T. Robert Malthus' Contributions to Economics (1766-1834)

Malthus Economic Theory, Malthus Definition, Malthus Principle Of Population

Malthus had two main contributions to economics: population theory and a theory of market gluts. At the time of his writing, Malthus refuted and attempted to demolish the ideas of two other scholars: Marquis de Condorcet (1743-1794) and William Godwin (1756-1836), both of whom favored the working class.

Condorcet had an important influence on the French Revolution and advocated that government establish a welfare fund for the elderly and disadvantaged women and children for the purpose of helping to eliminate economic and social inequities. He also was in favor of reducing the power and wealth of the capitalist by extending credit to ordinary people so that they could become independent.

Partial to the working class as well, William Godwin argued that the defects of the working class could largely be attributed to corrupt and unjust social institutions. Godwin blamed economic inequity and suffering on existing laws of property and felt that the government would never redress these evils because of the assertion that government was controlled by the capitalist class. As long as this condition existed, reforms were impossible. His final proposal was to abolish government, private property, and then to educate people since only human reason could save society. Once Godwin made a very interesting statement: "If every man could with perfect facility obtain the necessaries of life... temptation would lose its power" (quoted in Alexander Gray, The Socialist Tradition, p.119).

In 1798, Malthus published a book entitled An Essay on the Principle of Population and a Summary View of the Principles of Population (1798, 1803). In this book and in , a few additional writings Malthus expounded his well known theory of population along with some other basic ideas and premises attempting to justify the Corn Laws and the case of landlords for an agriculture tariff. Malthus justified the Corn Laws based on three theories: the theory of population, diminishing returns to agriculture or theory of rents, and his "glut" theory.

In contrast to both Condorcet and Godwin, Malthus was opposed to reform and any type of aid to the poor or lower working class—primarily because of his theory of population. Malthus refuted the ideas of Condorcet and Godwin along with any other person who advocated reform with the assertion that no matter how successful reformers became, the present class structure of wealthy proprietors and poor laborers would inevitably reemerge. This would, in turn, result in the same conditions of poverty and suffering that existed in the first place. Why did Malthus think this way? He felt this way primarily because of a belief in inevitable consequences of natural laws. Malthus believed that people in general had an insatiable desire for sexual pleasure. As a consequence, unchecked reproduction by an immoral lower class would lead to geometric (exponential) increases in population" and double every 25 years. According to Malthus, the problem lied in the fact that food supply limited the quantity of population that an area can support. Specifically, agriculture productivity would gradually diminish because of decreasing soil fertility availability, and agriculture production would not be able to keep up with population growth. In other words, Malthus believed that the population would naturally increase faster than the amount of food that could be produced to feed them, and ultimately, starvation would limit population growth.

For Malthus, the ultimate difference between the rich and the poor was the high moral character of the rich. Population growth rates could be kept in check using both positive means (famine, plague, war, starvation) and preventive methods (sterility, abstinence, birth control). However, only the wealthy or moral upper class of people would show restraint. So, if everyone's wealth and income increased through reforms that had the effect of wealth or income redistribution, the majority of people, especially the lower class, would respond by having more children causing the majority of people to return again to their subsistence level of living. Therefore, because any policy that favored or helped the lower working class resulted in a redistribution of wealth and income that merely had the effect to increase the number of poor, Malthus opposed any such policy.

Interestingly, Malthus also believed that "inevitable laws of nature" decree that all societies be "divided into a class of proprietors and a class of labourers" (Malthus, "First Essay," 1798). Since the wealthy class had more moral values and character than the poor class had, the wealthy class should control the entire accumulation of wealth of society. To Malthus, the establishment of property rights and marriage virtually provided the only escape from anarchy. After the establishment of these institutions, the wealthy class would then accumulate and share some portion of it with the poor, and only after that, the poor could survive.

In refutation of Godwin, Malthus further claimed that the existing private property relations and class inequality that it created was actually a good thing because it was responsible for all of the great achievements of humanity. He also mentioned that redistribution of wealth and income and legislative attempts for redistribution would actually tend to stimulate poverty within a society.

After 1815 and the establishment of the Corn Laws, Malthus shifted his focus to the conflict between the landlord and capitalists. It is important to note that Malthus's understandings were based entirely on an "exchange", not production, perspective. When Adam Smith examined capitalism from the point of both the production process and exchange process, he introduced an analysis for both class conflict and the contrasting condition of social harmony. Although Malthus was aware of class conflict within a society, he readily embraced the social harmony perspective into his theory suggesting that all classes would find their own common and harmonious interests within the capitalist system. This view was also called exchange process approach and was based on the utility theory of value that took existing laws of property ownership for granted. As a result, Malthus felt that production was merely an exchange of productive inputs of capital, land, and labor and that all of Smith's factors for cost of production including wages, rents, and profits were equally important and necessary. In comparison, Adam Smith believed that labor was the only necessary cost of production. To Malthus, each class owned a unique and equally important and exchangeable type of commodity. Therefore, each class of society was justly entitled to a compensation that directly corresponded to their contribution to the production process. As such, then, owning one's own labor power was no different as owning capital or land as input to the production process.

In other words, while the production process approach analyzed economic relations from a class division perspective, the exchange process approach saw that every exchange within the capitalist system would give benefits to each participating class. From the exchange process of point of view, the working class would be better off because workers would find buyers for their labor powers in harmonious markets. Malthus was one scholar who claimed that class conflict would inevitably find its own harmonious solution within markets.

While Smith defined wealth as the produce of labor, Malthus simply defined wealth as any material object useful to man, even if the object had no labor employed upon it. Malthus also objected to Smith's unproductive labor definition because labor was socially unimportant. Malthus did, however, agree with Smith that the quantity of labor was the best measure of value, and he also accepted the cost of production theory of value (i.e. the natural price was the sum of wages, rents, and profits).

The main differences between Smith and Malthus were the unique position of labor in the price equation and the movement of market price toward natural or equilibrium price. Smith believed that labor was the only absolutely necessary social cost of production; on the other hand, Malthus argued that wages, rents, and profits were equally necessary costs in the price equation. Malthus's approach took the exchange process perspective that property ownership was the inevitable result of human civilization. Malthus rejected Smith's definition of capital, which was the production of past labor. Malthus indicated that production could not take place without natural resources.

For Malthus, because each class was equally entitled to contribute to the production process of property, the main human contribution to production was property ownership. Malthus's justification to the return of capital, or profit, was the return for the productive contribution of the capitalist.. Since capitalists allowed their tools to be used in the production process, workers could produce more than they themselves were able to without them (Malthus overlooked Smith's idea that tools and machinery were actually the present embodiments of past labor exertions). Malthus's theory of rent was similar to David Ricardo's (who will be discussed in greater detail later in' this chapter) in that rent was essentially a natural result of differences in soil fertility -nature's gift to man. Similar to Ricardo, Malthus believed in diminishing returns to agriculture and recognized that rents would increase for landowners as increased agriculture production would necessarily develop and cultivate successively less fertile land. As the population grew and more capital was accumulated in a country, the introduction of less fertile land under cultivation would be necessary. In order to make farming profitable on the less fertile lands, agricultural prices would need to increase to cover the higher costs. This, in turn, would cause all prices in a country to increase.

Also, there would be some differences in created surpluses between fertile and less fertile lands. It was this surplus that was the basis for rent. Therefore, rent was the return of differences in nature's gift, and landowners contributed to production because landowners improved soil fertility.

To Malthus rent, unlike profit, also possessed a special social value. As landowners improved soil fertility and cultivated new lands for increased food production, a greater population would be able to eat creating its own demand. Therefore, agricultural production was superior to industrial production. As farmers would bring lesser fertile land under cultivation, rents would increase, and high rents, according to Malthus, were the best single indicator of prosperity.

One of the economic principles that many of the economists did not accept was Malthus's theory of economic gluts (Malthus, 1836). According to Malthus, recurring economic crises were the main problem of capitalism. In fact, Malthus personally witnessed such crises during his lifetime. Consequently, one of his goals for his studies was to understand the nature and causes of these economic crises and to propose policies that could help mitigate them. Not surprisingly, though, his policies were somewhat biased toward his own objectives in serving the interests of landowner class.

Contrary to Adam Smith, Malthus held that market forces of supply and demand did not automatically push the market toward a natural or equilibrium price equal to costs of production. In other words, a state of disequilibrium in the economy would arise. This state of disequilibrium and resulting crises would occur, held Malthus, because there would always be problems of having insufficient effective aggregate demand for all the commodities to be sold. Insufficient effective aggregate demand, in turn, would have the effect of leaving inventories piled high. This, of course, would result in a decrease in producer profit, an increase in the unemployment rate (as many workers would need to be layed off), poverty to worsen, and general social unrest to be aroused.

Malthus reached this "glut theory" conclusion involving insufficient aggregate demand by analyzing the prevailing patterns of expenditure for all three of the socio-economic classes (i.e. laborers, capitalists, and landlords). First, Malthus assumed that laborers would spend all of their income on food or items necessary to maintain a basic level of subsistence and have no money left for savings. Second, capitalists would spend part of their income on subsistence, especially since they would not have time or the capacity to use all of it on personal goods and services, and they would spend the majority of their income, as a priority, on the accumulation of capital. Lastly, landlords, who were considered as gentlemen of leisure, would spend most of their income on non-essential or luxury items and personal services -especially for promoting so-called "noble" exertions including arts, culture, and education, etc...

According to Malthus, the glut problem generally arose because capitalists saved at a rate greater than necessary for capital to increase. In other words, the rate of capital accumulation was not sustainable. There were two explanations or scenarios that Malthus offered to illustrate this.

First, as capital expanded while technology was kept the same, the demand for labor would rise while trying to keep up with the growth of capital. Under this condition, one of two things might occur. Either some newly invested capital would not find any matching labor to keep it productive and remain idle and underemployed. Or, a temporary labor shortage would occur and cause wages to rise. Increased wages would then have the effect of putting a squeeze on producer profits and offset any potential for capital to expand. So, for this scenario, rather than invest extra cash into capital with existing technology, capitalists would be left with the only option of just having extra cash on their hands and simply hanging on to it because there would not be any incentive to continue to invest their profits into capital. This, of course, would result in an economic crisis.

The second scenario that Malthus used to illustrate the idea that capital accumulation was not sustainable and that an economic crisis would prevail involved a situation in which the capital investment was accompanied by technological innovation (i.e. production technology changed). If technology in production did not stay the same, as in the first scenario, then productivity or the quantity produced per worker would increase. In other words, the capital to labor ratio would- rise. If this occurred, a decrease in the demand for labor and a subsequent decrease in wages would result (opposite of what happened when technology was kept the same). New labor saving machines would displace labor and throw many workers out of jobs. Interestingly, although profits would rise in this case, according to Malthus the aggregate demand for products would decrease because laborers would no longer have sufficient income to buy the increased quantity of products (i.e. workers would not be able to keep up with the expansion). In consequence, effective aggregate demand would once again be insufficient, overproduction would occur, and a glut or depression would happen.

Based on the results on Malthus's analysis, one can understand why Malthus supported the landlords. For Malthus, the whole solution to this problem of economic crisis due to insufficient aggregate demand was found with the landlords. Landlords and the Corn Laws were the answer to the problem because as taxes on agricultural imports tended to redistribute surplus profits to landowners. Inventory gluts would then be prevented because landlords would spend surplus profits on luxuries and other personal non-essential and unproductive goods and services. Interestingly, Malthus concluded from this that the entire economic prosperity of a society depended on supporting the interests of the landlord class.
There are three problems with the coherency and viability of Malthus's glut theory based on insufficient effective aggregate demand. First, recall that in the first scenario where production technology was kept the same, Malthus held that as capital increased, a temporary labor shortage would occur, wages would rise, and profits would decline resulting in a halt to capital expansion. However, he never did suggest that the increase in wages could be a means to fill the effective aggregate demand gap. He only discussed how the profit squeeze would curtail incentives to continue investing in more capital.

Second, Malthus's glut theory also contradicts his population theory -at least in the long-term analysis. From Malthus's theory of population, recall that if everyone's wealth and income increased through reforms that had the effect of wealth or income redistribution, the majority of people, especially the lower class, would respond by having more children causing the majority of people to return again to their subsistence level of living. Malthus's population theory stated that workers would reproduce themselves at a geometrical rate. Now, upon looking at Malthus's glut theory, recall that as the accumulation of capital occurred while technology was kept the same, a temporary shortage of labor was possible causing newly invested capital to remain idle. Malthus never did suggest that an increase in population resulting form capital expansion and an increase in wealth could keep the capital from staying idle. In other words, Malthus abandoned his theory of population in the short run.

Third, Malthus contradicts his price theory with his conclusion that profits should be redistributed and redirected toward landlords in the form of rent using agricultural tariffs. Recall that Malthus suggested that each of the three components making up cost (i.e. wages, interest, and rent) from the three social classes (i.e. laborers, capitalists, and landlords) were equally important and equally in their contributions. Therefore, an increase in either rent from Corn Laws or an increase in wages due to capital accumulation resulting in productivity improvements would have the same effect of reducing or putting a squeeze on the profits of capitalists. Hence, concluding that the landlord class was the solution to the glut problem was in direct opposition to his beliefs. Based on these three contradictions or problems of analysis, it is easier to understand the perspective of the capitalist and why they so adamantly opposed the Cora Laws.