I’m reading The Fabric of Civilization (see my AdamSmithWorks on specialization). This is a fascinating story about cloth and markets:
In November 1738, clothier Henry Coulthurst informed weavers that he was cutting their piecework rates and would henceforth pay them in goods rather than cash. Needless to say, they were upset. Food prices were rising, and lower wages meant hunger and want.
Over three days in December, the weavers rioted. They smashed Coulthurst’s mill, wrecked his home, and “drank, carried out, and spilt, all the Beer, Wine and Brandy in the cellars.” They returned the following day to demolish Coulthurst’s house…
Wow. Our paper on cutting nominal wages is called “If Wages Fell During a Recession” We ran an experiment in which workers could retaliate if they experienced a nominal wage cut. They did! They couldn’t smash their employer’s house, but some of the slighted workers dropped their effort level down to the minimum level which meant that their employer made no more money in the experiment.
In my talk at IUE (show notes here and YouTube video), I connect the wage cut paper to another experiment on beliefs. One wonders, considering how serious the consequences turned out to be for Henry Coulthurst, why he was not able to anticipate the backlash against wage cuts. Being wrong was costly for him.
People are not always good at appreciating how strongly others have become attached to their own reference points. That’s why the paper on beliefs is called “My Reference Point, Not Yours“
Economist Writing Every Day 