The Work of Thomas MalthusThe Work of Thomas Malthus

Thomas Malthus: 1766-1834Thomas Malthus: 1766-1834 Malthus, Thomas. 1798. Malthus, Thomas. 1798. An Essay on the An Essay on the

Principle of Population as It Affects the Future Principle of Population as It Affects the Future Improvement of Society Published Improvement of Society Published AnonymouslyAnonymously..

The Basics Assumptions of MalthusThe Basics Assumptions of Malthus

Food is necessary for the existence Food is necessary for the existence of humankind.of humankind.

Passion between the sexes is Passion between the sexes is necessary and will remain necessary and will remain unchanged.unchanged.

The Conclusions of MalthusThe Conclusions of Malthus

Population tends to grow faster than the Population tends to grow faster than the food supplyfood supply Food increases arithmeticallyFood increases arithmetically Population increases geometricallyPopulation increases geometrically

This is the cause of poverty and miseryThis is the cause of poverty and misery

Policy Implications of MalthusPolicy Implications of Malthus

Policy implications from MalthusPolicy implications from Malthus Rising wages lead to rising populations Rising wages lead to rising populations Rising populations lead to falling wagesRising populations lead to falling wages Hence, policies to improve the plight of Hence, policies to improve the plight of

the poor are futile.the poor are futile.

Malthus TodayMalthus Today

Galor, Oded and David N. Weil. 1998. “From Malthusian Galor, Oded and David N. Weil. 1998. “From Malthusian Stagnation to Modern Growth”Stagnation to Modern Growth”American Economic American Economic ReviewReview. (May): 150-154.. (May): 150-154.

The article focuses on three aspects of economic The article focuses on three aspects of economic development:development:

1.1. Malthusian RegimeMalthusian Regime

2.2. Post-Malthusian RegimePost-Malthusian Regime

3.3. Modern Growth RegimeModern Growth Regime

Refer to Figure 1 in the article.Refer to Figure 1 in the article.

Summarizing MalthusSummarizing Malthus

Two aspects of the Malthusian ModelTwo aspects of the Malthusian Model

1.1. A factor of production (land) is in fixed supply. A factor of production (land) is in fixed supply. Hence diminishing returns applies to all other factors Hence diminishing returns applies to all other factors of production.of production.

Law of Diminishing Returns - Law of Diminishing Returns - As a variable input As a variable input increases, holding all else constant, the amount of increases, holding all else constant, the amount of output from each additional input employed will output from each additional input employed will eventually decline. eventually decline.

Hence, output from land may increase, but at a Hence, output from land may increase, but at a diminishing rate.diminishing rate.

2.2. There exists a positive relationship between standard There exists a positive relationship between standard of living and population growth. Increases in income of living and population growth. Increases in income will lead to increases in population.will lead to increases in population.

Conclusion: Level of per-capita income will remain Conclusion: Level of per-capita income will remain the same in the long-run. Increases in income will the same in the long-run. Increases in income will only lead to more people, which will lower per-capita only lead to more people, which will lower per-capita income.income.

Evidence Supporting MalthusEvidence Supporting Malthus

1.1. Agnus Madison (1982) estimates that the growth rate of GDP per-Agnus Madison (1982) estimates that the growth rate of GDP per-capita in Europe between 500 and 1500 was zero. capita in Europe between 500 and 1500 was zero.

2.2. Massimo Livi-Bacci estimates that the growth rate of world Massimo Livi-Bacci estimates that the growth rate of world population between 1 A.D. and 1750 to be 0.064%. In other words, population between 1 A.D. and 1750 to be 0.064%. In other words, population was very stable.population was very stable.

3.3. The argument that population and wages are linked was borne out The argument that population and wages are linked was borne out by the Black Death. The plague in Europe in the 14th century by the Black Death. The plague in Europe in the 14th century reduced population, which in turn raised wages. Higher wages, in reduced population, which in turn raised wages. Higher wages, in turn, lead to increases in population.turn, lead to increases in population.

4.4. Population could rise if technology improved. However, increases in Population could rise if technology improved. However, increases in technology would not change per-capita income, only the size of technology would not change per-capita income, only the size of population. We do observe differences in technological levels across population. We do observe differences in technological levels across pre-capitalist societies, but little difference in standard of living.pre-capitalist societies, but little difference in standard of living.

What Happened?What Happened?

As per-capita income rose in Europe, initially population also rose. As per-capita income rose in Europe, initially population also rose. However, the increase in population could not keep pace with the However, the increase in population could not keep pace with the increase in technology. Hence, Western civilization escaped the increase in technology. Hence, Western civilization escaped the Malthusian trap. Malthusian trap.

Evidence:Evidence: Between 1740 and 1840, life expectancy in Between 1740 and 1840, life expectancy in England increased from 33 to 40. In France, life expectancy rose England increased from 33 to 40. In France, life expectancy rose from 25 to 40. In other words, standards of living were from 25 to 40. In other words, standards of living were improving. improving.

Initially population also increased. Fertility rates, though, by the Initially population also increased. Fertility rates, though, by the end of the19th century slowed. end of the19th century slowed.

How is it that the link between income per capita and population How is it that the link between income per capita and population growth was severed?growth was severed?

How does one account for the sudden spurt in growth rates?How does one account for the sudden spurt in growth rates?

The Galor-Weil modelThe Galor-Weil model

1.1. Technological progress raises the rate of return to human Technological progress raises the rate of return to human capital and hence induces parents to substitute quality for capital and hence induces parents to substitute quality for quantity of children. Evidence: Rates of schooling in Europe quantity of children. Evidence: Rates of schooling in Europe increases from 2.3 years to 9.1 years from the beginning of the increases from 2.3 years to 9.1 years from the beginning of the 19th century to the onset of the 20th century.19th century to the onset of the 20th century.

2.2. As children become more educated, the speed of technological As children become more educated, the speed of technological progress increases.progress increases.

3.3. As population rises, the land to population ratio falls, and wages As population rises, the land to population ratio falls, and wages decline. Hence, population will fall. Rapid technological decline. Hence, population will fall. Rapid technological progress, though, overcomes the land constraint, allowing wages progress, though, overcomes the land constraint, allowing wages to rise.to rise.

Galor and Weil RegimesGalor and Weil Regimes Malthusian RegimeMalthusian Regime

Increases in income lead to increases in population, which means per-Increases in income lead to increases in population, which means per-capita income falls back to its original levels.capita income falls back to its original levels.

Therefore, income per-capita is roughly constantTherefore, income per-capita is roughly constant Post-Malthusian RegimePost-Malthusian Regime

Increases in income lead to increases in populationIncreases in income lead to increases in population But income rises faster than population so per-capita income risesBut income rises faster than population so per-capita income rises

Modern Growth RegimeModern Growth Regime Per-capita incomes continues to rise. Per-capita incomes continues to rise. Parents choose quality of children over quantity and population starts to Parents choose quality of children over quantity and population starts to

fall.fall.

Technological Progress and Technological Progress and Population GrowthPopulation Growth

1.1. Higher incomes allow families to have more Higher incomes allow families to have more children.children.

2.2. The return on human capital increases, The return on human capital increases, encouraging families to substitute quality for encouraging families to substitute quality for quantity.quantity.

In the Post-Malthusian world, the first effect In the Post-Malthusian world, the first effect dominates. In the Modern Growth era,the dominates. In the Modern Growth era,the second effect is more important.second effect is more important.

Technophysio EvolutionTechnophysio Evolution Fogel, Robert W. 1999. “Catching Up with the Economy.” Fogel, Robert W. 1999. “Catching Up with the Economy.” American American

Economic ReviewEconomic Review. March: 1-21.. March: 1-21. ““Technophysio evolution (the existence of a link between technological Technophysio evolution (the existence of a link between technological

and physiological improvements) implies that human beings now have and physiological improvements) implies that human beings now have so great a degree of control over their environment that they are set so great a degree of control over their environment that they are set apart not only from all other species, but also all previous generations apart not only from all other species, but also all previous generations of Home Sapiens. The new degree of control has enabled Homo of Home Sapiens. The new degree of control has enabled Homo Sapiens to increase its average body size by over 50 percent, to Sapiens to increase its average body size by over 50 percent, to increase it average longevity by more than 100 percent, and to increase it average longevity by more than 100 percent, and to improve greatly the robustness and capacity of vital organs.”improve greatly the robustness and capacity of vital organs.”

What is the impact of What is the impact of

technophysio evolution?technophysio evolution? The human species is increasing in size. A male of average The human species is increasing in size. A male of average

size (5 ft. 10 in, 172 pounds) requires size (5 ft. 10 in, 172 pounds) requires 2300 calories per day. If the population of Europe 2300 calories per day. If the population of Europe averaged this size in 1700, the quantity of food would have averaged this size in 1700, the quantity of food would have proved insufficient to support work. Hence, we can proved insufficient to support work. Hence, we can conclude (and the evidence supports this conclusion) that conclude (and the evidence supports this conclusion) that the population had a smaller average size.the population had a smaller average size.

Fogel argues that technophysio evolution accounts for Fogel argues that technophysio evolution accounts for about 50% of British economic growth over the past two about 50% of British economic growth over the past two centuries. centuries.

Defining Economic GrowthDefining Economic Growth

Economic growth: Transformation of a nation’s Economic growth: Transformation of a nation’s inputs into greater and greater amounts of output.inputs into greater and greater amounts of output.

Intensive growth: Growth due to an increase in Intensive growth: Growth due to an increase in the quality of a nation’s factors of production.the quality of a nation’s factors of production.

Extensive growth: Growth due to an increase in Extensive growth: Growth due to an increase in the quantity of a nation’s factors of production.the quantity of a nation’s factors of production.

Intensive Growth, HistoricallyIntensive Growth, Historically

Intensive growth is due to changes in technology or international tradeIntensive growth is due to changes in technology or international trade Is technological change likely in a pre-capitalist society?Is technological change likely in a pre-capitalist society? In a society based primarily on tradition, innovation is not only not In a society based primarily on tradition, innovation is not only not

encouraged, but actively discouragedencouraged, but actively discouraged Why? In a community where people are primarily living at subsistence, any Why? In a community where people are primarily living at subsistence, any

change could potentially destroy the community. In other words, tradition change could potentially destroy the community. In other words, tradition represents certainty, uncertainty threatens the survival of the community.represents certainty, uncertainty threatens the survival of the community.

Intensive growth can occur via improvements in the quality of labor. This Intensive growth can occur via improvements in the quality of labor. This can occur via trade, which widens markets, and allows for a greater can occur via trade, which widens markets, and allows for a greater division of labor. division of labor.

Was this a common event? Trade was an integral part of Ancient Greece, Was this a common event? Trade was an integral part of Ancient Greece, the Phoenicians, the Roman empire, etc. However, one could argue that the Phoenicians, the Roman empire, etc. However, one could argue that most people and communities did not benefit from international trade.most people and communities did not benefit from international trade.

Extensive Growth, HistoricallyExtensive Growth, Historically

Increasing labor, while holding the quality of labor constant, does Increasing labor, while holding the quality of labor constant, does not alter per-capita growth.not alter per-capita growth.

Increasing land is only possible via warfare.Increasing land is only possible via warfare. Capital accumulation is limited because of Capital accumulation is limited because of

technology does not exist.technology does not exist. even if technology did exist, usury laws discourage the lending even if technology did exist, usury laws discourage the lending

of funds from savers to borrowers.of funds from savers to borrowers. Conclusion: Conclusion: In the absence of trade, economic growth in pre-In the absence of trade, economic growth in pre-

capitalist societies is zero. capitalist societies is zero. Consequently, pre-capitalist societies designed institutions with Consequently, pre-capitalist societies designed institutions with

the expectation of zero economic growth. Such institutions the expectation of zero economic growth. Such institutions included a prohibition on usury (the charging of interest on loans) included a prohibition on usury (the charging of interest on loans) and the ‘Just Price.’and the ‘Just Price.’

Why did usury laws exist?Why did usury laws exist? In a society without economic growth, all transactions are perceived as In a society without economic growth, all transactions are perceived as

being zero-sum being zero-sum the gains of winners = the losses of losersthe gains of winners = the losses of losers

In this environment, how would people regard the lending of funds?In this environment, how would people regard the lending of funds? People with wealth are giving money to people without funds. In People with wealth are giving money to people without funds. In

return, the people without funds pay the people a greater sum of return, the people without funds pay the people a greater sum of money. In other words, the poor are transferring wealth to the rich. money. In other words, the poor are transferring wealth to the rich.

In sum, charging interest increases the divide between the wealthy and In sum, charging interest increases the divide between the wealthy and the poor.the poor.

Zero Economic Growth and the Zero Economic Growth and the Structure of SocietyStructure of Society

The possibility of economic expansion was not envisioned in pre-The possibility of economic expansion was not envisioned in pre-capitalist. Without growth, how do you satisfy people’s “unlimited” capitalist. Without growth, how do you satisfy people’s “unlimited” wants? wants?

The key is to limit desire. An examination of the philosophies of The key is to limit desire. An examination of the philosophies of Aristotle and Thomas Aquinas reveals the emphasis each places on Aristotle and Thomas Aquinas reveals the emphasis each places on limiting wants, rather than expanding capabilities.limiting wants, rather than expanding capabilities.

The limit on wants means that the terms of exchange must be The limit on wants means that the terms of exchange must be regulated so that substantial gains or losses are not incurred. Such an regulated so that substantial gains or losses are not incurred. Such an event would encourage people to ignore traditional obligations (with event would encourage people to ignore traditional obligations (with gain) or prevent the fulfillment of societal obligations (with losses).gain) or prevent the fulfillment of societal obligations (with losses).

On the Road to CapitalismOn the Road to Capitalism Mercantilism:Mercantilism: An economic system in which the government An economic system in which the government

determines the allocation of resources by assigning the rights to certain determines the allocation of resources by assigning the rights to certain economic activities.economic activities.

Further technological change expands the trade possibilities, opening Further technological change expands the trade possibilities, opening people to new products (primarily food related).people to new products (primarily food related).

Expansion of trade requires political stability. Hence the merchants Expansion of trade requires political stability. Hence the merchants conspired to promote kings at the expense of the church and the conspired to promote kings at the expense of the church and the aristocracy.aristocracy.

Hence change occurred on two fronts both politically and Hence change occurred on two fronts both politically and geographically. These changes should be seen as linked.geographically. These changes should be seen as linked.

Summarizing Mercantilist ThoughtSummarizing Mercantilist Thought

Following the scholastics, who assumed the gain of one person via trade was Following the scholastics, who assumed the gain of one person via trade was another person’s loss the mercantilist’s assumed the total wealth of the world is another person’s loss the mercantilist’s assumed the total wealth of the world is fixed. Exchange between nations via international trade was thus a zero-sum game.fixed. Exchange between nations via international trade was thus a zero-sum game.

The wealth of a nation was increased via increased production, increased exports, The wealth of a nation was increased via increased production, increased exports, and decreased domestic consumption. In other words, maximize the difference and decreased domestic consumption. In other words, maximize the difference between exports and imports.between exports and imports.

A nation should encourage exports via A nation should encourage exports via government encouragement of domestic productiongovernment encouragement of domestic production acquisition of cheap raw materials via importsacquisition of cheap raw materials via imports maintaining low wage levelsmaintaining low wage levels

Imports should be discouraged via tariffs, quotas, subsidies, and taxes Imports should be discouraged via tariffs, quotas, subsidies, and taxes A “favorable” balance of trade will lead to an increase in a nation’s stock of A “favorable” balance of trade will lead to an increase in a nation’s stock of

precious metals, which is how a nation’s wealth was defined.precious metals, which is how a nation’s wealth was defined.

The Price-Specie Flow MechanismThe Price-Specie Flow Mechanism

Favorable balance of trade would increase the flow of Favorable balance of trade would increase the flow of gold and silver (specie) into the economy.gold and silver (specie) into the economy.

The increased money supply would increase the level of The increased money supply would increase the level of price.price.

Higher prices will lead to a decline in exports and an Higher prices will lead to a decline in exports and an increase in imports.increase in imports.

For nations with an unfavorable balance of trade, the For nations with an unfavorable balance of trade, the opposite would occur. opposite would occur.

Thus no nation could maintain a favorable balance of Thus no nation could maintain a favorable balance of trade in the long run.trade in the long run.

Feudalism vs. CapitalismFeudalism vs. Capitalism Under feudalism the focus of society is on the community. The Under feudalism the focus of society is on the community. The

individual cannot be the primary focus, since life is a zero-sum game.individual cannot be the primary focus, since life is a zero-sum game. Under capitalism the focus shifts to the individual. In essence, the Under capitalism the focus shifts to the individual. In essence, the

viewpoint of the merchants increasingly dominates society. The shift viewpoint of the merchants increasingly dominates society. The shift in focus creates incentives for innovation, which leads to higher in focus creates incentives for innovation, which leads to higher incomes, which further encourages technological change. incomes, which further encourages technological change.

  In other words.... the vicious cycle which dominated much of human In other words.... the vicious cycle which dominated much of human history (life is a zero-sum game so we create institutions that history (life is a zero-sum game so we create institutions that encourage a zero-sum game) was replaced by a virtuous cycle. (life is a encourage a zero-sum game) was replaced by a virtuous cycle. (life is a positive-sum game so we create institutions that encourage a positive-positive-sum game so we create institutions that encourage a positive-sum game).sum game).