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Essay On Subsistence Theory

948 Words4 Pages

) There are many versions of the subsistence theory of wages, Thomas Malthus and David Ricardo used different directions to generate their theories. Malthus based his theory of wages on his theory of population. He believed in a supply and demand mechanism in term of labor and population. He proposed the decrease in marriage rates as an indirect way of decreasing labor who would get wages resulting in increasing the standard of wages. He said that the wage required to fulfil the basic needs of a labor does regulate the amount of wage but its customary. He proved this through his theory of population. Malthus believed in the theory of population, he believed that population grew exponentially whereas food production was arithmetic. In this manner, population will increase faster than food production resulting in relative scarcity. His theory of population is based on the “Iron law of wages”. This theory states that wages should remain at the subsistence level. Wages given to workers are just above the subsistence level i.e. just to fulfil their needs. Workers don’t get to have any significant savings. It’s assumed that if wages are increased there will be a reduction in …show more content…

Natural wage is the wage which lets the workers maintain their social class and allows subsistence according to the strata of the society they are a part of. Ricardo only transformed his theory of value to his theory of wages. Since value is decided by the labor cost of production, wages define the cost of reproducing the same quantity of labor. If in any case the supply of laborers varies or the demand of supply changes for the specific product, this will end up changing the market wages, but in the long run they will be like natural wage. It was proposed that the market wages will persist over the natural wage for a long period of time. So an increase in market wages may raise the standard of living in an

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