Question

According to Labor Market Model of Adam Smith and the Population Theory of Malthus, the wage rate is brought to its equilibrium level, by adjustments in population, while according to Marx it is the adjustments in the reserve army of labor that regulates the wages. Describe the Population Theory of Malthus and how according to Malthus population regulates the wages. Then describe the Reserve Army Concept of Marx, and how according to Marx reserve army of labor regulates the wages. Compare the view of these two economists.To what extent do you think these views are useful in economics today, to what extent they are outdated, or proven false?

Answer 1

The famous book “essays on the principles of the population” written by Thomas Malthus in 1798. In his writing, he is mainly discussing the problem of population growth, and he believed that the human population is increasing at exponential growth. He addressed the employment growth and wages in the economy in his theory of population. He stated that demand for labor does not meet the supply of labor in the economy. According to him the best measure of population growth is the employment in the economy. Employment in the economy will regulate the wages of labor. The wages are the power of the lower class people to procure food. If the employment of the country increases then the wage rate also increases, and it encourages early marriages and produces more children, and it increases the population growth rate — also, the population regulated by the effective demand for labor.

The industrial reserve army is the concept developed by famous political thinker Karl Marx. It is also known as the relative surplus population except the unemployed. It included the people are unable to work. The surplus population decreases then the wages will increase. The reserve army regulates wages. The expansion or contraction of the reserve army against the business cycle act as the stabilizer of accumulation. It prevents the rising of wages so far to control the profitability.

Both these views are essential for today’s economic situation with the rising global population growth. When the population grows continuously then it hard to find employment, and it adversely affects the standard of living of the people.