Wages are claimed to gravitate towards subsistence, since any surplus induces population growth that competes it away.
Two centuries of rising real wages ran against it, and it is retained for its place in the history of economic thought. Ricardo and Malthus supplied the classical precursors; Lassalle named and formulated the iron law around 1863. Marx explicitly rejected Lassalle's formulation as false and obsolete, though his own wage theory engaged the same classical debates.
In practice
- Note this was falsified: real wages rose more than tenfold in the two centuries after it was stated.
- It is retained for its historical role — both Ricardo's followers and Marx built on it, and the failure of the premise matters for what they concluded.
- Possible explanations
- The classical explanation combined Malthus on population with Ricardo on rent: any wage above subsistence was expected to raise the number of workers until competition drove it back down.
- In its favour
- It described the world its authors saw, where wages had been near subsistence for centuries, and the mechanism it names still operates where labour is abundant and unorganised.
- Against it
- Two centuries of rising real wages run against it. Productivity growth and falling birth rates at higher incomes both break the loop it assumed, which is why it survives as history rather than as economics.
- Standing
- Two centuries of rising real wages ran against it; retained for its role in the history of economic thought.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money