The Iron Law of Wages

The Iron Law of Wages is an economic law proposed by David Ricardo (1772 -- 1873). Building on the ideas of Adam Smith, Jean Baptiste Say, and Thomas Malthus, Ricardo argued, in books, articles, pamphlits, and letters (collected in ) published in 19th Century England.

The Iron Law of Wages, one of the three cornerstones of classical economics, states that it is both unnatural and immoral to pay workers more than the minimum necessary for their survival. It is unnatural because, as Malthus observed, populations expand until limited by war, disease, or starvation. Thus, without government interference, there are always people who are willing to work for the bare minimum necessary to buy food. It is unnatural to pay any worker more than the wage that will be accepted by the worker willing to work for the least pay. On the subject of morality, Ricardo argued that workers payed more than this minimum spend that money on vice, and therefore overpaying workers invariably leads them into sin.

The Iron Law of Wages, Ricardo argued, is a necessary consequence of free markets. He wrote, "Like all other contracts, wages should be left to the free and fair competition of the market, and should never be controlled by the interference of the legislature."

The Iron Law of Wages was cited in opposition to various socialist ideas of the time, such as limiting the number of hours children can work to 12 hours per day, providing unemployment insurance to reduce the incidence of starvation, providing for widdows, orphans, and those too old or infirm to work, and requiring a minimum wage. Any attempt by the government or by private charity to aleviate the suffering of the poor would invariably lead to an increase in their numbers and to even greater suffering. One practical application of this principle came during the potatoe famine in Ireland, when, at the urging of the classical econominists, the Irish were allowed to starve.