Keith Mack
The Iron Law of Wages, a concept in economics, was first named by Ferdinand Lassalle in the mid-19th century. It asserts that real wages tend towards the minimum wage necessary to sustain the life of the worker. Lassalle's theory was based on the views of classical economists such as David Ricardo and Thomas Malthus. According to Malthus, an increase in productive capacity results in an increase in population, leading to humanity being largely destined to live in poverty. The iron law of wages has been a topic of debate among economists and scholars, with some arguing it is still relevant today, while others believe it to be outdated and flawed.
| Characteristics | Values |
|---|---|
| Person who coined the phrase "iron law of wages" | Ferdinand Lassalle |
| Person who first named the theory | Ferdinand Lassalle |
| Person who attributed the doctrine to Lassalle | Karl Marx and Friedrich Engels |
| Person who attributed the idea to Thomas Malthus | Karl Marx and Friedrich Engels |
| Person who attributed the terminology to Goethe | Karl Marx and Friedrich Engels |
| Person who attributed the concept to David Ricardo | John Kenneth Galbraith |
| Person who attributed the concept to Anne-Robert-Jacques Turgot | Joseph Schumpeter |
| Person who attributed the concept to Thomas Malthus | Karl Marx |
| Person who criticised the iron law | Émile Pouget |
| Person who criticised Lassalle for misunderstanding David Ricardo | Karl Marx |
| Person who analysed the objective impact of globalized production on living standards | Karl Marx |
| Person who advanced the underlying thesis of the iron law | Spartacists |
| Person who wrote about the iron law in his pamphlet "Wages, Price and Profit" | Karl Marx |
| Person who was the subject of Marx's analysis | George Weston |
| Person who was Marx's real target | Followers of Proudhon |
| Person who pointed out that farmers countered the rise in wages by introducing machinery and more scientific methods | Karl Marx |
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What You'll Learn
The theory was first named by Ferdinand Lassalle
The "iron law of wages" is a concept in economics that suggests that real wages will always trend towards the minimum necessary to sustain the life of the worker. The theory was first named by Ferdinand Lassalle in the mid-19th century. According to Alexander Gray, Lassalle "gets the credit of having invented" the phrase. Lassalle wrote about "das eiserne und grausame Gesetz" (the iron and cruel law).
Lassalle's theory was based on the idea that wages cannot fall below the subsistence wage level because, without subsistence, labourers will be unable to work. However, competition among labourers for employment will drive wages down to this minimal level. This follows from Thomas Malthus' demographic theory, which states that population rises when wages are above the "subsistence wage" and falls when wages are below subsistence. Assuming a monotonically decreasing function for the demand for labour, the theory predicted that, in the long run, labour supply (population) would rise or fall to the number of workers needed at the subsistence wage.
Lassalle's theory has been criticised by Marxists and anarchists, including Karl Marx himself. Marx argued that while there was a tendency for wages to fall to subsistence levels, there were also opposing tendencies. He criticised the Malthusian basis for the iron law of wages, arguing that Malthus' theory destined humanity to live in poverty due to his belief that an increase in productive capacity would result in an increase in population. Marx also criticised Lassalle for misunderstanding David Ricardo, whose work the "iron law of wages" builds upon.
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The content has been attributed to earlier economists
The content of the iron law of wages has been attributed to several economists before Lassalle. For instance, Joseph Schumpeter claimed that Anne-Robert-Jacques Turgot first formulated the concept. Similarly, John Kenneth Galbraith attributed the idea to David Ricardo.
Ricardo's theory of the iron law of wages suggests that in a capitalist economy, wages will always gravitate towards the minimum necessary to sustain the worker's life. This implies that an increase in wages will lead to population growth, eventually causing an excess of labour supply over demand and a consequent decrease in wages. Conversely, a decrease in wages will lead to a decline in population, increasing the demand for labour and driving wages upwards.
The iron law of wages is closely related to the theories of classical economists such as David Ricardo and Thomas Malthus. Ricardo's law of rent and Malthus' population theory significantly influenced the development of the iron law of wages. Malthus' demographic theory, in particular, predicted that population increases when wages surpass the "subsistence wage" and decreases when wages fall below this level.
Some scholars argue that the iron law of wages is still relevant today, especially in low-skilled and low-wage industries. They contend that globalisation has intensified job competition, exerting downward pressure on wages, particularly for workers without specialised skills. However, critics argue that the iron law of wages is outdated and flawed, failing to account for factors such as technological advancements, globalisation, changing demographics, and income inequality.
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Marx's critique of the iron law
The Iron Law of Wages is a proposed economic law that asserts that real wages will always tend towards the minimum wage necessary to sustain the life of the worker. The theory was first named by Ferdinand Lassalle in the mid-19th century.
Karl Marx criticised the Iron Law of Wages in his pamphlet "Wages, Price and Profit", written in 1865 in reply to George Weston, a member of the General Council of the First International. Marx showed that the "iron law", as advanced by Weston, was based on the fallacious conception that the prices of commodities were determined and regulated by wages. He pointed out that, in opposition to Weston, farmers faced with an increase in the wages of agricultural labourers, did not increase the price of corn but instead submitted to its fall. They countered the rise in wages not by increasing prices, but through the introduction of machinery and more scientific methods. Marx also criticised the Malthusian basis for the Iron Law of Wages, arguing that although there was a tendency for wages to fall to subsistence levels, there were also tendencies that worked in opposing directions. According to Malthus, humanity is largely destined to live in poverty because an increase in productive capacity results in an increase in population.
Marx also noted that the foundation of what he called "modern political economy" needed, for the theory of value, only for wages to be a given magnitude. He made this point while praising the Physiocrats. In his 1875 "Critique of the Gotha Program", Marx wrote that the German Workers' Party strove for the abolition of the wage system together with the iron law of wages and exploitation in every form.
In addition, Marx pointed to the processes that determine the outcome of the struggle over wages, which comes down to a question of the strength of the combatants. He noted that between the maximum level of profits (determined by the minimum wage level) and the minimum level of profits, "an immense scale of variations is possible".
The Spartacists have been criticised for not reviewing what Marx actually wrote, nor the social and economic context in which he examined the question. They charge that in analysing the objective impact of globalised production on living standards, and the incapacity of trade unions to sustain even the most basic interests of the working class, the International Committee has reverted to the "iron law of wages" and abandoned a "basic Marxist position".
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The iron law in a globalised economy
The Iron Law of Wages is a proposed economic law that asserts that real wages will always tend towards the minimum wage necessary to sustain a worker's life. In other words, wages cannot fall below the subsistence wage level because, without it, laborers will be unable to work. However, competition among laborers for employment will drive wages down to this minimal level. This theory was first named by Ferdinand Lassalle in the mid-19th century.
In the context of a globalized economy, the Iron Law of Wages takes on a new dimension. With the globalization of capitalist production, the driving down of wages and social conditions of the working class has been observed. This phenomenon can be understood through the lens of the Iron Law of Wages. The underlying thesis of this law suggests that any attempt by workers to increase wages through trade unions or other forms of collective action will result in a general rise in the prices of commodities, negating the effect of the wage increase.
For instance, in response to rising wages, farmers may not be able to increase the price of their produce but can instead invest in machinery and scientific methods to increase productivity and reduce the demand for labor. This leads to a situation where the working population is made "relatively redundant," as described by Karl Marx in his analysis of the iron law.
The impact of globalized production on living standards has been a subject of debate, with some arguing that the International Committee has abandoned a "basic Marxist position" by reverting to the Iron Law of Wages. Marx himself criticized the law, arguing that while there was a tendency for wages to fall to subsistence levels, there were also opposing tendencies at play. He critiqued the Malthusian basis of the law, which suggests that an increase in productive capacity leads to an increase in population, keeping humanity largely in poverty.
In a globalized economy, the Iron Law of Wages continues to be a relevant concept, shaping the dynamics between capital and labor and influencing the strategies employed by workers and employers in the ongoing struggle over wages.
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Criticisms of the iron law
The Iron Law of Wages, proposed by David Ricardo in the 19th century, has been widely debated and criticised since its inception. Here are some key criticisms of the theory:
Failure to Account for Labour Unions
One of the primary criticisms of the Iron Law of Wages is its failure to recognise the influence of labour unions and other collective bargaining mechanisms. The theory suggests that any attempt by workers to increase wages through union action would result in a general rise in commodity prices, nullifying the wage increase. However, the historical emergence of labour unions in the 20th century has led to improved wages and working conditions for many workers, contradicting this notion.
Inadequate Consideration of Technological Advancements
The Iron Law does not adequately consider the impact of technological advancements on wages and working conditions. Technological advancements, such as automation in manufacturing, can enhance productivity and efficiency, leading to higher wages for skilled workers who can operate these technologies. This dynamic was not prevalent during Ricardo's time and highlights the theory's limitations in the modern context.
Assumption of Worker Homogeneity
The Iron Law assumes that all workers are equal in terms of skills and abilities, which is not reflective of the diverse and specialised workforce in modern economies. In reality, workers possess varying levels of education, skills, and specialisations, which can significantly influence their earning potential and negotiating power.
Neglect of Regional Cost of Living Differences
Another criticism is that the Iron Law fails to account for differences in the cost of living across regions and countries. For example, the cost of sustaining a decent standard of living in a city like New York is likely to be significantly higher than in a rural area. The theory's uniform application across diverse geographical contexts is therefore questionable.
Assumption of Self-Interested Employers
The Iron Law assumes that employers will always act in their self-interest and pay workers the minimum amount necessary for their sustenance. However, this assumption overlooks the complex dynamics of employer-employee relationships and the potential for employers to offer wages above the subsistence level due to ethical considerations, competition for skilled labour, or other factors.
Neglect of Income Inequality
Critics argue that the Iron Law of Wages does not adequately consider income inequality. In modern societies, the gap between the rich and poor has widened, resulting in varying subsistence levels for different segments of the population. This criticism highlights the theory's potential disconnect from the lived experiences of workers struggling to meet their basic needs.
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Frequently asked questions
The iron law of wages is generally attributed to Ferdinand Lassalle, who first named and wrote about the concept in the mid-19th century.
The iron law of wages is a theory in economics that asserts that real wages will always trend towards the minimum wage necessary to sustain the life of the worker.
The iron law of wages suggests that technological advancements that increase productivity may not lead to higher wages, as employers may use the surplus to increase profits. It also implies that a large portion of the workforce will be stuck in low-paying jobs, leading to widespread poverty, income inequality, and social unrest.
Some argue that the iron law of wages is outdated and flawed, as it oversimplifies the complex nature of labor markets and the economy. It also does not account for income inequality, the role of government in regulating wages, or the impact of labor unions and collective bargaining.
Globalization has led to increased competition for jobs, putting downward pressure on wages, especially for workers without specialized skills. Businesses often outsource labor to countries with lower wages, reducing the bargaining power of workers in high-wage countries.
