Lassalle’s most careful statement of the Iron Law, to which he frequently recurs in subsequent writings, is contained in his Open Letter (p. 13). ‘The Iron Economic Law, which, in existing circumstances, under the law of supply and demand for labour, determines the wage, is this: that the average wage always remains reduced to the necessary provision which, according to the customary standard of living, is required for subsistence and for propagation. This is the point about which the real wage continually oscillates, without ever being able long to rise above it or to fall below it. It cannot permanently rise above this average level, because in consequence of the easier and better condition of the workers there would be an increase of marriages and births among them, an increase of the working population and thereby of the supply of labour, which would bring the wage down to its previous level or even below it. On the other hand, the wage cannot permanently fall below this necessary subsistence, because then occur emigration, abstinence from marriage, and, lastly, a diminution of the number of workmen caused by their misery, which lessens the supply of labour, and therefore once more raises the wage to its previous rate.’
On a nearer consideration, Lassalle goes on to say, the effect of the Iron Law is as follows:—
‘From the produce of labour so much is taken and distributed among the workmen as is required for their subsistence.
‘The entire surplus of production falls to the capitalist. It is therefore a result of the Iron Law that the workman is necessarily excluded from the benefits of an increasing production, from the increased productivity of his own labour.’[[3]]
Such is Lassalle’s theory of the Iron Law of Wages. He accepts it as taught by Ricardo and the economists of the orthodox school in England, France, and Germany. We believe that his statement of it is substantially just and accurate; that it fairly reflects the economic science of his time, and, under the then prevailing economic conditions, may be described as a valid law.
Lassalle held that the customary standard of living and the operation of the law generally were subject to variation. Still it may reasonably be maintained that he has not sufficiently considered the fact that, like capital, the Iron Law of Wages is an historical category. He has not overlooked the fact, and could hardly do so, as the Iron Law is an implicate and result of the domination of capital. But his method of exposition is too much the controversial one, of pressing it as an argumentum ad hominem against his opponents in Germany, and, as usual, in controversy truth is liable to suffer. It may therefore be argued that under the competitive system as now existing, changes have occurred which render Lassalle’s theory of the Iron Law inaccurate and untenable. Even while the present system continues to prevail, the law may undergo very extensive modification through the progress of education and organisation among the workmen, and through the general advance of society in morality and enlightenment. The question of modification of the Iron Law is one of degree, and it may fairly be contended by critics of Lassalle that he has not recognised it to a sufficient degree.
On the other hand, it may also be rationally maintained that in so far as education and organisation prevail among the workmen, in so far does capitalism, with all its conditions and implicates, tend to be superseded. Trade Unions, Co-operative Societies, Factory Legislation, are all forms of the social control of economic processes, inconsistent with competitive economics. The more they gain ground, the more does capitalism tend to break up and disappear. From this higher point of view, we may fairly contend that considerations which have been urged as destructive of Lassalle’s argument are really symptoms of the decline of capitalism. The Iron Law is an inevitable result of the historical conditions contemplated by Lassalle. These conditions have changed, but the change means that capitalism is passing away. We are thus thrown back on the wider question, whether capitalism is disappearing, a question which it would at present be premature to discuss.
In any case the position of Lassalle is perfectly clear. He accepted the orthodox political economy in order to show that the inevitable operation of its laws left no hope for the working class; and that no remedy could be found except by abolishing the conditions in which those laws have their validity—in other words, by abolishing the present relations of labour and capital altogether. The great aim of his agitation was to bring forward a scheme which would strike at the root of the evil. The remedy for the evil condition of things connected with the Iron Law of Wages is to secure the workmen the full produce of their labour, by combining the functions of workmen and capitalists through the establishment of productive associations. The distinction between labourer and capitalist is thereby abolished. The workman becomes producer, and for remuneration receives the entire produce of his labour.
The associations founded by Schulze-Delitzsch, Lassalle went on to argue, would effect no substantial improvement in the condition of the working class. The unions for the supply of credit and raw materials do not benefit the working class as such, but only the small hand-workers. But hand-labour is an antiquated form of industry, which is destined to succumb before the large industry equipped with machinery and an adequate capital. To provide the hand-workers with the means of continuing their obsolete trades is only to prolong the agony of an assured defeat.
The consumers’ unions, or co-operative stores as we call them in England, also fail, because they do not help the workman at the point where he needs it most, as producers. Before the seller, as before the policeman, all men are equal; the only thing the seller cares for is that his customers are able to pay. In discussing the Iron Law, we saw that the workman must be helped as producer—that is, in securing a better share of his product. The consumers’ unions may indeed give a restricted and temporary relief. So long as the unions include only a limited number of workmen, they afford relief by cheapening the means of subsistence, inasmuch as they do not lower the general rate of wages. But in proportion as the unions embrace the entire working class and thereby cause a general cheapening of the means of subsistence, the Iron Law of Wages will take effect. For the average wage is only the expression in money of the customary means of subsistence. The average wage will fall in proportion to the general cheapening of the means of subsistence, and all the pains taken by the workmen in founding and conducting the consumers’ unions will be labour lost. They will only enable the workman to subsist on a smaller wage.