[johnhenry07]

Dear Dr. Herbener,

Could you please explain at what point we would begin to see diminishing returns (on society’s overall standard of living) due to pressure in population growth? The law of comparative advantage demonstrates, among other things, that the more individuals there are involved in exchanges then this group will naturally become more productive (ceteris paribus). Of course, eventually it’s conceivable that constraints on land will eventually diminish these returns. At what point would we start to see that? Thank you very much!

[jmherbener]

The great American “Austrian school” economist, Frank Fetter (who was chairman of the economics department at Princeton in the first half of the 20th century) wrote his dissertation on Malthusian population theory. In his presidential address to the American Economic Association in 1913, he was pessimistic on the likelihood of continuing increases in standards of living under the strain of population growth:

http://onlinelibrary.wiley.com/doi/10.1111/j.1728-4457.1999.00577.x/abstract

But, like those of Malthus himself, such pessimistic predictions have so far proven unwarranted. The main causes of standards of living continuing to rise are technological advance and capital accumulation. As long as these factors continue to progress, even population growth that would put human population beyond the point of covering the entire surface of the earth with productive activity, would not necessary reduce standards of living. Fortunately, you and I are unlikely to personally experience such a state of affairs to witness the results firsthand.

Ludwig von Mises analyzes this point of “over-population” in his discussion of the Law of Association in his book Human Action. There he points out that any population growth beyond the point at which the entire surface of the earth is filled with productive activity will result in unemployment of the least-productive people. They could be kept alive only by the charity of the producers.

http://library.mises.org/books/Ludwig%20von%20Mises/Human%20Action.pdf

His discussion is in chapter 8.

[johnhenry07]

Dear Dr. Herbener,

Thank you very much for the response. If I could, could I ask one quick follow up? So, am I wrong in thinking that one of the chief reasons Malthus was wrong is that, as the Law of Association (as far as I understand it) shows, as populations increase and more people are brought into exchanges with one another, this in and of itself will lead to increased output per head, ceteris paribus? In other words, if mere increases in the number of people involved in exchange (i.e., population growth) is itself a source of wealth creation (excluding capital accumulation and technological innovation), then it can’t also be the source of wealth erosion? Am I missing something?

p.s., thank you for the reading suggestions, I did go back and read the chapter of Human Action, as well as other sections where he talks about Malthus more directly (and also read Rothbard’s MES on this as well), but I still had this question after reading them. Thank you very much, I really appreciate your time.

[jmherbener]

In actual history, these three factors (population growth, technological improvement, and capital accumulation) have been intertwined in rising standards of living. Before standards of living began to rise around 1200 A.D. in western Europe, population rose very slowly, technology progressed very little, and capital per head did not accumulate significantly. Presumably, more people were added to the existing trade nexus, but that didn’t seem to raise standards of living appreciably.

Theoretically, the difficulty in answering your question comes from the contingent conditions involved in holding technology and capital accumulation constant while increasing population. For example, what complementary capital goods will the rising population work with if there is no capital accumulation? Presumably, the productive activity of the additional population would be placed on less productive land since the most productive land sites are already in use. So unless there was some reason to think that the larger populations enhanced the comparative advantage of different people in different places as they, too, came into trading relationships, then it seems unlikely that merely having more people to trade with would raise everyone’s productivity and therefore standards of living.

[johnhenry07]

Got it! Makes perfect sense. Thank you very much for clearing that up.

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