The Subsistence

The opening plate drew the wage as a bargain struck within a range — a ceiling set by the value of the work, a floor set by the worker's next-best alternative, and the wage itself somewhere between, its place decided by power. The plates since have worked mostly on the ceiling and the position. This one descends to the floor, and to a tradition that believed the floor was not merely the bottom of the range but very nearly the whole of it.

What sets the floor? In the plainest terms, a worker will not take a wage below what they could earn elsewhere, nor below what they could survive on doing nothing at all. The lowest of these — the wage beneath which a person cannot physically continue to work and live — is subsistence: the cost of the food, shelter, and clothing needed to keep the worker alive and able to labour, and to raise enough children that the supply of workers does not dwindle. The classical economists fixed upon this biological floor and made it the centre of gravity of the entire theory of wages. To them subsistence was not where the wage might fall in the worst case. It was where the wage always, in the end, returned.¹

David Ricardo gave the doctrine its canonical form. Borrowing Smith's distinction between the “natural” and the “market” price of a thing, he applied it to labour. The natural price of labour, he wrote, is that price necessary to enable the labourers to subsist and to perpetuate their race, without increase or diminution — in short, the cost of subsistence, reckoned in the food and necessaries that custom and climate require. The market price is what is actually paid, and it fluctuates: above the natural price when labour is scarce, below it when labour is abundant. But it is forever drawn back toward the natural price, as the market price of any commodity is drawn toward its cost of production.² The wage, in this telling, has a centre of gravity, and that centre is subsistence.

The picture is one of perpetual return. Let some happy circumstance — a new industry, a run of good harvests, a thinning of the population by plague — raise the market wage above subsistence. Workers are now better fed, their children likelier to live; the labouring population grows. But more workers means more competition for work, and the market wage is pressed back toward the natural price. Should the wage fall below subsistence, the mechanism runs in reverse: privation and mortality thin the ranks, labour grows scarce, and the wage is lifted back.³ The natural price is an attractor, and the market wage orbits it.

The engine of this return — the reason the wage cannot stay above subsistence — was supplied by Malthus, and it is among the most consequential ideas in the history of economics. Population, he argued, tends to grow geometrically while the means of subsistence grow at best arithmetically; left unchecked, numbers always outrun food. The check, in the end, is misery: population is held to what the land can feed by the “positive checks” of hunger, disease, and war, and by the “preventive check” of restraint — later marriage, fewer births — among those prudent enough to practise it.⁴

Applied to wages, the argument is merciless. A wage above subsistence is exactly the condition that lets more children survive to working age; it is, in Malthus's framework, the signal for the population to grow. And a growing population, sooner or later, floods the labour market and beats the wage back down. The worker's own fertility becomes the instrument of the worker's poverty: every gain is converted, through the cradle, into more workers, until the gain is competed away. There is no escaping it by raising wages, for higher wages only quicken the multiplication that undoes them. Charity and poor relief, Malthus concluded with a chill that made him notorious, do not lift the poor; they merely enable the poor to rear more children, enlarging the misery of the next generation.⁵ It was this mechanism, more than any other, that fixed political economy's reputation for gloom.

The doctrine took its hardest name from a later hand. Ferdinand Lassalle, the German socialist, called it das eherne Lohngesetz — the iron, or brazen, law of wages: the proposition that under the prevailing arrangements the average wage is held remorselessly at the bare subsistence the people are accustomed to demand. What the classical economists offered as a tendency, Lassalle wielded as an indictment.⁶

Marx, characteristically, both absorbed the doctrine and turned it inside out. He recast the wage as the price of a peculiar commodity — labour-power, the worker's capacity to work — and held that, like any commodity, its value is the cost of producing and reproducing it: the subsistence, “historically and morally” determined, that maintains the worker and rears the next generation. So far this is Ricardo. But Marx located the enforcing mechanism not in fertility, which moved too slowly, but in unemployment. Capitalism, he argued, continually throws off a “reserve army” of the unemployed — a pool of idle hands created by machinery and by the rhythm of accumulation — and it is the competition of this reserve army, always pressing at the gates, that disciplines the employed and holds their wages down toward subsistence.⁷ The mechanism differs, but the conclusion is Ricardo's and Lassalle's: the worker, under these arrangements, cannot durably rise above the cost of their own upkeep. Across the whole classical and socialist tradition, however bitter the disagreement over what should be done, there was a strange consensus about the fact — the wage tends to subsistence, and labour cannot escape it.⁸

And then it didn't. The most important single fact in the economic history of the human race is that the iron law broke. For all of recorded time before about 1800 — through every civilisation, every technology, every empire — the mass of humanity had lived close to subsistence, and the real wage, when it rose, had always been dragged back, exactly as the doctrine said. The record bears the doctrine out with grim fidelity: real wages oscillated, century upon century, around a flat subsistence line, climbing after the catastrophes that thinned the population and sinking again as numbers recovered, with no sustained upward trend at all.⁹

Then, in the nineteenth century, in the countries that industrialised, the real wage began to rise — and did not come back down. It rose, and went on rising, decade upon decade, until the worker of 1900 was paid several times the subsistence of their great-grandparents, and the worker of today many times over. The flat line of all prior history bent upward into a curve that has not since stopped climbing. The iron law, true for millennia, became false within a few generations. Whatever else one believes about wages, this is the fact any theory of them must answer to: the floor the classical economists thought was the whole turned out to be only the floor, and the wage rose far, and lastingly, above it.

Why did the iron law fail, after holding for all of prior history? Two answers, working together, undid it — and each strikes at one of the doctrine's hidden assumptions.

The first is the children who were never born. The Malthusian mechanism rested on a fact about human beings that, precisely as they grew richer, stopped being true: that higher incomes mean more surviving children. For most of history it held. But in the industrialising societies, as incomes rose, something unprecedented occurred — fertility fell. Families, growing richer and more secure, chose to have fewer children rather than more, and to invest more in each. This is the demographic transition, and it severed the link on which the whole doctrine hung. A wage above subsistence no longer triggered the multiplication that would compete it away, because the people, given the means to have more children, increasingly chose to have fewer.¹⁰ The population no longer ate the surplus; the surplus was kept.

The second is the demand that outran the numbers. Even had population gone on growing, the iron law required that the supply of labour outpace the demand for it. The opposite occurred. Capital accumulation and a century of technical progress raised the demand for labour — raised the marginal product of the worker, in the language of the plate on the margin — faster than population could grow. The ceiling rose, and rose so fast and so far that it pulled the wage up with it, away from the floor. The classical economists, fixed upon the supply of labour and the pressure of numbers, had badly underweighted the other blade of the scissors: the growth of what a worker, armed with ever more capital and better technique, could produce.¹¹

Behind both answers lies a third, which the ledger makes plain and which the volume has pursued all along. The iron law was not merely an empirical claim about population and food. It was, at bottom, an assumption that labour is powerless — that workers are price-takers with no leverage, whose only answer to a low wage is to starve and whose only answer to a high one is to breed. Strip the population mechanism away, and what remains is a model of pure powerlessness. But labour, in the event, was not powerless. It grew scarce against a soaring demand; it organised, as the plate on the union described; it won the vote and used the state to set floors of its own. The wage rose above subsistence in part because workers acquired the power to hold it there.

What, then, survives of the oldest theory of the wage? More than its defeat would suggest. The classical economists were right that the wage has a floor, and right that the floor is real and binding: there is some level below which a worker will not, or cannot, continue, and beneath which no employer can durably pay. Their error was not in finding the floor but in mistaking it for the whole — in supposing the wage must rest upon its lower bound, when in fact, freed of the population trap and lifted by a rising demand and a rising power, it can stand far above it.

And the floor itself has changed its nature. The classical floor was biological: the bare cost of keeping a body alive and reproducing. The floor of a wage today, in any wealthy society, is nothing so grim. It is the worker's reservation wage — the wage below which they will not take the job — and that is set not by what keeps them from starving but by what they could earn elsewhere, and by what the society provides when they earn nothing at all: the unemployment benefit, the floor under hunger, the public provision that means refusing a bad job is no longer a sentence of death.¹² The floor has risen off the biological ground to become a social fact — a thing a society decides rather than a thing nature imposes. That is the subject of a later plate; what matters here is that the floor, once thought to be subsistence and destiny, now sits, in the rich world, well above the body's bare need.

So the iron law leaves the volume a gift, disguised as a defeat. By being so completely wrong about where the wage settles, it shows, more vividly than any other doctrine, what the classical economists left out. They built a theory of the wage with no room for power — in which the worker could only starve or multiply — and the theory failed exactly where power entered: when labour grew scarce, and organised, and voted, and refused.¹³ The floor is the bottom of the bargaining range. It is not the wage. Where the wage stands above that floor was, is, and remains the question of power.