First, company stores flourished in many parts of the USA, especially in the coal regions and other places with many isolated work sites, long before any legal minimum wages were put into effect. Second, Alchian is right that the workers understood perfectly how these stores worked (how could they not have when the stores were so common?): they provided basic consumption goods — flour, bacon, beans, kerosene, matches, cotton cloth — at the work-and-living site on credit, as advances against the workers’ future pay. Yes, the prices were higher than in, say, the closest towns. But the closest towns were often much too far away to allow the workers or their wives to go there easily, frequently, or cheaply. So, what the stores actually did was to reduce transaction costs for the workers, who otherwise would have been unlikely to accept employment in remote, isolated places far from stores.
Robert Higgs, letter to Don Boudreaux, 2016-11-06.
September 11, 2018
QotD: Debunking the “company store” story
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