Tuesday, March 8, 2016

Baumol: Marx and the Iron Law of Wages.

"I find few things as discouraging as the persistent attribution of positions to a writer whose works contain repeated, categorical, indeed emotional, denunciations of those views. Marx's views on wages are a prime example. Both vulgar Marxists and vulgar opponents of Marx have propounded two associated myths: that he believed wages under capitalism are inevitably driven near some physical subsistence level, and that he considered this to constitute robbery of the workers and a major evil of capitalism. Yet Marx and Engels tell us again and again, sometimes in most intemperate language, that these views are the very opposite of theirs. These observations, incidentally, are hardly new discoveries. Thus, for example, Roman Rosdolsky (1977, p. 287 ff.) disposes of the subsistence wage allegation and Robert Tucker (1969, ch. 3), and Allen Wood (1972) cover Marx's view on the morality of capitalist distribution very effectively." (Emphasis mine)

To the best of my knowledge, Willliam J. Baumol (New York University, Leonard N. Stern School of Business) is not a Marxist, only an honest man who, after a lifetime in academia, takes teaching and scientific enquiry seriously.

In his article "Marx and the Iron Law of Wages", Prof. Baumol shows his dismay for a tendency common among vulgar Marxists (personally, I only know of Ferdinand Lasalle, but I might be mistaken) and vulgar opponents of Marx (and here, I do know many) to attribute to Marx the double myth that Marx believed in (1) a subsistence level wage and that (2) his critique of exploitation was based on morality. Both ideas are the core of Lasalle's so-called "Iron Law of Wages".

I share Prof. Baumol's feelings -- including his apparent contempt for those he calls "vulgar" -- but I am not surprised by those myths' persistence nor do I expect well-meaning appeals by honest intellectuals shall make any difference, particularly among filthy charlatans opposing Marxism -- as readers can see, I am not nearly as polite as Prof. Baumol.

The reason is obvious and Prof. Baumol himself, perhaps without quite realising, points to it: it transforms Marxism into a theoretical straw man ready to be "debunked", a "monstrosity" (in Marx's own words); it denies workers and socialists the opportunity to fight for higher wages and better working conditions.

This is Engels denouncing in no uncertain terms Lasalle and his "Law" in a 1875 letter to August Bebel:
"Thirdly, our people have allowed themselves to be saddled with the Lassallean 'iron law of wages' which is based on a completely outmoded economic view, namely that on average the workers receive only the minimum wage because, according to the Malthusian theory of population, there are always too many workers (such was Lassalle’s reasoning). Now in Capital Marx has amply demonstrated that the laws governing wages are very complex, that, according to circumstances, now this law, now that, holds sway, that they are therefore by no means iron but are, on the contrary, exceedingly elastic, and that the subject really cannot be dismissed in a few words, as Lassalle imagined."

In fact, no classical political economist of any repute believed in the subsistence level wage component of the "Iron Law". David Ricardo and Adam Smith, before Marx, certainly did not believe in it.

There was, however, a political economist who did believe in subsistence level wages. He is seldom mentioned by online post Keynesians messiahs, but he influenced John Maynard Keynes directly -- through underconsumptionist arguments, surprise! -- and indirectly -- through Charles Darwin/Herbert Spencer/Francis Galton and eugenics. The chief proponent of subsistence level wages (as a positive and normative economic theory) was the parson Thomas Robert Malthus.

Now, there's an irony.


Baumol, W. J.. (1983). Marx and the Iron Law of Wages. The American Economic Review, 73(2), 303–308. (paywalled)

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