The Theory was first
formulated crudely by Mr. Ricardo, Who after having seen the condition of
France Labor (Trade Union Membership 10% of total workforce) who was living on
a bare necessaries, concluded the that nature itself working out wage to the
subsistence level. Stating the theory the Ricardo wrote, “the
natural price of labor is that price which is necessary to enable the labors,
one with another, to subsist and perpetuate their race without either increase
if domination.”
According to the theory,
wage tend to settle at the just sufficient to maintain the worker and his
family at minimum subsistence level above this level, wage will encourage
employee to marry and to have large families. As increase in wage may be
followed by a higher standard of living, The theory is further disapproved on
the ground that it does not account for the disparities in wage among different
classes if workers whose subsistence can’t be said to vary in same degree as
their as their wage. The main weakness of the theory it ignores the importance
of productivity.
This theory was formed
taking in to consideration that most of the countries are not independent and
are being ruled by other empires. Ricardo accepts the importance of money in
development of Human being. Money is only the thing that which lead employee
towards temptation. If any employee is getting money at a subsistence level may
not even think for self development or other activity except his job as his
condition would be “hand to mouth”, He will work hard in order to earn to
maintain that subsistence. And in second case if employee is getting above
subsistence level, may go for saving, for new hobbies, new ventures, large
families which Ricardo believes, may affect interest of employer.
This theory was
disapproved straight away by the economist and entrepreneurs.
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