Malthus and Ricardo, Wages and Rent


Ferdinand Lassalle’s Iron Law of Wages, following from Malthus, and David Ricardo’s Law of Rent are some of the very first relatively quantitative attempts at statements or observations of economics and can IMHO be considered a sort of ancestor of modern economics. 

In the Iron Law of Wages, as population increases, the labor supply increases and thus the wage price decreases – which does mean that we assume labor demand is unaffected by population and thus labor demand is effectively exogenous.  Wages continue to decrease until they hit subsistence levels for laborers.  A further decrease in wages is unsustainable as laborers will literally be unable to sustain themselves, which may cause a decrease in population.  A decrease in population, i.e. a decrease in the labor supply, pushes wages back up to the long-term level, which is the minimum subsistence level.  If the wage price is above subsistence level, population will rise (the assumption is that any wage above the subsistence level contributes to population growth) until the wage decreases to the subsistence level.

Malthus’s Iron Law of Population is the observation that given enough food, population grows exponentially or geometrically while agricultural output – which is limited by 1. the amount of new land that can be put to agricultural use and 2. the amount of additional intensification that one can do to increase the output of existing agricultural lands, which Malthus understandably assumes to have diminishing returns – grows linearly or arithmetically.  For the former limit on agricultural output, his evidence is the population growth in the early United States where new land was plentiful (despite the existence of Natives on those lands) while his evidence for the latter limit on the diminishing returns of agricultural intensification is an appeal to common sense of the times (which may be understandable – we can suppose that it would be hard for someone in the early 1800s to think that agricultural output could grow to accommodate an exponentially growing population or that in the future, longer years of education would lead to declining fertility rates). Since linear growth has no hope of staying above exponential growth in the long run, Malthus’s conclusion is that once population hits the level where the masses can only afford a subsistence level of living, that will be the long run equilibrium for wages and quality of life. There may be ameliorating factors such as an increase in agricultural technology, delay in bearing children, and contraception, or direct decreases to population such as war and disease as such, but Malthus’s opinion was that none of that can overturn the Iron Law of Population. In any case, once population hits the level where people are living at subsistence levels, whether it be war, disease, or famine that keeps population from going above this long run equilibrium doesn’t change the fact that the factors that keep population from going above this equilibrium are painful to humanity.





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