Iron Law Of Wages
The ‘iron (or brazen) law of wages’ is a term invented by Ferdinand Lassalle (1862) to describe the inexorable tendency of real wages under capitalism to adhere to a level just sufficient to afford the bare necessities of life. This law, he claimed, was not just a socialist indictment of capitalism but was authorized by leading ‘bourgeois’ economists such as Malthus and Ricardo. He failed to point out, however, that in Malthus and Ricardo the so-called ‘subsistence’ theory of wages was predicated on a theory of population growth according to which the supply of labour responds automatically to any gap between the going ‘market price’ and ‘natural price’ of labour, the latter being defined as a real wage sufficient to reproduce a working population of given size and composition. Lassalle, however, being a socialist, followed Marx in rejecting the Malthusian theory of population; what ensured the ‘iron law of wages’ for Lassalle, as for Marx, was the tendency for any rise in real wages to generate unemployment, thus setting in motion forces that reversed the rise. This threw the entire weight of argument for equilibrium adjustments in the labour market on the side of employers’ demand; it provided no explanation of the supply of labour and thus failed to furnish a determinate theory of wages in long-run equilibrium.
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