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History
of Economic Doctrines Lecture 8
1. Malthus identified as positive checks on population such events as war, disease, famine, and pestilence. The only preventive check that Malthus favored was abstinence, but he was skeptical that this would work. Malthus vehemently opposed such preventive checks as birth control or abortion. 2. Ex: This graph illustrates how life descends to a desperate state.
a.
Malthus’ theory eventually influenced many other
disciplines, and inspired Charles Darwin’s theory of evolution. b.
Social Darwinism- we owe nothing to the
rest of human kind; the best will survive and the inferior will float to the
bottom. Some social Darwinists [eugenicists?] proclaimed that human beings
over time will get weaker due to our increased care of the sick and
disabled. This view hardens the hearts
of those advocates of capitalism who believe that people owed no one
anything. [Ex: Ayn Rand and some libertarians.] c.
Why did
Malthus’ dire predictions not come true? Malthus did not foresee that (a) technology growth or (b) birth control would be likely
checks to the population. 1.
Technological advances: Malthus severely
underestimated the rate of technological advance, which has, on average,
outstripped the growth of population. 2.
Birth control: (a) Malthus viewed this as immoral and unacceptable (b) Abstinence is the only way out, but it will work to curb population growth. Two views of
children A. Children as investment goods: 1. Example: in agriculture, children can help work in the fields. 2. Retirement: Parents can “guilt-trip” children into being homemade pensions. B. Children as consumption goods. 1. If people are prosperous, children are closer to consumption good. 3.
Sociobiology: With a greater percentage of
children surviving fewer children are needed to pass genes forward.
Therefore, improving child survival decreases the need for many children. 4.
Women’s income: (a) Malthus saw women as passive non-decision makers (inferior? (b) If prosperity increases, the opportunity for women’s income increases, resulting in an increase in the opportunity cost of having children. 5.
Children are [statistically] inferior goods: (a) If income increases and a person consumes more of a product, then the product is a normal good. (b) If income increases and a person consumes less of a product, then the product is an inferior good. Issue: Poor people have more children than do prosperous people. Are children inferior goods? 1. Birth control appears to be income elastic. 2. The opportunity cost of having a baby for a successful working mother who enjoys her job is greater that that of a poor mother who doesn’t enjoy her job or have a successful career. 3. There is a diminishing marginal utility for children, so the wealthier women stop having them after a relatively small number. 4. Males in most species don’t care for their young as much as females because males can have more offspring than females. [Sociobiology explanation.] 5. Thomas Shelling at Harvard has done simulations for populations in which people choose the sex of their only child. 6. Assumes that, say, one-fourth of parents will at first choose boys because they will ensure the future welfare of the family. However, the lack of girls will ultimately create demand for girls and change the cycle in the girls’ favor 7. Ex: The one-child policy in China led to female infanticide because boys were perceived as better providers when parents reached old age. However, as women become scarcer, people are shifting back to choosing girls to ensure that they will have grandchildren who will care for them, or perhaps for reasons of sociobiology. 8. Conclusion: Prosperity cuts rate of population growth while leading to longer lifespan due to programs such as healthcare. In turn, the population will see stabilization. The Malthusian specter is constantly raised. An example is Paul Ehrlich’s book The Population Bomb which predicted overpopulation in Africa, Asia, and South America 1976 -- Paul Ehrlich and economist Julian Simon bet about the future prices of minerals. Because of a view that population would press against the carrying capacity of the environment, Ehrlich had predicted skyrocketing prices for basic minerals (e.g., oil, copper, iron). After being challenged by Simon, Ehrlich chose 10 basic resources. Simon won by predicting that, after adjusting for inflation, these mineral prices would not increase over the period 1976-1986. Simon won handily, because the price of each of these resources fell, even before allowing for inflation. NOTE: Ben Wattenberg and some other demographers cite recent slowing of the growth of population to support their predictions that the world’s population will stabilize at roughly 9 billion over the next century or so. David Ricardo
(1772-1823) Although David Ricardo is undoubtedly best known today for his development of the law of comparative advantage, he analyzed numerous other issues with logic that imparted a distinctly Ricardian flavor to much subsequent analysis that lingers to this day. Ricardo’s “Iron Law of Wages” David Ricardo hypothesized a fixed wages fund that is set before the production period. All income in excess of the wages fund goes to landowners and as business profits and interest. Thus, the wage rate [set in the graph at the right] is inversely proportional to the supply of labor.
Ricardo relied heavily on a variant of Thomas Malthus’ theory of population. He assumed that the supply of labor would be influenced primarily by the size of the population so that wages would tend to be close to subsistence levels in the long run. Ricardo’s Theory of Land Rent Suppose there are various types of land ranging from hostile [ex: Arctic tundra or Gobi desert] to hospitable [ex: fertile American Midwest.] and that a tenant farmer, located at the edge of the productive land must rent from a landlord. Ricardo terms the area at the border dividing productive from hostile land as “marginal land.”
Suppose a plot of productive land produces 100 bushels, while marginal land produces only 20 bushels of wheat. The land owner will receive 80 bushels for rent of land. Landowners cannot charge for land at the margin because the renter will just move right outside of the productive land and produce roughly 20 bushels. Furthermore, competition among peasants will ultimately drive rent for the productive land to 80 bushels given 100 bushels of production. Rent and the Corn Laws: England’s Corn Laws were barriers that protected British grain producers from foreign competitors. Thomas Malthus favored the Corn Laws, asserting that high prices helped peasant farmers. On the opposite side, David Ricardo viewed land rent as an unearned surplus and opposed the Corn Laws, arguing that higher prices for grain increased the cost of food to workers and merely increased the rental incomes of landlords.
von Thünen: An Alternative Theory of Rent Johann Heinrich von Thünen (1780-1850) helped explain why very fertile land in the middle of nowhere is usually much cheaper than less fertile land in a more favorable location. He argued that the value of rent was based largely on the location of land and its ability to decrease transaction costs. Although fertility does play a role in determining land rent, it seems clear today that von Thünen’s theory is far more general, and far superior, to Ricardo’s theory of land rent. [See Ronald Coase for a more detailed treatment of the theory of transaction costs.] RICARDO on TAXATION Land Taxes: Ricardo’s characterization of land rent as an unearned surplus hinted that taxing rents would not alter the productive use of land. This strand of thought was expanded by the American economic thinker Henry George [1839-1897], who asserted that a “Single Tax” on land rent would be adequate to pay for all of government. Ricardian Equivalence The size of the government is determined by how much government spends on goods and resources [relative to national income, or “shmoo”]. If the economy is at full employment, government spending reduces private consumption and investment. How the government finances its spending is irrelevant. [See the crowding-out hypothesis for more discussion of this perspective.] Federal Government Budget Constraint: G = T + ΔB + ΔMB The federal government can cover its spending by Taxing, borrowing [Bonds], or by printing Money. [Government Spending = Taxes + Change in national debt + Change in Monetary Base*] *Aside: Printing monetary base (currency or bank reserves) results in an even larger increase in the money supply because banks make loans when they get new deposits. These loans become “demand deposits” [checking account money] when the banks make the loans. Thus, the “new money” [sometimes called “hot money” printed by the government goes through a money multiplier process. (In the United States, the Treasury Department printed this “new money” until 1951, at which time the Federal Reserve System took over the issuance of new money.)
Lesson? Want smaller government? Tax cuts won’t work. Government spending must be decreased to reduce the size of government. Flaw: Ricardo did not consider the possibility of a less-than-fully employed economy. A Keynesian multiplier effect may cause national income to grow more than proportionally when government spending is increased. [See the link fiscal policy and the Great Depression for discussion.] |
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These web pages are significantly edited and elaborated versions
of student notes based on lectures by Ralph Byrns, 2002-2005.
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