Front Page Titles (by Subject) CHAPTER IV.: THE %u201CIRON LAW%u201D OF WAGES. - The Tyranny of Socialism
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CHAPTER IV.: THE %u201CIRON LAW%u201D OF WAGES. - Yves Guyot, The Tyranny of Socialism 
The Tyranny of Socialism, ed. J.H. Levy (London: Swan Sonnenschein and Co., 1894).
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THE “IRON LAW” OF WAGES.
“You, too, wish to maintain it—The Formula is due to Turgot — Very Attenuated—Unsound—Lassalle took it from Ricardo—Ricardo’s Exact Text—The Law is perverted—Cause of the Rises and Falls in the Rate of Wages—The Basis of Wages—Errors—It is the Consumer who regulates the Rate of Wages—Capital only raises Wages—If the Iron Law were Exact, in one Centre all Wages should be Equal—The Protectionist and the “Iron Law—Way to lower Wages—The Wages of the Labourers depends upon the Amount of Work—Definition of Wages.
The same Socialist who reproached me for not desiring “the repeal” of the law of supply and demand, added:
No doubt you will also support the iron law of wages.
No, I replied.
Ah! ah! he replied triumphantly; you do not dare to support that!
I am the less daring in support of that “law” as it does not exist, and it does not exist precisely, because the Law of Supply and Demand does exist.
That law not exist! Why, all Socialists mention it.
Well! it was not Socialists who invented it. Lassalle took the idea from Turgot and Ricardo, while giving it, for the purposes of his polemic, an arbitrary meaning.
Turgot1 begins by recognising that labour is subject to the Law of Supply and Demand: “The labourer, pure and simple, who has only his arms and his industry, has nothing, unless he manages to sell his labour to others. He sells it more or less dearly; but this higher or lower price does not depend only upon himself.”
Turgot here announces an incontestable truth; because the price of a thing or of a service never depends upon one person only; the price is relative to two conveniencies, to two needs, that of selling and that of buying; an individual does not sell an article of merchandise to himself, any more than he can buy his own labour. Turgot went on to say: “The price is the result of the arrangement he makes with the purchaser of his labour, who pays as little as he can.”
Socialists may recriminate as much as they like; these are truths which verification will only establish more firmly, just as blows from a hammer give greater cohesion and greater solidity to steel. The consumer wishes to buy as cheaply as possible, and to sell as dearly as possible. The consumer and the producer of labour will not escape from this general law.
Turgot, from the experience of his day (when all those corporations, with their masters and wardens, flourished, which he abolished, and which were resuscitated after his fall, to be finally suppressed fifteen years later by the National Assembly) added: “As there is a wide choice between a large number of labourers, they prefer the cheapest worker. Workmen are therefore obliged to lower their price in competition between one another. In all kinds of work the result should be, and in effect is, that the wages of the worker are limited by what it is necessary that he should receive for his support.” Turgot held that the supply of labour is greater than the demand, from which he concludes that wages will fall to the price of subsistence.
How was he able to establish the exactitude of this connection? How could he justify this equation? Was the condition of all Frenchmen equal even in his day? And now, glance around us. Is the food of the Irishman who contents himself with potatoes, of the Breton countryman, to whom a buckwheat cake seasoned with a salted sardine’s head is a feast, to be compared to that of the English working-man, or to the working-man of Paris?
Turgot looked upon his proposition as a consequence of the Law of Supply and Demand, because he based it upon this premiss, that as the supply of labour always exceeds the demand, the consumer of labour can always obtain it at the lowest price. But he at once invalidated this conclusion by making an exception of the husbandman, “with whom Nature did not bargain so as to oblige him to put up with absolute necessities,” and “who could with the superfluities accorded him by nature, over and above the price of his labour, purchase the labour of other members of society. He is, therefore, the only source of wealth. . . . ”
What do these words show us? That Turgot wanted to prove the superiority of agricultural labour to all other; and, in his time, the argument was not difficult to justify. Economists maintained that all wealth was derived from the soil, and because, from imperfect observation, they had arrived at this erroneous conclusion, does it follow that Turgot’s error regarding manual labour should be a truth, even though taken up again by Ricardo?
It is from this English Economist that Lassalle takes it. “According to Ricardo,” he says, “the average of the wages of labour is fixed by the indispensable necessaries of life.” Lassalle altered Ricardo’s much less decided text.
“The natural price of labour,” says Ricardo,1 “is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution. . . . The natural price of labour, therefore, depends on the price of food necessaries and conveniences required for the support of the labourer and his family.”
Ricardo toned down this proposition by adding the following: “It is not to be understood that the natural price of, labour, 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. . . . An English labourer 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.”
That is what Ricardo says. It is a long way from that to the absolute formula attributed to him by Lassalle, and from which he has created “the Iron Law of Wages.”
It is untrue both as a minimum and maximum. It is not true as a minimum: because if the employer has no need for manual labour, he will not trouble himself about the labourer’s necessity of living; he will not employ him, and will not pay him. It is not true as a maximum; because the employer pays the labourer, not according to the latter’s convenience, but according to the use he can make of his work, according to the demands made upon him for the products he supplies.
In reality it is neither the employer nor the employed who regulates the price of labour; it is a third person, whom we are in the habit of forgetting, and who is known as the consumer. If the employer were to produce something which did not meet some want, or which, by its price, was outside the range of wants which could be satisfied, he would not be able to give wages either above or below the means of subsistence, to his labourers, for the very good reason, that he could not produce, and consequently would employ no one.
If an employer manufactures things that are in great demand, and which can only be made by a limited number of workmen, the workmen can command very high pay.
Certain Economists have imagined a “wage fund,” a fund available in a given society, for the remuneration of labourers. This means nothing. Wages do not depend upon the capital which may be owned by employers. This capital would soon be swallowed up and absorbed, if it had to meet wages.
Wages are paid by the manufacturers’ clients, by the buyer of corn or oats of the agriculturist, of iron or steel of the metallurgist, of cottons or wools of the weaver of stuffs. All the manufacturer does is to advance wages just as he advances taxes. He who finally pays is the consumer; and wages vary according to his needs and not according to the will of the employer.
If Brussels lace ceases to please the ladies who use it, the wages of the lace makers will fall to zero; if it pleases them, the makers will be appointed as managers. If fashion deserts silk goods, the wages of the Lyons silk weavers will fall, be they ever so skilful, and will only rise when the ladies of France, England, and the United States, make new calls for their goods.
As Socialists make an article of faith of “the Iron Law of Wages,” why, if it does exist, have they not asked why all the wages, in one centre, are not equal amongst all the workers? A printer or a miner is not charged more for bread and meat than a labourer, a sculptor more than a navvy. Why then if the “Iron Law” is a fact, do they receive unequal wages? And if you believe in it, ye Socialists of the Bourse du Travail, how is it that you accept the distinctions established in the schedule of the town of Paris, and, instead of demanding a uniform rate for all, permit the bricklayer’s labourer to receive a lower wage than the plasterer? In 1890, in the mines, an overseer earned 5 fr. 04, the State worker 4 fr. 41, the manual labourer 3 fr. 58 at the bottom, and 3 fr. 21 outside. It is all very well for the Congress of Tours to ask for equality of wages: let it get them accepted by the plasterer or the overseer! “The Iron Law of Wages” has never been anything but a metaphor. Why “iron? Why not bronze? Why not “steel? That would be harder still. Is it because Hesiod1 describes the iron age as violent and savage. This yielding to the seductions of metaphor proves how the Socialists are possessed of the classic spirit, in Taine’s acceptation of the term, and are ready to be satisfied with mere words! They believe that this invocation is an economic law, although Liebknecht, at the Congress of Halle (1890), did relegate it to the bric-à-brac of antiquity.
But we have heard Protectionists (March, 1887) invoking this imagined “Iron Law” as an argument in favour of duties on corn and beef. They say, that as wages correspond to the price of food, it will be sufficient to raise the cost of living to make wages go up. In this way the social question is solved. According to the partizans of this ingenious proposition, the wages of English workmen ought to have been higher under the reign of the corn laws, than since, under the reign of liberty!
They do not see that this system is, on the contrary, the best calculated to reduce wages: because the dearer food is, the more need will there be for the consumer to devote a considerable portion of his income to it, and all that portion will become unavailable for other objects: there would therefore be a decrease in the demand for manufactured objects; consequently there would be diminished demand for manual labour, and, as a result, lower wages. For we must of necessity always return to the following principles. Labourers’ wages depend upon the amount of work required. When the demand for labour is relatively small, wages fall; wages rise when this demand is more plentiful. Consequently, there is only one way in which wages can be raised: by opening up channels of production and increasing the industrial and commercial activity of the country.
In a word, what do we understand by wages? Wages are a speculation. The labourer who offers his labour to a trader or a contractor, argues thus with him: “I deliver to you so much labour. It is true that you run the risks of the enterprise. You are obliged to make advances of capital. You may gain or lose. That does not concern me. I do my work, I make it over to you at a certain price; you pay this to me whatever happens. Whether it redounds to your benefit or causes you loss is not my affair.”
The true nature of wages is that of a fixed contract between employer and worker. It is by the recognition of this that we shall succeed in dispelling all equivocations and avoid all idle and envenomed discussions.
Sur la formation et la distribution des richesses, sec. vi.
Principles of Political Economy, chapter iv.
Works and Days.