The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Natural Wage

  • Krishna Bharadwaj
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_1260

Abstract

The notion that there exists a fixed subsistence level of wages appears to have emerged in Europe in the 17th and 18th centuries, both as an empirical observation on the extant conditions of the labouring poor and as a plank for mercantilist labour policy. An analytical advance was gained by the Physiocrats when they considered the implications of a ‘given wage’ in terms of the circular process of reproduction of the social economy. Attempts followed thereafter to define the norm of subsistence and mechanisms by which a variation from the norm sets up tendencies to restore it. Adam Smith, more than any of his predecessors, perceived clearly the logic of the evolving capitalist system and provided definitions, categories and the basic frame of analysis in terms of which the future questions in political economy were to be cast and developed. Recognizing profits as a category separate from rents and wages, the emergence of ‘free’ labour and the competitive tendencies towards the uniformity of the rate of profit and of wages, he made an analytical distinction between persistent (or ‘permanent’) and transitory (or, accidental) forces in operation – the former tending the economy to a ‘natural’ state while the latter characterized by ‘market’ forces, generating fluctuations around the ‘natural’ or central position. Thus a significant and later well-established distinction was made between ‘natural price’ and ‘market price’.

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Krishna Bharadwaj
    • 1
  1. 1.