Ludwig von Mises
Reprinted from Christian Economics, May 30, 1961.
The Marxian Theory of Wage Rates
The most powerful force in the policies of our age is Karl Marx. The rulers of the many hundreds of millions of comrades in the Communist countries behind the Iron Curtain pretend to put into effect the teachings of Marx; they consider themselves as the executors of the testament of Marx. In the noncommunist countries there is more restraint in the appreciation of Marx's achievements, but still he is praised at all universities as one of the greatest intellectual leaders of mankind, as the giant who has demolished inveterate prejudices and errors and has radically reformed philosophy and the sciences of man. Little attention is paid to the few dissenters who do not join in the chorus of commendation of Marx. They are boycotted as reactionaries.
The most remarkable fact about this unprecedented prestige of an author is that even his most enthusiastic admirers do not read his main writings and are not familiar with their content. A few passages and sentences from his books, always the same, are quoted again and again in political speeches and pamphlets. But the voluminous books and the scores of articles and pamphlets turned out by Marx are, as can be easily shown, not perused even by politicians and authors who proudly call themselves Marxians. Many people buy or borrow from a library reprints of Marx's writings and start reading them. But, bored to death, they usually stop after a few pages, if they had not already stopped on the first page.
Doctrines of Marx
If people were familiar with the doctrines of Marx, they would never talk, as they often do, about socialism "according to the designs and precepts of Marx." For Marx neither devised the concept of socialism nor did he ever say anything about the organization and operation of a socialist commonwealth except that it would be a blissful realm of unlimited abundance in which everybody would get all he needed. The idea of socialism?the abolition of private control of the material means of production and of free enterprise and the exclusive management of all economic affairs by the government?had been fully elaborated by French and British authors before Marx embarked upon his career as an author and propagandist. There was nothing left to be added to it and Marx did not add anything. Nor did he ever attempt to refute what economists had already brought forward in his time to show the illusiveness and absurdity of the socialist schemes. He derided as vain utopianism any occupation with the problems of a socialist economic system. As he himself viewed his own contribution, it consisted in the discovery of the alleged fact that the coming of socialism was inevitable and that socialism, precisely because it is bound to come "with the inexorability of a law of nature" and was the final goal to which mankind's history must necessarily lead, would be the fulfillment of all human wishes and desires, a state of everlasting joy and happiness.
The writings of Marx, first of all the ponderous volumes of his main treatise, Das Kapital, do not deal with socialism. Rather they deal with the market economy, with capitalism. They depict capitalism as a system of unspeakable horrors and utmost detestableness in which the immense majority of people, the proletarians, are ruthlessly oppressed and exploited by a class of felonious capitalists. Everything in this nefarious system is hopelessly bad, and no reform, however well intentioned, can alleviate, still less remove, the abominable suffering of the proletarians. Nothing else can be said in favor of capitalism than that precisely on account of its monstrosity and atrocity it will one day, when the evils it produces become intolerable, result in the great social revolution that will generate the socialist millennium.
The "Iron Law" of Wages
The pith of Marx's economic teachings is his "law" of wages. This alleged law that is at the bottom of his entire criticism of the capitalistic system is, of course, not of Marxian make. It was devised by earlier authors, had long since been known under the label of the "iron law of wages" and had already been thoroughly refuted before Marx employed it as the foundation of his doctrine. Marx chose to ignore all that had been said to show the viciousness of the reasoning implied in this alleged law. He made some sarcastic remarks about the German translation of the English term "iron law," as suggested by his main rival for the leadership of the German socialist party, Ferdinand Lassalle (1825-1864). But he built his entire economic reasoning, all his prognostication of the future course of economic affairs and his whole political program upon the illusory basis of this fallacious theorem.
This so-called "iron law" declares that wage rates are determined by the cost of the means of subsistence required for the bare maintenance of the labor force. The wage earner cannot get more than is physiologically needed to preserve his capacity to work and to enable him to raise the number of children required to replace him when he dies. If wages rise above this level, the wage earners will rear more progeny and the competition of these additional seekers for employment will reduce wage rates again to what this doctrine considers the natural level. If, on the other hand, wages drop below this alleged natural level, the workers will not be able to feed the number of offspring needed to fill the ranks of the labor force. There will then develop a shortage of laborers and competition among the employers will bring wage rates back to the natural level.
From the point of view of this alleged "iron law" the fate of the wage earners under capitalism appears hopeless. They can never lift themselves above the level of bare subsistence. No reforms, no governmental minimum wage enactment's, no activities of labor unions can prove effectual against this iron law. Under capitalism, the proletarians are doomed to remain forever on the verge of starvation. All the advantages derived from the improvement of technological methods of production are pocketed exclusively by the capitalists. This is what the Marxian category of exploitation means. By right, Marx implies, all the products ought to benefit those who are producing them, the manual workers. The mere existence of the bourgeoisie is parasitic. While the proletarians suffer, the bourgeois exploit, feast and revel.
Now one has only to look around in order to detect that something must be entirely wrong with this description of capitalism's economic functioning. The great innovation brought about by the transformation of the precapitalistic mode of production into the capitalistic system, the historical event that is called the Industrial Revolution, was precisely the inauguration of a new principle of marketing. The processing industries of the good old days catered almost exclusively to the wants of the well-to-do. But what characterizes capitalism as such is that it is mass production for the satisfaction of the needs of the masses. The much greater part of all the products turned out by the factories is consumed, directly or indirectly, by the same people who are working in the factories. Big business is big precisely because it produces the goods asked for, and bought by, the masses. If you go into the household of the average common man of a capitalistic country, you will find products manufactured in the plants of big business. It is fantastic nonsense to assert that all the wage earner gets are the bare necessities to sustain himself and to rear enough children to fill the jobs in the factories. While businesses that produce for the masses grow big, those that are turning out luxury goods for the few never grow above the size of medium, or even small, businesses.
The essential shortcoming of the "iron law of wages" was that it denied to the wage earner his human character and dealt with him as if he were a non-human creature. In all non-human living beings the urge is inwrought to proliferate up to the limits drawn by the available supply of the means of subsistence. Nothing but the quantity of attainable nourishment checks the boundless multiplication of elephants and rodents, of bugs and germs. Their number keeps pace with the available aliments. But this biological law does not apply to man. Man aims also at other ends than those involving the physiological needs of his body. The "iron law" assumed that the wage earner, the common man, is no better than a rabbit, that he craves no other satisfactions than feeding and proliferation and does not know of any other employment for his earnings than the procurement of those animal satisfactions. It is obvious that this is the most absurd assumption ever made. What characterizes man as man and elevates him above the level of the animals is that he aims also at specifically human ends which we may call "higher ends." Man is not like other living beings that are driven exclusively by the appetites of their bellies and their sex glands. The wage earner is also a man, that is a moral and intellectual person. If he earns more than the absolutely required minimum, he spends it upon the satisfaction of his specifically human wants; he tries to render his life and that of his dependents more civilized.
At the time Marx and Engels adopted this spurious "iron law" and asserted in the Communist Manifesto (1848) that the average wage is "that quantum of the means of nourishment (Lebensmittel) which is absolutely requisite (notwendig) to keep the laborer in bare existence as a laborer," judicious economists had already exposed the fallaciousness of this syllogism. But Marx did not heed their criticism. His whole economic doctrine set forth in his main treatise, Das Kapital, is based upon the "iron law." The falseness of this presumed law, the falseness of which has not been questioned by anybody for about a hundred years, cuts the ground from under all his economic reasoning. And it demolishes entirely the main demagogy of the Marxian system, the doctrine, that contends that the recipients of wages and salaries are exploited by the employers.
The Inevitability of Socialism
In the elaboration of his system of philosophy and economics Marx was blinded to such an extent by his passionate hatred of Western civilization that he did not become aware of the blatant contradictions in his own reasoning. One of the most essential dogmas of the Marxian message, perhaps its very core and substance, is the doctrine of the inevitability of the coming of socialism. In Das Kapital (1867), Marx proclaims that capitalism "begets, with the inexorability of a law of nature, its own negation," that is, it produces socialism. It is this prophecy that accounts for the obstinate fanaticism of the various communist and socialist factions of our age.
Marx tried to prove this cardinal dogma of his creed by the famous prognostication that capitalism generates necessarily and unavoidably, a progressive impoverishment of the masses of the wage earners. The more capitalism develops, he says, the more "grows the mass of misery, oppressions, slavery, degradation and exploitation." With "the progress of industry" the worker "sinks deeper and deeper," until finally, when his sufferings have become unbearable, the exploited masses revolt and establish the everlasting bliss of socialism.
It is well known that this prognostication of Marx was no less disproved by the facts of social evolution than all other Marxian prophecies. Since Marx wrote the lines quoted in 1848 and 1867, the standard of living of the wage earners has in all capitalistic countries improved in a way unprecedented and undreamt of.
But there is still something more to say about this piece of Marx's argumentation. It contradicts the whole Marxian theory of the determination of wage rates. As has been pointed out, this theory asserts that wage rates under capitalism are always and necessarily so low that for physiological reasons they cannot drop any further without wiping out the whole class of wage earners. How is it then possible that capitalism brings forth a progressing impoverishment of the wage earners? Marx in his prediction of the progressive impoverishment of the masses contradicted not only all the facts of historical experience. He also contradicted the essential teachings of his own theory based on the "iron law of wages," namely that capitalist wage rates are so low that they cannot drop any further without wiping out the workers.
The Marxian economic system, so much praised by hosts of self-styled intellectuals, is a hodgepodge of arbitrary statements conflicting with one another.