Date of Award

2009

Document Type

Research Paper

Degree Name

Master of Liberal Studies (MLS)

Abstract

There have been several theories of wages that were proposed to explain or delineate the dynamics of wages. St. Thomas Aquinas (1225-1274), a philosopher and Roman Catholic theologian, developed one of the early wage theories, one which incorporated moral considerations. The “just wage” theory that Aquinas proposed was in reality a definition of what wages should be rather than what they actually were. He said that a just wage was one which allowed the worker to live in the manner appropriate to the social status to which the worker was accustomed. David Ricardo (1772-1823) developed the subsistence theory, building on the work of other economists. This theory argued that wages are established by paying workers bare subsistence. If workers earnings dropped below subsistence level, the labor force would not reproduce itself and if wages rose above subsistence level, more working class children than needed for the workforce would “survive” and wages would be forced down due to the competition for open jobs. This theory was proved to be incorrect when later economic conditions allowed the wage level to rise well above the subsistence level. Karl Marx also argued that capitalism prevented wages of laborers to rise above bare subsistence level due to the “appropriation” of profits by capitalists. Again, this was disproved by later history and economics. The wage-fund theory proposed by some later British economists followed the belief that wages were paid by past capital gains divided out among workers. Any wage increases for individual workers would require wage reductions for other workers unless the base capital fund for wages was increased. It was proven that this was incorrect and that wages were actually paid form present capital acquisition, not past. The next theory was that of marginal productivity which says that wages would be set at the level where employers find it profitable to hire the maximum staff while still producing profitably. Later, most economists felt that higher wages did not cause reduced employment due to “diminishing returns” as the proponents of the marginal productivity argued. Economists, such as John Maynard Keynes (1883-1946), felt that increase in wages was only dangerous if wages were allowed to outrun production.

Rights

Copyright 2009 Ronald A. Dotson

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