: wL + rwL + rK = (1+r)wL + rK
Where the capitalist earned r(wL+rK)
Now Smith didn't have a marginal productivity theory of factor income - instead the division between wages and profits was determined by bargaining (and a few other rules), which was influenced by market power as well as how desperate workers and capitalists were. Of course capitalists had more market power (there were fewer of them) and they could outlast workers in negotiations, which gave them the upper hand completely independent of any kind of government privileges. Smith notes in an earlier chapter from the passage quoted above that this is why everyone is aware of (and complains about the fact that) workers organize to get higher wages, but nobody pays attention to the capitalist's efforts to do the opposite. The capitalists can just wait them out, and because of his wages fund view, the capitalists are earning a higher return than even we consider appropriate today.
In chapter 9 (where the quote is from), he raises another concern about profits that is quite relevant to Austrians who think in terms of the structure of production, actually. Smith notes that when production is (what we would call today) vertically disintegrated - when it's carried out by a number of different firms, profit grows in a compounded way because all of the stock bought from an earlier production stage is bought with more capital laid out by the capitalist. They expect to earn profit on that capital, which is assessed on top of earlier profits earned on both fixed and circulating capital. This is not the case for a worker's wages. So as the division of labor proceeds, a capitalist's income growth is compounded. And this bothered Smith because it only exacerbates the social inequities he raised earlier.
Now Don is right that Smith also thinks that capitalists will bend public legislation to their purposes. This is true. But it's not true that that's the foundation of his concern about capitalists. Even if we take that out of the picture, assume no abuse of the political process, Smith still has a lot of concerns about capitalists even in the case of a normally functioning market.
More importantly in the context of Don's original post, he is highly suspicious of people who balk at workers arguing for higher wages but never seem to complain about capitalists earning higher profits.