New Idea of Economy in 'An Essay on the Principle of Population'
Introduction
Modern societies are increasingly subjected to economic fluctuations. Exactly ten years ago we were hit by the strongest financial crisis after the great depression of 1929. In addition to that we struggle with more and more relevant problem of climate change, scarcity of resources, inequality, government accountability and transparency, corruption, etc. The purpose of this essay on the principle of population is to present key information about Thomas Robert Malthus' arguments due to this topic whose ideas and theories influenced many economists in the past and present times. He was the first economist to develop a coherent theory of scarce resources as a binding constraint to lasting economic growth.
Who was Thomas Malthus?
Thomas Robert Malthus was an English economist, historian and sociologist at the turn of the 18th to the 19th centuries. He gained recognition with the so-called Malthusian Theory, which received strong reviews from the rest of the world’s economists and historians. Malthus was born in 1766 to a burgeon family. His father was a friend of the philosopher and skeptic David Hume and Swiss-born political theorist Jean-Jacques Rousseau. As a result of father’s friendship with world renowned philosophers, young Thomas was educated in the spirit of Rousseau’s treatises and novels passed to him by his mentors. Malthus got along well with his family, despite having conflicting opinions with his father. While Thomas argued that the rise of human vanity and perfectionism is devastating to society, his father had more optimistic views about the future of mankind.
In 1805 Thomas Malthus become a history and political economy professor at the East India Company’s collage at Haileybury, United kingdom. An important milestone was achieved at that time since it marked the first time in Great Britain that the words political economy had been used to designate an academic office. During his life time, Malthus has written extensively about social issues of the world at that time. In his most famous work Principle of Population he argued that the world’s population can only grow to a certain point, since the amount of produced food does not increase at the same rate as the population. Therefore when population exceeds this threshold, famine, epidemics and other natural disasters bring them back into balance. Hence in balance point food and population are consistent again. He has also became known to a wider audience for theory of effective demand, the theory of rent and for looking at the existence of grain laws. I will briefly describe the main topics of his works in the next sub-chapter which I named it Malthus’ ideas and theoretical concepts.
Malthus’ Ideas and Theoretical Concepts
In 1798 Thomas Malthus published his most famous work: the first edition of An Essay on the Principle of Population as it Affects the Future Improvement of Society, with Remarks on the Speculations of Mr. Godwin, M. Condorcet and other writers. At the end of the 18th century, the essay set new directions for intellectuals of that time. He was one of the first to argue that economic growth cannot continue indefinitely.
We can briefly summarize Malthus’ view: population growth is positively correlated with per capita income. However, when population grows, income per capita will decrease which will result in stagnation and possibly in population decline. He argues with a mathematical explanation that food production is increasing exclusively arithmetically, while the world population is growing geometrically. The simple logic used by Malthus is solely related to the fact that there are physical limitations on how much land a person is able to cultivate in a given time, and how much food he can produce on that land. The date of publication is also not without interest, since it falls directly within the first decades of the first Industrial Revolution in Great Britain, which combined unmatched population growth with increasing income per head.
The first edition of the essay on the population did not convince critics because data used in research were not credible. Due to creditability of data, Malthus included real statistical data of that time into the second edition which was published five years later. Thus he set the problem of population growth to a more academic level.
In his book An Economics History of Europe, Karl Persson cites three elements that claim Malthus’ theory is wrong. First element is related to economic theory, which states that land as production factor is fixed. The emphasis on land as a scarce resource does not take into account the fact that amount of fertile soil (say acres) is an extremely poor predictor of long-term yield. Second element that undermines Malthus’ theory is technology. Innovations in agriculture have ensured that each farm had faster production which also means the advancement of technology contributed to productivity growth. With the mechanization of agricultural machinery (tractors, harvesters, etc.) farmers could produce more in less time. Hence mathematical assumption which Malthus defined proved to be wrong. Production of food become larger than arithmetic sequence. And finally the third element that Malthus did not include in his theory is the importance of trade. His premise was based on an closed economic system. Several years before the publication of his essay, Adam Smith stated in his book An inquiry into the Nature and Causes of the Wealth of Nations the importance of specialization and, consequently trade of goods between countries. Regions with food surplus would therefore export while others import. Today, we see that few countries are self-sufficient as they successfully balance their shortcomings with imports from other countries.
However I think there are also some positive characteristics in Malthus’ theory of population growth. His essay on population encouraged Charles Darwin and Alfred Russel Wallace to explore the theory of natural selection, where competition for limited resources is the driving force of evolution. Also, some of his assumptions in theory are not completely wrong. Thomas emphasized that poverty reduction through technological advances is short-lived. Equally plausible is the explanation that with different innovations, we have merely postpone a catastrophe. Proponents thus argue that a catastrophe that will bring humankind back to Malthus’ balance is inevitable.
In 1820 Thomas Malthus published his second most famous work entitled The principles of Political Economy. In his work he criticized Say’s law of markets, which he tried to undermine it with a concept of effective demand. However his critique was not accepted among intellectual elite of the time. Due to unrecognition of his critique Say’s law of market stayed in academics of political economy until the great depression of 1929, when Malthus’ idea was awakened by one of the grates economists of all time John Maynard Keynes.
Say’s law of markets is a classical economic theory which says that supply creates demand. Each production generates a value that is equal to an amount of income and therefore economies cannot get into recessions. One of the reasons academics at the time seemed to think that Say’s law of markets was applicable is because of the long expansion cycle in the 18th century that was a result of the industrial revolution.
Unlike his good friend David Ricardo, Thomas Malthus strongly disagreed with Say’s law. He argued that reliable effective demanders are only workers who get their wage for labour work. Wage earners thus spent all of their income in order to survive. On the other hand, he characterized capitalists as inefficient demanders, because they not only devote their income to consumption, but also accumulate some of it. Hence in the long run, economy will have excess of supply in the market, which will over time result in an economic downturn. In his theory he also introduces the concept of expectations which are in his opinion reducing investments. Excessive accumulation of capital is reflected in insufficient effective demand, which affects the constantly decreasing commodity prices and profit rates. Consequently output declines because of inhibits on investment demand.
