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MALTHUS AND RICARDO

MALTHUS AND RICARDO. THE DISMAL SCIENTISTS. INTRODUCTION. Current population trends, especially in developing countries Implications for per-capita income, poverty Similar questions, late 18th century Where is society headed? Is the outcome of growth favorable?

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MALTHUS AND RICARDO

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  1. MALTHUS AND RICARDO THE DISMAL SCIENTISTS

  2. INTRODUCTION • Current population trends, especially in developing countries • Implications for per-capita income, poverty • Similar questions, late 18th century • Where is society headed? • Is the outcome of growth favorable? • How will income be distributed? How will different groups in society fare?

  3. Corn Laws controversy; and contemporary versions • Economics seen as relevant to these immediate problems; could provide • Simple, effective method of analysis • Leading to policy recommendations

  4. MALTHUS • Major work: An Essay on Population • Goal: refute optimism of Godwin (and others) about perfectability of society • Core of criticism: confrontation, population growth and growth of food supply

  5. The model: • Begins with Smith’s model: capital accumulation as the motive force underlying growth • Added population theory

  6. Major hypothesis: population can grow geometrically; food supply can grow arithmetically • Corollary: Either positive checks (increasing the death rate) or preventive checks (decreasing the birth rate) are always in operation • Corollary: ultimate check to human reproductive capacity: food supply limitations

  7. So: • Population growth is never restrained for motives other than fear of hunger • There is always population pressure on the food supply • A growing population is incompatible with increasing living standards

  8. Policy implications: attempts to relieve poverty are doomed to failure • Most likely outcome: the Four Horsemen of the Apocalypse ride again • Any hope of relief? • Improved moral, religious habits • Appropriate public policy

  9. Conclude: the power of Malthus’s ideas? • Were simple; seemingly in accord with common sense • Population theory became a key part of classical economic theories; and of the classical theory of economic policy

  10. Problems: • “Apocalyptic fallacy” problem: ignored • Relationship of birth rates to death rates: birth rate may be dependent on death rate, not independent of it • That is: checks to population growth may be dependent on changes in the population • Ignored the possible importance of technology

  11. Another economic theory of fertility and population growth: an application of rational choice theory • Children as consumption, investment goods • Implication: family size a function of • Income • Tastes

  12. Opportunity cost/relative prices • Example: rural vs. urban net returns to having children • Recent decrease in fertility, population growth in U. S.? • Higher consumption aspirations • Increasing real wages, especially for women

  13. DAVID RICARDO • Major work: Principles of Political Economy and Taxation • Goal: to explain, systematically • The process of economic growth • The distribution of income • The linkages between growth and income distribution

  14. The growth model: • Elements: • Technological shocks • Capital accumulation • Population theory • Diminishing returns

  15. How does the model work? • Something (changing technology, perhaps) changes profit expectations • This encourages capital accumulation • Output grows, increasing the demand for labor • Wage rate rises: population grows • Demand for food rises: food prices increase; workers added to less-productive land

  16. Profits fall, eventually to zero; capital accumulation stops • Wages go to subsistence level • “The stationary state”: diminishing returns expected to dominate changing technology in a (basically) agricultural society/economy

  17. What drives the system? Capital accumulation • Population changes? Part of the adjustment process to a new equilibrium • Who gains? Landlords: why? • Rising wheat prices • Bring less-fertile land into cultivation • Increase production costs • Increase wheat prices further

  18. Price exceeds production costs on better land: differential rent • Example: • Wheat price = $5 per bushel • Production cost, worst land = $5 per bushel • Production cost, best land = $3 per bushel • Rent? $2 per bushel on best land • Outcome for society: pessimistic; economics as “The Dismal Science”! (Thomas Carlyle)

  19. How well does the classical growth model stand up: do we see the pessimistic outcome? • Different pattern, pace of technological change that expected by Malthus, Ricardo • Birth rate responds to changing economic incentives: not follow Malthusian predictions

  20. Different population growth experiences, different parts of the world

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