Progress and Poverty · Chapter
VI: Wages and the Law of Wages explained
This chapter deduces and verifies the law of wages, showing that wages are determined by the margin of production—the produce that labor can obtain from the highest natural opportunities open to it without paying rent.
What happens
This chapter deduces and verifies the law of wages, showing that wages are determined by the margin of production—the produce that labor can obtain from the highest natural opportunities open to it without paying rent. It explains how, in a free state, wages equal what labor could produce for itself, and that as land becomes monopolized and cultivation extends to inferior lands, wages fall to the level of the least productive land in use. The law is presented as a corollary of Ricardo's law of rent and is grounded in the fundamental principle that men seek to satisfy their desires with the least exertion.
Themes in this chapter
Wages and Labor
The chapter establishes the law of wages as dependent on the margin of production, explaining how wages are determined by the productivity of labor on the least productive land in use.
Land Ownership and Rent
Shows how the monopolization of land and the emergence of rent force wages down, as labor is shut off from free natural opportunities.
Distribution of Wealth
The law of wages is presented as a key component of the distribution of wealth, linking wages, rent, and the returns to labor and land.
Characters to notice
- Adam Smith
Cited for his observation that high wages in new colonies result from open land and no rent, and for his enumeration of circumstances causing wage variations between employments.
- David Ricardo
Referenced for his law of rent, of which the law of wages is a corollary.
- John Stuart Mill
Mentioned in relation to the concept of 'natural wages' and the idea that wages are regulated by the standard of comfort at which laborers consent to reproduce.
Key passages
“Wages depend upon the margin of production, or upon the produce which labor can obtain at the highest point of natural productiveness open to it without the payment of rent.”
Wages are determined by what labor can produce on the best land that is available for free use, without having to pay rent.
This is the core statement of the law of wages in the chapter.
“The average man will not work for an employer for less, all things considered, than he can earn by working for himself; nor yet will he work for himself for less than he can earn by working for an employer, and hence the return which labor can secure from such natural opportunities as are free to it must fix the wages which labor everywhere gets.”
People will choose the option that gives them the best return, so wages must match what labor could earn by working independently on free land.
Explains the self-evident nature of the law through the principle of least exertion.