5: Wages
In economic terms, labor is a commodity that is bought and sold, and just like every other commodity has a price that is determined both by nature and by the market.
The natural price of labor is subsistence: a laborer must earn by his effort enough to provide for himself and his household. Should any employer offer less than is needed for its workers' survival, its workers would seek other means of sustenance.
Especially in consideration of sustenance, the nominal money wage is less a matter of concern than the purchasing power it provides: no nominal sum will suffice if it cannot be exchanged for the sufficient food and other necessities. If their price should rise, the cost of labor will rise. If their price should fall, the cost of labor will fall.
(EN: In the current age, this is a bit hard to accept that any worker would accept a pay cut - though it does happen in unusual instances. However, where the price of labor is much less than the wages of existing workers, companies will seek to, through layoffs of plant closings, to divest itself of expensive workers and leverage the cheaper labor in the market.)
On the subsistence level, the natural price of labor is thus equal to the market price. It is when a laborer seeks more than his mere sustenance that he seeks to gain by his labor an additional sum to purchase luxury items to which he has become accustomed.
The price of all commodities, excepting raw produce and labor, has a tendency to fall as the wealth and population in a market increase. This arises from improvements in the "science and art" of production, enabling materials to be produced with greater efficiency.
(EN: I think this observation implies causality, but there's evidence that it is not always so. Efficiency decreases cost, which may decrease price. But the relation to wealth and especially population is not causal. The richest nations are not the most populous, and the most populous often have the least wealth and prosperity. One may argue that this is due to political reasons - people are prevented from being productive in such nations - but it remains that the two are not causally connected.)
The market price of labor is the money price that is paid for it, and is influenced more by supply and demand than any consideration of the value of the output of labor. The price paid for workers in a single location and profession may be high or low according to the number of people seeking work at the moment someone else wants to purchase labor.
Where the market price of labor exceeds its natural price, the laborers enjoy an advantage in trade: they trade the product of their work for products that require more work to produce. Where the market price for labor is below its natural price, the laborers are deprived, and must trade more of their labor for less of the labor of others, and enjoy less of the necessities and conveniences of life than their "natural wage" should afford.
(EN: The connection Ricardo does not make, but should, is what this means for others in the market. When one laborer is paid a higher market price than others in the market, the "prosperity" he enjoys is balanced by the misery of others who must trade more of their labor for less of his. Where he is disadvantaged, then others gain a benefit for their labor in exchange. When economics is used for political ends, it is not necessarily the conflict of worker and capitalist, but conflict among groups of workers, each exploiting one another.)
Ricardo differentiates capital from wealth thus: Wealth represents stored value that can be used to purchase goods and services. Capital represents the resources that are actually employed in the production of goods.
The significance of this is that a nation may be very wealthy indeed, but completely nonproductive of value, as all its wealth is hoarded rather than used in production of value. Wealth is diminished by its use, whereas capital replenishes and increases itself by its use, and will in some instances increase its productive power in future.
In a highly productive nation, every increase in the efficiency of production yields a decrease in the price of goods, an increase in the money wage over the natural wage, and an increase in the prosperity of the people.
Since the natural price of labor is determined by the cost of other things, it is not itself fixed and constant, and materially differs among locations and in different times in the same location. "It essentially depends on the habits and customs of the people" as well. An English worker would not be content with wages that required him to live in a mud hut and eat potatoes - but "in countries where man's life is cheap" this might be an improvement over what he is accustomed to having.
Another factor is the means of applying labor - which is to say the speed at which a laborer can be applied to a productive task. Where skills is needed at a given task, workers must be trained to do it, meaning they cannot be added at an instant's notice, nor are employers keen on divesting themselves of trained labor, but will pay their wages even when they do not have immediate need of them so that they may be kept on hand for when they are needed.
Another factor is the productive power of labor, which is to say that in certain tasks the addition of a worker creates a more dramatic increase in output than in others. That is, the availability of farm labor matters little unless there is an abundance of fertile land for them to work.
Ricardo also observes that "population may be doubled in 2 years ... the whole capital of a country might be doubled in a shorter period ... in that case, wages during the period would have a tendency to rise because the demand for labor would increase faster than its supply."
Colonial settlements are an example of this: where a new country is discovered, there is in that location far more land and timber than hands to work it, and the cost of labor is high, such that workers from settled nations are drawn there to enjoy the high value of labor.
There is likewise the problem of "ignorance, indolence, and barbarism" of certain lands that, while they have an abundance of natural resources, cannot make productive use of them. Bad government, insecurity of property, and want of education are not the sole province of primitive nations on distant continents.
The "friends of humanity" wish that the laboring classes of all countries could have comforts and enjoyments, and that this can be stimulated by "legal means." There follows a lengthy explanation, complete with mathematical examples, of the reasons that this cannot be so, without a corresponding increase in the productiveness of those people.
(EN: The detail a bit too elaborate, and my sensed is the point is lost in the detail - but the fundamental idea seems sound: that goods are produced by the labor of some, traded for goods produced by the labor of others and, as mentioned earlier, the bounty of one is taken by depriving the other. To be able to consume more, both must produce more, and no act of law can create wheat where no-one plants or sows it, or make it worth any more or less in trade against other goods for a sustained period of time, without discouraging its production.)
In general, wages rise when the demand for labor outstrip its supply in the market, granting a benefit to the workers as a result of their scarcity. However, the increased cost of labor to produce goods effects a corresponding increase in the price of goods in the same market, hence the benefit the worker thought himself to be gaining is balanced against the increase in his own expenses.
It is also true that the increased wages and prices in a given market create a greater demand of imported goods, made in other markets where the labor cost is substantially lower than local (such that the added cost of transport still results in a lower market price). This decreases the demand of local goods, decreasing the demand of labor to produce them, and seeks to encourage the market toward equilibrium. This also serves to disprove the notion that higher wages will result in a higher consumption of or demand for goods: the two are bound together.
The same must occur if there is any decrease in wages: the cost of producing goods will decrease, and their price must decrease to make them affordable to those who wish to purchase them, but would soon forego them if the wages of their employment were decreased.
Other factors affect the importation of goods - chiefly the availability of materials to make them - though there are instances where the difference in the cost of labor overcome even that discrepancy: where cotton grown in the Americas is shipped to Britain to be woven into cloth that is shipped back to America. Clearly it is the cost and availability of labor that overcomes the availability of materials in the local marketplace.
Ricardo grants that "poor laws" that seek to increase the prosperity of the working classes by raising their wages have historically had no such effect, leaving workers no better off in the long term because prices increase to reflect the increase in wages. However, the temporary disruption in the market has been a windfall to some and the ruin of others: who raises their prices fastest makes out the best.
Ricardo refers to the work of Malthus, who expresses that the poor suffer due to their numbers - the implication being if there were less people, each would gain a greater portion of a finite pool of resources. The flaw in this logic is clear: that an increase in population does not result only in an increase of consumption, but an increase in production. If each member of the population produces what he needs for his own consumption, or goods that can be traded for his necessities, the total number is of no consequence to their condition.
(EN: I don't believe Malthus to have overlooked this. Whatever the flaw in his theory, he did acknowledge the ability to produce for one's own consumption, but suggested that the quantity of resources that could be used is finite. That is, Malthus measured acreage and productivity to calculate the maximum number of people England could sustain, but did not count on the increase in productivity of land - where more food can be grown on an acre, less acreage can sustain more people.)
Ricardo also opposes the inclination of the law to offer charity to the poor. If a man must produce for his own consumption, he is encouraged to limit the size of his family to that which he is capable of supporting by his own effort. Where he is given charity, he has no such discouragement, and is inclined to produce more children without increasing his productivity. Such is the problem in many poor and crowded nations that the lowest class increases its numbers beyond a level it is capable of supporting, and at some point the benefactors run out of resources to subsidize them.
It is also the result of removing resources from productive members of society to give to the unproductive that a nation as a whole ceases to achieve progress toward prosperity. Where the product of productive individuals is used to subsidize unproductive, the ranks of the unproductive swell, and the whole of the economy is dedicated to their sustenance - the routine production of the most basic necessities.
To this end, such laws "change wealth and power into misery and weakness ... call away the exertions of labor from every object except that of providing mere subsistence ... to busy the mind continually in supplying the body's wants ... until at last all classes should be infected with the plague of universal poverty."
But "Happily," Ricardo observes that such laws are generally checked by the very misery they create. During times of prosperity, when more people are successful than starving, there is little objection - but when economy declines, such that the majority of people begin to feel deprived and fear their own poverty, they are less charitably disposed to their impoverished neighbors, and see the logic of self-preservation and independence.
There is later a brief mention of the movement of labor itself across national borders, as it would make sense for individual workers to migrate to locations where they can gain better compensation, though the author remarks on the "natural disinclination which every man has to quite the country of his birth."