The Marxian Theory of Wage Rates — Summary

Ludwig von Mises’s essay is a concentrated attack on Marxism at what he regards as its economic foundation: the doctrine that capitalist wages are forced down to bare subsistence. Rather than treating Marx chiefly as a moral critic of capitalism or as a planner of socialism, Mises presents him as a theorist whose historical claims depend on a specific and, in Mises’s view, untenable wage theory.

Mises opens by stressing the disjunction between Marx’s political prestige and the actual reading of Marx’s works. Marx’s influence, he argues, has become almost liturgical: invoked by parties, governments, and intellectuals, but rarely examined with scholarly care.

The most remarkable fact about this unprecedented prestige of an author is that even his most enthusiastic admirers do not read his main writings and are not familiar with their content.

This opening move lets Mises distinguish Marx’s reputation from Marx’s substantive contribution. He argues that Marx did not invent socialism and did not explain how a socialist commonwealth would function. What Marx supplied, in Mises’s account, was a theory purporting to prove that capitalism was internally doomed and that socialism would arrive through historical necessity.

The writings of Marx, first of all the ponderous volumes of his main treatise, Das Kapital, do not deal with socialism.

The essay’s central claim is that Marx’s critique of capitalism depends on the so-called iron law of wages. Mises summarizes this doctrine as the claim that wage rates gravitate toward the minimum required to keep workers alive and able to reproduce. If wages rise above that level, population growth supposedly expands the labor supply and drives wages back down; if wages fall below it, starvation reduces labor supply and restores the subsistence level.

The pith of Marx's economic teachings is his "law" of wages. This alleged law that is at the bottom of his entire criticism of the capitalistic system is, of course, not of Marxian make.

For Mises, this wage doctrine is not an incidental error but the keystone of Marxian exploitation theory. If laborers can never receive more than subsistence, then all gains from capital accumulation and technical progress accrue to capitalists, reform becomes futile, and proletarian misery must deepen until revolution occurs. But if workers’ real wages can rise with productivity, the entire Marxian prediction of progressive immiseration loses its mechanism.

Mises’s counterargument is both empirical and conceptual. Empirically, he insists that capitalism’s distinctive historical achievement is not the enrichment of a tiny luxury-consuming elite, but mass production for ordinary people. The wage earner is not merely a producer of goods for capitalists; he is also the central consumer of capitalist production. Rising productivity therefore tends to expand the real income and living standards of the masses, not merely capitalist profits.

Conceptually, Mises argues that the iron law treats workers as if they were governed only by animal reproduction. Human beings do not automatically convert every increase in income into more children until subsistence is restored. They use income for comfort, education, culture, security, and long-term improvement. The doctrine therefore fails because it abstracts from human choice and from the civilizational uses of higher wages.

The essay’s polemical force comes from Mises’s claim that Marxism must hold two incompatible ideas at once: wages are fixed at bare subsistence, yet workers grow progressively poorer under capitalism. If subsistence is already the floor, Mises asks, how can the proletariat undergo the worsening immiseration required by Marx’s revolutionary prophecy? The argument aims to show not merely that Marx made a mistaken forecast, but that his theory contains an internal contradiction.

Everything in this nefarious system is hopelessly bad, and no reform, however well intentioned, can alleviate, still less remove, the abominable suffering of the proletarians.

Thus the essay is less a full positive theory of wages than a strategic demolition of the Marxian wage premise. Mises wants to show that once wages are understood as market phenomena shaped by productivity, capital accumulation, and human valuation, Marx’s claims about exploitation, inevitable impoverishment, and necessary socialist revolution no longer possess scientific force.