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Summary of The Iron Law of Wages by David Ricardo

Updated on June 28, 2011
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Labour Theory of Value with David Ricardo

Picture of David Ricardo
Picture of David Ricardo | Source


David Ricardo’sThe Iron Law of Wagesis about the relation between the laborer’s wages and the price of goods. Ricardo’s says “Labor, like all other things which are purchased and sold . . . has its natural and its market price” (Internet Modern History Sourcebook 1). He argues the rise and fall of the price of labor is determined by many factors. The first factor is the salary’s power to satisfy the laborer’s need, and since he must be paid enough to buy his necessities such as food and clothing, his wage is regulated indirectly by the prices of his necessities. The second factor is the availability of labor. When the number of laborers increases, labor becomes cheap and the wages decrease and vice versa. The third factor is as investment capital increases, the prices of labor will also increase.

An increased capital demands a constant supply of new labor, so the laborer enjoys prosperity because his services are needed. The fourth factor is an increase in population, which can either increase or decrease the price of the labor. As the population increases, the prices of necessities also increase to curb costs of the higher demand of labor needed to satisfy the new demands. But the combined effects of expensive necessities and more cheap labor can be disastrous to a laborer because his wages are low and his buying power is insufficient. After giving these scenarios that predict the ups and downs of labor prices, Ricardo promotes laissez fair economics when he says that “wages should be left to the fair and free competition of the market, and should never be controlled by the interference of the legislature” (Internet Modern History Sourcebook 2). He also opposes the poor laws because they drain the national revenues and do not do anything for them.

Source

Ricardo, David. “The Iron Law of Wages, 1817” Internet Modern History Sourcebook. 23 September 2008. http://www.fordham.edu/halsall/mod/ricardo-wages.html

Comments

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  • profile image

    Thomas Baker 

    6 years ago

    Unregulated free enterprise is a perfect system of justice. Right.

  • jstelletello profile image

    jstelletello 

    7 years ago

    Leaving wages to competition of the free market seems a double edged sword, great for the business owner and not so great for the average worker.

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