2 malthusian theory of growth

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Malthusian Theory of Economic Growth

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2 malthusian theory of growth

  1. 1. Malthusian Theory of Growth Lecture 2 Prof. Prabha Panth
  2. 2. 223-Sep-13 Malthusian model  “Essay on the Principle of Population” 1798,  Unlike Smith, he looked not at wealth, but at poverty,  Economic growth is not automatic,  It is not smooth, but has fluctuations,  Population growth will overtake growth of food, leading to increasing poverty.
  3. 3. 323-Sep-13 Assumptions  Capitalist economy,  Three classes – workers, landlords and capitalists,  Total supply of land is fixed,  Diminishing returns on land,  Growth of population is directly related to the wage rate (w). As w increases, population increases, and if w decreases, population decreases.
  4. 4. 423-Sep-13 Economic growth  Capitalists invest,  Workers and landlords only consume  Increase in investment, leads to increase in capital,  Increase in capital increases output and growth.  Per capita income also increases.  But Malthus felt this will not continue forever.
  5. 5. 523-Sep-13 Population Growth  Population growth is a function of wage rate.  When wage rate increases, birth rate also increases, population increases  When wage rate decreases, death rate increases, population decreases.  So with more growth, more output, and wages increase,  This cannot be sustained, due to population growth. Prof. Prabha Panth
  6. 6. 623-Sep-13 Rate of population growth  Population grows geometrically (exponentially),  But food production grows arithmetically (linearly).  So as economic growth continues, the gap between food and population will widen,  This will eventually lead to fall in standards of living, and increasing poverty.  This is known as the “Iron Law of Wages.”
  7. 7. 723-Sep-13 Population and food growth Time Population g=a x 2 Food g=b+2 y1 10 10 y2 20 12 y3 40 14 y4 80 16 y5 160 18 mn Time 0 Food Population
  8. 8. 823-Sep-13  This is known as the “Malthusian Trap”  When economic growth takes place, it will not improve the conditions of workers,  Higher growth, leads to increase in wage rates,  Higher wage rates leads to increase in population. Demand for food rises,  But food does not grow at the same rate as population.  The increasing gap, leads to poverty, hunger, death, more misery.
  9. 9. 923-Sep-13 Solution  Malthus suggests that population growth should be controlled.  This can be done by „Voluntary‟ or „Positive‟ checks,  Such as birth control, late marriages, family planning.  Otherwise, there will be „Negative‟ checks to population growth –  Famines, floods, wars, diseases will increase death rate, and bring population down to manageable levels.
  10. 10. 1023-Sep-13 Criticism  Pessimistic view of the economy  Data of developed countries shows that as PCY increased, birth rates automatically decreased.  Called “demographic transition”  Output of food has also increased, due to improved technology  Imports and free trade of food can take place, Malthus was for Protection.
  11. 11. 1123-Sep-13  But:  Malthusian theory is still applicable to less developed countries.  Increasing population is consuming all the surplus, nothing available for investment.  Inferior land is used, and output falls,  Technology is inferior,  In recent times, the depletion of natural resources, has shown the importance of Malthusian theory of exponential growth in a finite world.

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