Was Malthus right?

In the Spectator, Tony Curzon Price talks abut “Malthus inflation”. This not only does violence to Malthus’s idea, but also perhaps understates the problem we face now.
Malthus’s theory was not about the general price level but about relative prices. He thought the prices of the “means of man’s support” - food to him, but we can include oil today - would be raised by diminishing returns, whilst wages would be depressed by increased labour supply. This interaction, said Malthus, “constantly tends to subject the lower classes of the society to distress and to prevent any great permanent amelioration of their condition.”
Now, this was, as Gregory Clark points out in A Farewell to Alms, a superb description of all economic history up to the time when Malthus was writing (1798).
But it’s also true now. Commodity prices have boomed this century - though they seem to have levelled off in recent weeks - whilst Chinese and Indian industrialization represents a massive rise in the supply of labour.
To describe this as inflation is to miss the point. It represents, as Malthus saw, a real threat to workers’ living standards, at least in the west.
The standard view seems to be that the threat will pass. In the near-term, a levelling off of commodity prices would allow inflation to fall back, thus restoring real wage growth. And in the long-term, continued productivity growth will push up workers’ living standards.
But herein lie my doubts. First, what’s raised workers’ real wages in the past - say in the “golden age” of the 1950s and 60s - has not been productivity growth alone. It‘s also been the ability to appropriate those gains by exploiting bargaining power - through strong trades unions, the scarcity of skilled labour or simply the lack of competition arising from having a closed economy.  But these forces are weakening - remember, there’s an awful lot of skilled labour in China and India.
Secondly, should we really be so confident in the strength of the forces for endogenous growth as to expect technical progress to continue to beat diminishing returns? Sometimes, I fear such optimism is mere faith - a mix of market fundamentalism (“the free market will solve the problem”) and induction (“things can go on as they have for the last 200 years”). Neither can be trusted, can they?

Comments

[dearieme]

"Strong trade unions" don't push up the living standards of "the lower classes of the society" - they push up the short term living standards of their members at the cost of denying jobs to the rest of the lower classes short term, and pushing the jobs elsewhere, long term. Your point about "mere faith", though, seems legit to me.

[OneEyedMan]

Expensive commodities are an awfully tempting motivation to better extraction techniques and cheaper substitutes. They can even provide motivation for governments to allow markets to function.

Certainly, that provides no guarantee that we can't use up commodities faster than we can innovate around those limitations. I have some skepticism, but I'd still bet on human innovation.

[dearieme]

To bet on human innovation is also to bet on government deciding not to impede it to the point of complete obstruction.

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Malthus: “constantly tends to subject the lower classes of the society to distress and to prevent any great permanent amelioration of their condition.”

Chris: "But it’s also true now."

I think that the condition of the lower classes has been pretty well ameliorated since 1798.

Every time there is the slightest blip in the economy someone turns up to proclaim the crisis of capitalism.

"Sometimes, I fear such optimism is mere faith - a mix of market fundamentalism (“the free market will solve the problem”) and induction (“things can go on as they have for the last 200 years”). Neither can be trusted, can they?"

No, but if something has been true for 200 years, that is a reason to believe it will be true tomorrow.

After all, your belief that the sun will rise tomorrow is based solely on the fact that it has in the past.

[General Specific]

"After all, your belief that the sun will rise tomorrow is based solely on the fact that it has in the past."

False. It is based upon an understanding of planetary physics. And we have no reason to believe the conditions at the solar level are changing.

On the other hand, economic performance over the last two hundred years, and in particular in the last fifty years, has been built on cheap and plentiful fossil fuels--in particular oil.

Geology argues strongly that the days of cheap oil are over and nobody has a good model to describe how we will surmount that transition. Doesn't mean we won't. But nobody has an analytical model that describes it.

Therefore, the analogy between economics and the sun is completely and totally false.

[tony curzon price (OD, London)]

Thanks for picking up my piece, Chris, and I appreciate your need for a hook for your comment ... but I would like to point out that the position you argue against has nothing much to do with my piece.

To quote myself in the Spectator:
"
Malthus inflation — named after the Revd Thomas Malthus, the 18th-century economist whose concern was the overall capacity of the world to carry an ever-increasing human population — is about real supply constraints coming up against the rising expectations of the newly rich. As huge parts of the world grow out of poverty, humanity eats grain-intensive meat as never before. At the same time, food acreage is reduced because of drought (Australia and Ukraine) or diversion to ethanol production (USA, Brazil). Watch food prices rocket.

The vulnerable — pensioners on fixed incomes, the one billion people who survive on less than a dollar per day — are suffering already, while those with power are squaring up to defend their turf: road hauliers are first in line.
"

Nothing much there I think you would disagree with, is there?

Tony Curzon Price

[reason]

Innovation is not the problem, it is the capture of the value of the innovation via IP.

[Graham]

We who write here seem to think that the lower classes are involved in this new paradigm.

Wrong. For the first time in about 200 years it is us who are again the lower classes. We seem to have forgotten that historically it is the top 10% who exploit the bottom 90%. We were falsely elevated to "Middle Class" purely because of the "free energy" to relieve us of our Drone tasks.

Who needs engineers when nothing is being built. Who needs most of our jobs when there is an imploding society. Malthus is now talking about US.

Gr

[Graham]

We who write here seem to think that the lower classes are involved in this new paradigm.

Wrong. For the first time in about 200 years it is us who are again the lower classes. We seem to have forgotten that historically it is the top 10% who exploit the bottom 90%. We were falsely elevated to "Middle Class" purely because of the "free energy" to relieve us of our Drone tasks.

Who needs engineers when nothing is being built. Who needs most of our jobs when there is an imploding society. Malthus is now talking about US.

Gr

[Trooper Thompson]

Graham - well noted!

As Henry Carey, the 19th Century American economist observed of the imperialistic 'free trade' system and and its comcommitant malthusianism:

"We thus have here, first, a system that is unsound and unnatural, and second, a theory invented for the purpose of accounting for the poverty and wretchedness which are its necessary results. The miseries of Ireland are charged to over-population, although millions of acres of the richest soils of the kingdom are waiting drainage to take their place among the most productive in the world, and although the Irish are compelled to waste more labour than would pay, many times over, for all the cloth and iron they consume. The wretchedness of Scotland is charged to over-population when a large portion of the land is so tied up by entails as to forbid improvement, and almost forbid cultivation. The difficulty of obtaining food in England is ascribed to over-population, when throughout the kingdom a large portion of the land is occupied as pleasure grounds, by men whose fortunes are due to the system which has ruined Ireland and India. Over-population is the ready excuse for all the evils of a vicious system, and so will it continue to be until that system shall see its end."

[Erik]

The Earth is a closed system. The economic growth of the past 500 years, and particularly the past 70 years, assumes that it is an open system and that all models can expand indefinitely.

Barriers have fallen and labor and capital are more fluid now within this closed system, providing the illussion that it is more open than it is. Modern ecomonics requires entities to grow or die, as does the stock market. The shift to lower-cost production has made further growth possible in the past few decades from a financial performance perspective, but it does not change the fact that, as a society, we are starting to reach a maximum level of possible consumption.

The ability to move labor around the globe is having two effects: equalizing the standard of living across nations in the long-term (which is bad for most citizens of the US), and increasing exponentially the level of global consumption as formerly "3rd world" citizens aspire to middle-class consumption.

The Earth is a closed system and cannot handle this amount of growth. Blind faith in markets and innovation cannot change the fact that if 2 billion more people want to drive and eat meat at every meal, that that is more than the planet can handle in the long-run. Now project the population 2 generations into the future (40 years), where it has doubled, and doubled again. The ability to innovate our way out of this conundrum would imply innoations exponentially greater than any ever seen before.

We need to reform our current economic models to include inputs external to pure finanacial and utility-based decision making components. What our current models consider optimal is bad for the long-run. We need to recognize that there are global (as well as ethical and moral) constraints.

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General Specific:
"Geology argues strongly that the days of cheap oil are over and nobody has a good model to describe how we will surmount that transition."

BP, Shell etc clearly feel differently to judge from the lack of development of unconventional oil: Canadian oil shales etc. (If the old oil sources were on the verge of depletion, no one would be happier than the Canadians.) This is something that would definitely be in the news.

Graham:
"For the first time in about 200 years it is us who are again the lower classes."

I think you will find that the average Chinese or Indian is a lot poorer than the average Brit – in fact the gap is probably larger than it was 200 years ago.

Erik:
"The Earth is a closed system."
Apart from that big bright thing you see in the sky every day?

"The ability to move labor around the globe is having two effects: equalizing the standard of living across nations in the long-term (which is bad for most citizens of the US)"

The US is getting richer. It is just that many very poor Asians are getting richer, faster.

(You can argue about inequality within the US if you like. But inequality within countries is a somewhat different issue than inequality between them.)

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