David Ricardo (1772-1823)
Ricardo pressed the ramifications of Malthus' theory of population into more specific economic principles. His formulation of the "iron law of wages" was to have a lasting impact, not only upon the laissez-faire capitalists, but also upon Karl Marx. the latter adapting it into a doctrine that insisted on the necessary breakdown of capitalism. Wages, said Ricardo, always tend toward the level of subsistence, providing barely enough for the working family to eat on. Any increase in wages will produce a corresponding rise in the birth rate. But this in turn swells the available working force beyond demand, thus producing a wage downturn. Thus, nature itself insists on equilibrium, for as the wages of the worker decrease, so does the birth rate. Then the death rate rises through starvation and disease.
Like Malthus, Ricardo had little faith in the working poor exercising self-restraint. The thin ray of hope that they would learn the lesson and have fewer children was overshadowed by the evidence of their past behavior.
This text is excerpted from The Principles of Political Economy and Taxation, London: J.M. Dent and Sons, Ltd., 1873, pp. 52-63, 263-271.
Labor, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its natural and its market price. The natural price of labor is that price which is necessary to enable the laborers, one with another, to subsist and to perpetuate their race, without either increase or diminution.
The power of the laborer to support himself. and the family which may be necessary to keep up the number of laborers, does not depend on the quantity of money which he may receive for wages, but on the quantity of food, necessaries, and conveniences become essential to him from habit which that money will purchase. The natural price of labor, therefore, depends on the price of the food, necessaries, and conveniences required for the support of the laborer and his family. With a rise in the price of food and necessaries, the natural price of labor will rise; with the fall in their price, the natural price of labor will fall.
With the progress of society the natural price of labor has always a tendency to rise, because one of the principal commodities by which its natural price is regulated has a tendency to become dearer from the greater difficulty of producing it. As, however, the improvements in agriculture, the discovery of new markets, whence provisions may be imported, may for a time counteract the tendency to a rise in the price of necessaries, and may even occasion their natural price to fall, so will the same causes produce the correspondent effects on the natural price of labor.
The natural price of all commodities, excepting raw produce and labor, has a tendency to fall in the progress of wealth and population; for though, on one hand, they are enhanced in real value, from the rise in the natural price of the raw material of which they are made, this is more than counterbalanced by the improvements in machinery, by the better division and distribution of labor, and by the increasing skill, both in science and art, of the producers.
The market price of labor is the price which is really paid for it, from the natural operation of the proportion of the supply to the demand; labor is dear when it is scarce and cheap when it is plentiful. However much the market price of labor may deviate from its natural price, it has, like commodities, a tendency to conform to it.
It is when the market price of labor exceeds its natural price that the condition of the laborer is flourishing and happy, that he has it in his power to command a greater proportion of the necessaries and enjoyments of life, and therefore to rear a healthy and numerous family. When, however, by the encouragement which high wages give to the increase of population, the number of laborers is increased, wages again fall to their natural price, and indeed from a reaction sometimes fall below it.
When the market price of labor is below its natural price, the condition of the laborers is most wretched: then poverty deprives them of those comforts which custom renders absolute necessaries. It is only after their privations have reduced their number, or the demand for labor has increased, that the market price of labor will rise to its natural price, and that the laborer will have the moderate comforts which the natural rate of wages will afford. . . .
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 at an earlier period of our history. . .
The friends of humanity cannot but wish that in all countries the laboring classes should have a taste for comforts and enjoyments, and that they should be stimulated by all legal means in their exertions to procure them. There cannot be a better security against a superabundant population.
In those countries where the laboring classes have the fewest wants, and are contented with the cheapest food, the people are exposed to the greatest vicissitudes and miseries. They have no place of refuge from calamity; they cannot seek safety in a lower station; they are already so low that they can fall no lower. On any deficiency of the chief article of their subsistence there are few substitutes of which they can avail themselves and dearth to them is attended with almost all the evils of famine. . . .
These, then, are the laws by which wages are regulated, and by which the happiness of far the greatest part of every community is governed. Like all other contracts, wages should be left to the fair and free competition of the market, and should never be controlled by the interference of the legislature.
The clear and direct tendency of the poor laws is in direct opposition to these obvious principles: it is not, as the legislature benevolently intended, to amend the condition of the poor, but to deteriorate the condition of both poor and rich; instead of making the poor rich, they are calculated to make the rich poor; and whilst the present laws are in force, it is quite in the natural order of things that the fund for the maintenance of the poor should progressively increase till it has absorbed all the net revenue of the country, or at least so much of it as the state shall leave to us, after satisfying its own never-failing demands for the public expenditure.
This pernicious tendency of these laws is no longer a mystery, since it has been fully developed by the able hand of Mr. Malthus; and every friend to the poor must ardently wish for their abolition. Unfortunately, however, they have been so long established, and the habits of the poor have been so formed upon their operation, that to eradicate them with safety from our political system requires the most cautious and skillful management. It is agreed by all who are most friendly to a repeal of these laws that, if it be desirable to prevent the most overwhelming distress to those for whose benefit they were erroneously enacted, their abolition should be effected by the most gradual steps.
It is a truth which admits not a doubt that the comforts and well-being of the poor cannot be permanently secured without some regard on their part, or some effort on the part of the legislature, to regulate the increase of their numbers, and to render less frequent among them early and improvident marriages. The operation of the system of poor laws has been directly contrary to this. They have rendered restraint superfluous, and have invited imprudence, by offering it a portion of the wages of prudence and industry.
The nature of the evil points out the remedy. By gradually contracting the sphere of the poor laws; by impressing on the poor the value of independence, by teaching them that they must look not to systematic or casual charity, but to their own exertions for support, that prudence and forethought are neither unnecessary nor unprofitable virtues, we shall by degrees approach a sounder and more, healthful state.
No scheme for the amendment of the poor laws merits the least attention which has not their abolition for its ultimate object; and he is the best friend of the poor, and to the cause of humanity, who can point out how this end can be attained with the most security, and at the same time with the least violence. . . .
On Machinery
Ever since I first turned my attention to questions of political economy, I have been of opinion that such an application of machinery to any branch of production as should have the effect of saving labor was a general good, accompanied only with that portion of inconvenience which in most cases attends the removal of capital and labor from one employment to another. It appeared to me that, provided the landlords had the same money rents, they would be benefitted by the reduction in the prices of some of the commodities on which those rents were expended, and which reduction of price could not fail to be the consequence of the employment of machinery. The capitalist, I thought, was eventually benefitted precisely in the same manner. He, indeed, who made the discovery of the machine, or who first usefully applied it, would enjoy an additional advantage by making great profits for a time; but, in proportion as the machine came into general use, the price of the commodity produced would, from the effects of competition. sink to its cost of production, when the capitalist would get the same money profits as before, and he would only participate in the general advantage as a consumer, by being enabled, with the same money revenue, to command an additional quantity of comforts and enjoyments. The class of laborers also, I thought, was equally benefitted by the use of machinery, as they would have the means of buying more commodities with the same money wages, and I thought that no reduction of wages would take place because the capitalist would have the power of demanding and employing the same quantity of labor as before, although he might be under the necessity of employing it in the production of a new or, at any rate, of a different commodity. If, by improved machinery, with the employment of the same quantity of labor, the quantity of stockings could be quadrupled. and the demand for stockings were only doubled, some laborers would necessarily be discharged from the stocking trade; but as the capital which employed them was still in being, and as it was the interest of those who had it to employ it productively, it appeared to me that it would be employed on the production of some other commodity useful to the society, for which there could not fail to be a demand; for I was, and am, deeply impressed with the truth of the observation of Adam Smith, that "the desire for food is limited in every man by the narrow capacity of the human stomach. but the desire of the conveniences and ornaments of building, dress, equipage, and household furniture, seems to have no limit or certain boundary." As, then, it appeared to me that there would be the same demand for labor as before, and that wages would be no lower, I thought that the laboring class would, equally with the other classes, participate in the advantage, from the general cheapness of commodities arising from the use of machinery.
These were my opinions, and they continue unaltered, as far as regards the landlord and the capitalist; but I am convinced that the substitution of machinery for human labor is often very injurious to the interests of the class of laborers.
My mistake arose from the supposition that whenever the net income of a society increased, its gross income would also increase; I now, however, see reason to be satisfied that the one fund, from which landlords and capitalists derive their revenue, may increase, while the other, that upon which the laboring class mainly depend, may diminish, and therefore it follows, if I am right, that the same cause which may increase the net revenue of the country may at the same time render the population redundant, and deteriorate the condition of the laborer. . . .
All I wish to prove is that the discovery and use of machinery may be attended with a diminution of gross produce; and whenever that is the case, it will be injurious to the laboring class, as some of their number will be thrown out of employment, and population will become redundant compared with the funds which are to employ it.