Before economics explained the wage by what the worker makes, it explained the wage by what the worker costs. The marginal theory of the second plate looks forward, to the value the labourer's hour adds to the product; the older theory looked backward, to the price of keeping that labourer alive and of raising the next generation to take his place. On the older view, the wage tended, by an iron necessity, to subsistence — to no more than the cost of the worker's own production and reproduction. This was the classical theory of the wage, and its Marxian heir; it is the oldest theory there is, and for a long age the most pessimistic; and though it failed utterly as a prophecy, it asked a question the cheerful marginal doctrine never thinks to ask, and left behind a residue that has not, even now, fully dissolved. The plate sets out the subsistence wage — the floor that nature and history, and not the law, lay beneath the bargain — at its full and sombre strength, and then asks the two questions it owes: why the theory was wrong, and what in it was right.
Adam Smith drew the first line. The market wage, he saw, rose and fell with the supply of hands and the demand for them; but beneath its fluctuations lay a bound it could not for long fall below. “A man must always live by his work,” he wrote, “and his wages must at least be sufficient to maintain him” — and, over most of the time, somewhat more, enough to rear a family, “otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation.” David Ricardo sharpened the bound into a doctrine. He named it the natural price of labour: the wage just sufficient to let the labourers subsist and perpetuate their number, without increase and without diminution, about which the market price of labour forever oscillated. And the oscillation had an engine. When the market wage rose above the natural price, the labourers fared well, more of their children lived, their numbers swelled, the supply of labour grew, and the wage was pressed back down toward its floor; when the wage fell below, want winnowed their ranks until scarcity raised it again. Ferdinand Lassalle gave the doctrine the grim and lasting name by which it is still known — the iron law of wages — and iron it was meant to be: it held that no charity, no combination, no humane contrivance could raise the worker's wage for long, because population would always breed up to swallow the gain.
The engine deserves its own inspection, for it is the whole of the mechanism. Thomas Malthus had supplied it a generation before: population, left unchecked, multiplies faster than the food that must sustain it, so that human numbers press without cease against the means of subsistence, and any surfeit of wages above bare maintenance is eaten up, within a generation, by the additional mouths it calls into being. This is why the law was iron — not by figure of speech, but by the plain arithmetic of births and deaths. And yet the classical economists were never so crude as the caricature drawn of them. Ricardo himself was at pains to insist that the natural price of labour was not fixed at the level of physical survival, but depended upon “the habits and customs of the people” — that it carried a conventional, and even a moral, element, and that it rose as a nation advanced in civilisation. Even at its bleakest, that is, the subsistence theory conceded that the floor it described was in part the work of society, and not of nature only — a concession, as the rest of this plate will show, considerably larger than the men who made it understood.
Upon this floor Karl Marx raised the most consequential theory of exploitation ever framed. His decisive stroke was a distinction so fine it is easy to miss and so powerful it reorganised everything after it: the worker, Marx said, does not sell his labour at all, but his labour-power — his capacity to work for a stretch of time. And the value of labour-power, like the value of any commodity in his system, is the quantity of labour socially necessary to produce it — which is to say, the cost of the subsistence required to keep the worker alive and to raise his replacements. The wage, then, is the value of labour-power: subsistence, historically and morally defined, just as Ricardo had allowed. But here Marx sprang the trap that the classics had left unsprung. Labour-power, once bought and set to work, yields more value than it costs — the worker can produce the equivalent of his own subsistence in a part of the working day, yet the capitalist has bought, and works, the whole of it — and the difference, the surplus value, the owner keeps. The wage is the value of the worker's labour-power; the surplus is the value of his labour beyond it; and the division of the product between the two — between the necessary labour that feeds the worker and the surplus that enriches the owner — is the very share of labour the volume's final plate sets out to measure.
The wage is the value of the worker's labour-power; the surplus is the value of his labour beyond it; and the gap between them is what Marx called exploitation.
And Marx replaced the population engine with one of his own, better fitted to the industrial age. What held the wage at subsistence was not, for him, the slow Malthusian arithmetic of cradles, but the industrial reserve army — the standing pool of the unemployed that capitalism perpetually re-creates. Let wages rise and labour grow scarce, and the capitalist answers by setting machinery in the place of men, which casts workers out of employment and refills the reserve; and the swollen ranks of the idle press the wage back down. Unemployment, on this telling, is no failure or accident of the system but a function of it — the standing mechanism by which capital disciplines labour and pins the wage to its floor. Here the threads of this volume draw together into a single knot: the reserve army is the bargaining weakness of the first plate raised into a permanent condition of the class, and the machinery that refills it is the displacement of the eleventh plate, seen no longer as a riddle in productivity but as a weapon in a war.
And then the iron law broke — decisively, and for good, upon the one thing no theory can argue with, which is what happened. Wages did not stay at subsistence. Across the two centuries since Ricardo set down his natural price, the real wage of the common worker in the industrial world has risen not by a little but by a great multiple, until the labourer of today commands comforts that the rich of Ricardo's age could not have purchased at any price. The engine had failed; worse, it had reversed. For the Malthusian mechanism, on which the entire edifice was raised, ran backwards: as wages rose, the people bred not faster but slower — the great demographic transition, in which prosperity brought, against every expectation of the theory, fewer children and not more, as households came to trade the number of their offspring for the prospects of each. The surplus of wages above subsistence was not devoured by extra mouths. It was kept, and it compounded, and it lifted the worker clean out of the trap. The subsistence theory, it transpired, had mistaken the iron condition of one particular world — the stagnant, pre-industrial, Malthusian world, in which wages had indeed clung to subsistence for thousands of years together — for an everlasting law of the wage; and the very industrial revolution at whose dawn the theory was composed was, even as the ink dried, dissolving the trap that the theory described. Marx's own sharpened version, the immiseration of the proletariat — the prophecy that capitalism must drive the worker into ever-deepening misery — fared no better than the rest; the worker grew, on the whole and across the generations, not poorer but incomparably richer, and that failed prediction stands among the gravest of the empirical embarrassments of the Marxian system.
As wages rose, the people bred not faster but slower; the engine built to drag the wage back to its floor ran, in the event, in reverse.
And yet a theory may be false as a forecast and true in what it saw; and the subsistence wage has left a great deal more behind it than its failure would lead one to expect. Three things survive its wreck. The first is the floor itself: the idea that beneath the wage lies a minimum fixed by what it costs to keep a human being and a household alive — physical at its foundation, but social and moral in its upper storeys, exactly as Ricardo and Marx both granted — and the modern campaign for a “living wage” is the lineal heir of the subsistence idea, with subsistence redefined upward from survival to decency. The legal floor of the seventh plate is the descendant of this natural one. The second survivor is the question Marx asked, which long outlives the labour theory of value upon which he built it: one may reject, as the marginal revolution did and as most economists now do, the doctrine that labour is the sole author of value, and still find that the question of the gap between what labour is paid and what labour produces — and of who pockets the difference — is the central question of the wage, the very question this whole volume is built to turn upon. The third survivor is the reserve army, the disciplining power of unemployment over the wage, which lives on, stripped of its revolutionary costume, in every modern reckoning of how slack in the labour market holds the growth of wages down. The iron law is dead; the insights it carried are not.
Return, then, to the question this volume puts to every wage. The subsistence theory and the marginal theory of the second plate are the two great rival answers to where the wage comes from, and they regard it from opposite sides. The marginal theory looks forward, to what the worker's labour is worth — its product, its contribution, its value to the one who buys it. The subsistence theory looks backward, to what the worker's labour costs — what it takes to make, and maintain, and reproduce him. The orthodoxy chose the forward-looking view and crowned worth the measure of the wage; but the backward-looking view never quite lost its grip, because it had hold of something the marginal theory has no words for — that labour is not merely bought but produced, that the worker must be kept alive whatever his marginal product comes to, and that there is therefore a floor beneath the bargain that no theory of value can reason away. Between the cost below and the worth above, the wage is settled; and where, in that interval, it comes to rest is, as the first plate insisted, a matter of power. The classical economists believed that power lay with population, and the wage was pinned to its floor; Marx believed it lay with capital, and the worker stripped of his surplus; both were wrong about how it would turn out, and right that it was a contest. For the wage, this volume has maintained from its first page, is the register of a contest — and the subsistence theorists, whatever else they mistook, were the first to see that a contest was there at all, beneath what their successors would take for the serene and impartial verdict of a market. The argument they opened remains, as the table is fond of saying, open.