239 Years Ago, Adam Smith Predicted Fury of Seattle Business at CEO Who Pays Workers Well

Adam Smith is vociferously celebrated today by conservatives — even though if he were alive today he'd be considered a crazy left-wing radical.

Austin Roos, a support team supervisor, works at his desk Wednesday, April 15, 2015, at Gravity Payments, a credit card payment processor based in Seattle. Gravity CEO Dan Price told his employees this week that he was cutting his roughly $1 million salary and using company profits so they would each earn a base salary of $70,000, to be phased in over three years. (AP Photo/Ted S. Warren)
Austin Roos, a support team supervisor, works at his desk Wednesday, April 15, 2015, at Gravity Payments, a credit card payment processor based in Seattle. Gravity CEO Dan Price told his employees this week that he was cutting his roughly $1 million salary and using company profits so they would each earn a base salary of $70,000, to be phased in over three years. (AP Photo/Ted S. Warren) Photo: Ted S. Warren/AP

Dan Price, the CEO of a small Seattle credit card processing company called Gravity Payments, announced several months ago that over the next three years he’ll gradually raise the minimum salary there to $70,000.

How did his counterparts at other businesses react? Let’s get a prediction from Adam Smith, who wrote this 239 years ago in the most famous book about economics ever published, The Wealth of Nations:

Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals.

Was Adam Smith right? As a recent New York Times story demonstrates, he called it precisely:

Brian Canlis, a co-owner of his family-named restaurant, is [a client of Gravity Payments]. He said he was fond of Mr. Price, but was more discomfited by his actions. …

The pay raise at Gravity, Mr. Canlis told Mr. Price, “makes it harder for the rest of us.”

Mr. Price winced. “It pains me to hear Brian Canlis say that,” he said later. “The last thing I would ever want to do is make a client feel uncomfortable.” …

Leah Brajcich, who oversees sales at Gravity, fielded complaints from several customers who accused her boss of communist or socialist sympathies that would drive up their own employees’ wages …

As for other business leaders in Mr. Price’s social circle, they were split on whether he was a brilliant strategist or simply nuts. As much as they respected him, they were also disturbed. “I worry how that’s going to impact other businesses,” said Steve Duffield, the chief executive of the DACO Corporation, who met Mr. Price through the Entrepreneurs’ Organization in Seattle. …

Roger Reynolds, a co-owner of a wealth management company, said his discussion of the pay plan with Mr. Price got heated. “My wife and I got so frustrated with him at a cocktail party, we literally left,” said Mr. Reynolds …

One of the most peculiar aspects of U.S. politics is that Adam Smith and The Wealth of Nations are vociferously celebrated by conservatives. Here’s what one loyal Reaganite said at a memorial after Reagan’s death in 2004:

Ever since Ronald Reagan studied classical economics at Eureka College, Adam Smith was his hero. So everybody in the Administration quoted Adam Smith. Neckties with little Adam Smith busts on them festooned every male conservative chest in Washington when I was there. … For a while, I didn’t think Ed Meese owned any other kind of tie. There were even Adam Smith scarves for the women. If Ronald Reagan had been allowed to run for a third term I imagine there would have been Adam Smith hats and Adam Smith raincoats.

But if Smith were alive today he’d be considered a crazy radical. In addition to his claim about employers, here are some other things he wrote in The Wealth of Nations:

• “All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.” Book III, Chapter III

• “Men of inferior wealth combine to defend those of superior wealth in the possession of their property, in order that men of superior wealth may combine to defend them in the possession of theirs. … Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.” Book V, Chapter I

• “High profits tend much more to raise the price of work than high wages. … 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.” Book I, Chapter IX

• “The proposal of any new law or regulation of commerce which comes from [business], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public …” Book I, Chapter XI

• “The rate of profit … is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin.” Book I, Chapter XI

• “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Book I, Chapter X

I’m not sure how exactly the U.S. right came to love Adam Smith so much. I guess they just never read him.

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