This morning while getting ready to come to work I heard Steve Doocy on Fox and Friends give an often made but wrong argument against the minimum wage and why it is likely to cause a reduction in hiring. The argument sounds plausibe. Employers have a certain amount of money set aside for hiring. If the minimum wage is increased that pot of money will not be able to go as far on a per worker basis so the employer will have to hire fewer people or lay people off. It’s simple math. If an employer has a pools of money that adds up to $100 per hour to pay to workers and the minimum wage is $5 per hour then he can hire 20 workers. If it is raised to $10 and hour then he can only hire 10 workers.

This invokes a wrongheaded and long-discredited explanation of wage determination from the classical economics of the 1700s and 1800s called the “wages fund theory.” Basically, it is the simplistic idea that companies have a fixed “fund” that they tap for labor and that wages are determined by simply dividing the amount in the fund by the number of workers hired. Or in this case, dividing the amount of money in the fund by the wage to get the number of workers.

With the advent of what is called the marginalist revolution in economics in the late 18th century and modern “neoclassical” economics, the profession came to realize that hiring someone is like making any other investment. That is, you will only hire someone if the financial return to hiring that person is greater than the cost. In other words, will this hire be profitable. This is what is known as the marginal productivity theory of  wage determination. The reason why minimum wage laws cause unemployment has nothing to do with some fund that has been previously set aside for workers, but because as the minimum wage is increased more and more low skilled workers are priced out of the market. A person whose hourly output is only worth $7.25 or $9.25 an hour is not going to get hired at an hourly wage of $10.00.

New workers will always be hired so long as the addition of those new workers to the existing work force adds value to the company, even if a company is starting anew with no cash in reserve.

The point of this post is to make a plea to my fellow conservatives and libertarians–get your arguments right. Try to refrain, in this case on national TV, from starting with what you happen to know is the right conclusion and then latching on to the first plausible sounding justification you happen to think of. Before jumping into a debate, do a little reading and, in this case learn a little economics before spouting off. You will find that getting it right not only quiets your opponents but ultimately brings great satisfaction.