Malthus and Ricardo

1. Malthus and Ricardo Chapter 5

2. Thomas Malthus • His father was a personal friend of David Hume and Jean Jacque Rousseau • Malthus’ ideas were reactions against the optimistic views of his father and others, like Rousseau • optimism and faith in the nature of man • man might perfect himself through the application of reason and will power

3. Framework of Analysis • What are the questions that Thomas Malthus is asking? • What is the nature and cause of poverty? • Can humans solve the problems of poverty, inequality, and oppression? • What policies, if any, might help to solve these problems?

4. Essence of Malthus’ Population Theory • Population growth always exceeds the growth of means of subsistence (food supply)  • Actual (checked) population growth is kept in line with food supply growth by "positive checks" (starvation, disease and the like, elevating the death rate) and "preventive checks" (i.e. postponement of marriage, etc. that keep down the birthrate), • Malthus's hypothesis implied that actual population always has a tendency to push above the food supply.  Because of this tendency, any attempt to ameliorate the condition of the lower classes by increasing their incomes or improving agricultural productivity would be fruitless, as the extra means of subsistence would be completely absorbed by an induced boost in population.  As long as this tendency remains, Malthus argued, the "perfectibility" of society will always be out of reach  

5. Essence of Malthus’ Population Theory • “(There is a) constant effort towards an increase in population [which tends to] subject the lower classes of society to distress and to prevent any great permanent amelioration of their condition…The way in which these effects are produced seems to be this. We will suppose the means of subsistence in any country just equal to the easy support of its inhabitants. The constant effort towards population …increases the number of people before the means of subsistence are increased. The food, therefore which before supplied seven millions must now be divided among seven millions and half or eight millions. The poor consequently must live much worse, and many of them be reduced to severe distress.” (Chapter II, An Essay on the Principle of Population) • The burden, of course, falls upon the poor

6. Framework of Analysis • What are Malthus’ assumptions? • Food is necessary for human existence • Passion between the sexes is necessary and will remain unchanged • Population grows exponentially, food supply grows arithmetically

7. Framework of Analysis • What is the economic/political / cultural/social environment of Malthus? • Rise of classical economics (e.g. Smith) • Food imports into Britain with rising prices • Miserable working/living conditions for the poor, especially in rural areas • It was generally thought that the plight of the poor was due to the landed aristocracy

8. Framework of Analysis • What is the role of the market? • Didn’t really address this issue directly but the process was market-like • The misery of the poor was inevitable, not due to capitalism and markets, but due to the imbalance between population growth and growth in the food supply • During good times human numbers increase to the point where available resources are overwhelmed, at which point misery acts to reduce the numbers. Malthus understood that “this necessary oscillation, this constantly subsisting cause of periodical misery, has existed ever since we have had any histories of mankind, does exist at present and will for ever continue to exist . . “ • In other words, there is a tendency toward a “subsistence equilibrium”

9. Framework of Analysis • What is the role of government? • Get rid of the poor laws, a decentralized system of poor relief in England, in practice for two hundred years • These laws might alleviate short term suffering, in the end, they cause greater suffering.

10. Framework of Analysis • What is the role of government?(cont’d) • “Moral restraint" (voluntary abstinence which leads to neither misery nor vice) can bring the unchecked population growth rate down. Government can inculcate the lower classes with middle-class virtues.  • HOW? Universal suffrage, state-run education for the poor and, elimination of the Poor Laws and the establishment of an unfettered nation-wide labor market.  • Once the poor had a taste for luxury, then they would demand a higher standard of living for themselves before starting a family.  Thus, although seemingly contradictory, Malthus is suggesting the possibility of  "demographic transition", i.e. that sufficiently high incomes may be enough by themselves to reduce fertility. • These ideas came out in a revised (1803) issue of Essay

11. Shortcomings of Malthus’ population theory • Did not account for improvements in agricultural technology • Did not account for contraception • Confused the desire to engage in sexual activities from the desire to have children

12. Other economic contributions of Malthus • Endogenous theory of money • Opposite of Quantity Theory of Money • Rising prices are followed by increases in the quantity supplied of money, not caused by increases in the quantity of money

13. Other economic contributions of Malthus (continued) • Ideas on international trade • At first, was against the Corn Laws (1814) • Then, favored them (1815) – they could keep Britain self sufficient in food production and not dependent on other countries and international politics

14. Other economic contributions of Malthus (continued) • Opposition to Say’s Law • Supply Creates It’s Own Demand • Malthus believed that economic crises were characterized by a general excess supply caused by insufficient consumption – like Keynes’ notion of business cycles • His defense of the Corn Laws rested partly on the need for landlord consumption to "make up" for shortfalls in demand and thus avert crisis

15. Other economic contributions of Malthus (continued) • Malthus’ theory of rent • Rent is not a cost of production, it is merely a deduction from the surplus • Rent is due to three facts: • agricultural production yields a surplus • the wage-fertility dynamics guarantee that the price of corn would remain above its cost of production • that fertile land is scarce.  • Rent is price determined, not price determining