Long Run Trends

EC104: World Economy- History and Theory  Page 1 of 12 Topic 1: Long run trends in population and per capita income  Lecture 1.1: Introduction to the Malthusian Trap  RECOMMENDED READING  1) Anderson, J. (1991). Explaining Long Term Economic Change, Cambridge: Cambridge University Press. Chapters 1 and 2.  2) Malthus, T. [1798]. An Essay in the Principle of Populations. Thomas Robert Malthus  Malthus’ theory was published in ‘An essay on the Principles of Population’ in 1798 and then in 1803 with data. At the time of  publication Malthus’ theory was well regarded. Malthus became quite famous and well connected, for example, he became a  friend of Ricardo’s and a regular participant in public policy debates. Malthus was awarded the first professorship of History and  Political Economy at the East India Company College in 1805 and elected to the Royal Society in 1819. Malthus’ theory  contained certain assumptions about the nature of economic growth, which were based on a pre industrial revolution world,  and were later disproved (as a result of the achievements associated with the industrial revolution).  Basic concepts of economic growth  Generally speaking there are two ways in which an economy can grow, either by adding more inputs to generate more output,  or via increasing output with a fixed level of inputs. The former is often referred to as extensive growth and the latter as  intensive growth. Intensive growth is sustainable because it is based on productivity improvements, rather than continually  adding more factors of production, which is necessary for extensive growth. The Malthusian Trap requires growth to be  extensive. A key objective for economic growth and development is for an economy to make the transformation from extensive  to intensive growth. For example, to become more productive in agriculture so that a constant level of inputs (, , ) can yield  an increasing output (such a food). This will require improvements in processes, such as sowing.  Consider a basic, pre-modern production function: = (, , ), where is the output of the economy, and is a function of resources, R (such as available land on which to grow food for subsistence), and labour, , and capital, (such as tools and then  machines to aid farming and processing of farm output). In a pre-modern economy, such as any economy in the 1700s, capital  was very basic, and the scope for switching from extensive to intensive growth limited. As such, the only variable in the  production function that changes was labour. Hence, a increase in with fixed and , with the increased contributing to an  increase in . However, this approach to increasing is not sustainable because eventually will run out and also there will be  decreasing marginal returns, for example, because more and are required to match the increase in . As a result, in a premodern Malthusian Trap world, increases in population can adversely influence the basic extensive growth economy.  Key factors of the Malthusian Trap model  Population is the key variable and the driving force of the Malthusian Trap model. Malthus emphasised the geometric nature of  population growth versus the arithmetic limits of output (i.e. food) growth as the reason for the economy being ‘trapped’.  According to Malthus, output growth could not keep pace with population growth which creates a perpetual trap preventing  development. Within this model Malthus assumes that there is unchanging attraction between the sexes (so that population  increases consistently between generations), and diminishing returns to , and fixed . For example, because land is fixed at a  certain level, which is increasingly needed to satisfy growing population, land gets continually worked with no fallow period and  so becomes less fertile.  Malthus believed that natural rates of human reproduction, when unchecked, would lead to geometric increases in population.  For example, the population would grow in a ratio of 2, 4, 8, 16, 32, 64, etc. However, according to Malthus, food production  increased only in arithmetic progression: 2, 4, 6, 8, 10, etc. Therefore, Malthus claimed that something had to keep the  population in check to prevent population starvation. He said that there were two kinds of checks that limited population  growth (by preventing population growing exponentially for too long): preventative checks and positive checks. Preventative  checks reduced the birth rate and positive checks increased the death rate. EC104: World Economy- History and Theory  Page 2 of 12 Moral restraint, vice and birth control were the primary preventative checks. Moral restraint was the means by which the higher  ranks/classes limited their family size in order not to dissipate their wealth among larger numbers of heirs. For the lower  ranks/classes vice and birth control were the means by which their numbers could be limited. However, Malthus believed that  these were insufficient to limit the vast numbers of the poor.  The positive checks were famine, misery, plague and war; because preventative checks had not limited the numbers of the poor,  Malthus thought that positive checks were essential to do that job. If positive checks were unsuccessful, then inevitably (he  said), famine would be the resulting way of keeping the population down. In Malthus' opinion, the masses were incapable of  exercising moral restraint, which was the only real remedy for the population problem. Hence, they would always live at  subsistence level.  Income plays an important role in the Malthusian Trap model because vital rates, i.e. births and deaths are a function of income  levels. When income increases we observe a decline in deaths and an increase in births, and conversely, when income declines  we observe an increase in deaths and a decrease in births. An example of an income boost in a pre-industrial Malthusian world  might be a onetime technology increase, or a bumper harvest. And an obvious example of the catalyst for a decline in income  would be a poor harvest leading to famine.  A crucial consideration of the Malthusian Trap is the size of the population. The changing size of the population can be measured  as: 

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