Iron Law of Wages - Ricardo

Ricardo

The content of the iron law of wages has been attributed to economists writing earlier than Lassalle. For example, Antonella Stirati notes that Joseph Schumpeter claimed that Anne-Robert-Jacques Turgot first formulated the concept. Some (e.g., John Kenneth Galbraith) attribute the idea to David Ricardo, who supposedly justified it on the basis of Malthus's theory of population. According to Terry Peach, economists interpreting Ricardo as having a more flexible view of wages include Haney (1924), J. R. Hicks (1973), Frank Knight (1935), Ramsay (1836), George Stigler (1952), and Paul Samuelson (1979).

Antonella Stirati disputes the attribution of the law's idea to Classical economists other than Malthus. She sees Ricardo, for example, as being closer to the more flexible views of population characteristic of economists prior to Malthus. Ricardo drew a distinction between a natural price and a market price. For Ricardo, the natural price of labor was the cost of maintaining the laborer. However, Ricardo believed that the market price of labor or the actual wages paid could exceed subsistence level indefinitely due to countervailing economic tendencies:

Notwithstanding the tendency of wages to conform to their natural rate, their market rate may, in an improving society, for an indefinite period, be constantly above it; for no sooner may the impulse, which an increased capital gives to a new demand for labor, be obeyed, than another increase of capital may produce the same effect; and thus, if the increase of capital be gradual and constant, the demand for labor may give a continued stimulus to an increase of people...

Furthermore, Ricardo not only believed that the market price of labor could long exceed the subsistence or natural wage but also claimed that the natural wage was not what was needed to physically sustain the laborer but depended on "habits and customs":

It is not to be understood that the natural price of labor, estimated even in food and necessaries, is absolutely fixed and constant. It varies at different times in the same country, and very materially differs in different countries. It essentially depends on the habits and customs of the people. An English laborer would consider his wages under their natural rate, and too scanty to support a family, if they enabled him to purchase no other food than potatoes, and to live in no better habitation than a mud cabin; yet these moderate demands of nature are often deemed sufficient in countries where 'man's life is cheap', and his wants easily satisfied. Many of the conveniences now enjoyed in an English cottage, would have been thought luxuries in an earlier period of our history.