Which of the following Best Describes David Ricardo`s Iron Law of Wages

David Ricardo was an 18th century English economist known for his contributions to economic theory. He developed the theory of comparative advantage, the labor theory of value, and the theory of rents, which established other schools of thought and form the basis of current economic policies and decisions. Although he is best known for his work in business, his influence also extends to the political arena, where he sits in parliament. The doctrines were characterized in his iron wage law, which stipulated that all attempts to improve workers` real incomes were futile and that wages would inevitably remain close to subsistence level. The content of the iron wage law was attributed to economists who wrote before Lassalle. For example, Antonella Stirati[8] notes that Joseph Schumpeter claimed that Anne-Robert-Jacques Turgot first formulated the concept. Some (e.g. John Kenneth Galbraith[9]) attribute the idea to David Ricardo. According to Terry Peach,[10] economists interpreted Ricardo as a more flexible view of wages, such as Haney (1924), J.

R. Hicks (1973), Frank Knight (1935), Ramsay (1836), George Stigler (1952) and Paul Samuelson (1979). She sees Ricardo, for example, closer to the more flexible views of population that were characteristic of economists before Malthus. [11] Theorist Henry George noted that Ricardo`s rent law does not imply that the reduction of subsistence wages is an immutable fact, but rather points the way to reforms that could significantly increase real wages, such as a land value tax. [12] Ricardo distinguished between a natural price and a market price. For Ricardo, the natural price of labor was the cost of living of the worker. However, Ricardo believed that the market price of labor or wages actually paid could exceed the natural level of wages indefinitely due to opposing economic trends: among the notable ideas introduced by Ricardo was the theory of comparative advantage, which held that countries could benefit from international trade by specializing in the production of goods. for which they have relatively low opportunity costs in production, even if they do not have an absolute advantage. in the production of a particular good.

Another of Ricardo`s best-known contributions to economics was the labor theory of value. The labor theory of value states that the value of a good can be measured by the labor it took to produce it. The theory is that the cost should not be based on the remuneration paid for the work, but on the total cost of production. David Ricardo`s « iron wage law » essentially says that parents would have more children if wages were increased. These children would then increase the number of workers and lower wages when they entered the labour market. Then wages would fall and workers would have fewer children. The process would then start again, because wages would rise again. He used this logic to argue that wages would always tend towards a minimum level in the long run, hence the « iron law of wages » with static and immutable wages. Many employers have used this argument to support their natural reluctance to raise wages.

This « iron wage law » was also used to theoretically prop up opposing unions. David Ricardo argued that attempts to raise or improve workers` wages were useless because wages would return to subsistence levels or hover around subsistence over time. According to Alexander Gray[5], Ferdinand Lassalle has the merit of having invented the expression « iron wage law », as Lassalle wrote about « the iron and cruel law ». [6] David Ricardo (1772-1823) was a classical economist best known for his theory of wages and profit, the labor theory of value, the theory of comparative advantage, and the theory of rents. David Ricardo and several other economists simultaneously and independently discovered the law of diminishing marginal returns. His best-known work is Principles of Political Economy and Taxation (1817). Many modern economists believe that firms pay their workers a premium over subsistence level to make them more efficient. In efficiency wage theory, firms pay above-market wages to incentivize employees and reduce turnover.

As the British political economist David Ricardo noted, this prediction would not come true as long as new investments, technology, or other factors led to a faster increase in labor demand than the population: in that case, real wages and population would rise over time. The demographic transition (from high birth and death rates to low birth and death rates as an industrialized country) has changed this dynamic in most developed countries, resulting in wages much higher than the subsistence level. Even in countries with still rapidly growing populations, the need for skilled workers in some occupations means that some wages are rising much faster than in others. Workers enter and remain in a field because of the wages offered. Booming industries offer higher wages and force other industries to pay more to retain workers as long as labor supply does not exceed demand. The fact that workers can also strike alone and compete with their employers requires that wages be high enough to deter workers. To answer the question of why wages could fall to subsistence level, Ricardo introduced the rent law. Ricardo and Malthus discussed this concept in a long personal correspondence. [7] Socialist critics of Lassalle and the so-called iron wage law, such as Karl Marx, argued that while there was a tendency to reduce wages to subsistence levels, there were also tendencies that worked in opposite directions. [14] Marx criticized the Malthusian basis of the iron wage law. According to Malthus, humanity is largely destined to live in poverty because an increase in productive capacity leads to an increase in population.

Marx criticized Lassalle for misunderstanding David Ricardo. Marx also noted that the basis of what he called « modern political economy » requires only a certain order of magnitude of wages for the theory of value. He did so by praising the physiocrats. [15] David Ricardo, although known for his many contributions to economics, is best known for the development of the theory of comparative advantage. The comparative advantage is that countries for international trade benefit most from the production of goods at low opportunity cost. Subsistence theories emphasize the supply side of the labor market while neglecting the demand side. They believe that change in labour supply is the fundamental force that will bring real wages to the minimum necessary for subsistence (i.e. basic needs). The reason for this was that if wages are higher, the supply of labour will increase relative to demand, which will lead to oversupply and thus a fall in real market wages; If wages are lower, the supply of labor will decrease and real wages in the market will rise. This would create a dynamic convergence towards a balance between living wages and a constant population in accordance with the theory of supply and demand.

The subsistence theory of wages, advocated by David Ricardo and other classical economists, was based on Thomas Malthus` theory of population. He noted that the labour market price would always tend towards the minimum required for subsistence. When labour supply increased, wages rose. The Iron Wages Act is an economic bill that states that long-term real wages always tend towards the minimum wage needed to sustain the worker`s life. The theory was first named by Ferdinand Lassalle in the mid-nineteenth century. Karl Marx and Friedrich Engels attribute the doctrine to Lassalle (especially in Marx`s critique of the Gotha program of 1875), to the idea of Thomas Malthus`s essay on the principle of population, and to Goethe`s terminology of « great eternal iron laws » in The Divine. [1] [2] [3] Despite the tendency of wages to adjust to their natural rate, their market interest rate can be consistently higher indefinitely in an improving society; for scarcely can we obey the impulse which an increased capital gives to a new demand for labour, than another increase in capital can have the same effect; And so, if the increase in capital is gradual and constant, the demand for labor can provide a lasting incentive for an increase in the number of people. [13] Answer this question.

Companies can reduce their production costs by producing goods in countries with low average wages.