by Joe Miller
The constant effort towards population… increases the number of people before the means of subsistence are increased. The food therefore which before supported seven millions must now be divided among seven and a half or eight millions.”
That quotation is from An Essay on the Principle of Population, which was written by Thomas Malthus, a British political economist.
The Malthusian argument is that unchecked population growth results in immiseration, as more people compete for a fixed share of resources such as food, jobs and housing.
The result, according to Malthus, is that “the price of labour must tend toward a decrease, while the price of provisions would at the same time tend to rise.”
Malthus wrote his essay in 1789, but you can hear its echo when Sen. Bernie Sanders calls free trade agreements “a race to the bottom” on wages or when Vice President JD Vance says that housing is expensive “because we flooded the country with 30 million illegal immigrants who were taking houses that ought by right go to American citizens.”
Malthusian thinking is seductive because it sounds like common sense – if you divide stuff among more people, then everyone gets less of it.
But history proved Malthus wrong.
Exact figures for the 18th century are difficult to pin down, but a rough estimate is that in 1789 when Malthus wrote his essay, the UK had a population of about 11 million people, and the median wage of those residents was around £6.4 annually.
Today there are almost 70 million people living in the UK and they have a median wage of around £39,000. That’s seven times the population and a little over six thousand times the wealth.
The thing is, for most of human history, Malthus was basically right. Pre-industrial agrarian societies can only produce so much food. If you add more people, then some of them start to get hungry.
The pre-industrial world is what economists call zero-sum, which describes a situation in which a gain by one person requires a loss by another person.
Plenty of things in the world are zero sum: sports, war, gambling and market share all require a loser for each winner.
Of course, not all interactions are zero sum.
Consider an Amish barn raising event. It’s extremely difficult to build a barn on your own. But if we have a culture of collective barn-building, then everyone gets a barn.
Economists describe scenarios like this as positive sum – the total value in a world of collective barn building is higher than it would be in a world without it, so everyone is better off.
Industrialization changes resource allocation from zero-sum to positive sum.
Seed drills, steel plows, reapers and threshers allow farmers to produce more crops on the same land, with fewer laborers. Railroads and trucks and refrigeration mean we can ship those crops over long distances, which allows cities to house more people than the surrounding countryside can feed.
Manufacturing farm equipment, locomotives and refrigerators creates new categories of jobs. So does building railroads and highways.
Thanks to industrialization, the UK ended up with more food, more housing and more jobs than it had before—indeed, it created so much new wealth that its residents got wealthier even as the population grew.
But it was pairing industrialization with free markets that really caused wealth to soar.
Markets are the paradigm case of positive sum interactions.
You have a loaf of bread and I have $5. I’d rather have the bread than the $5 and you’d rather have the $5 than the bread. If we trade, then we’re both better off!
Markets help allocate resources to the people who value them the most. But they also send valuable signals.
If you bring 100 loaves of bread to the market and I’m the only one who shows up, then you’d probably be willing to sell it for less than $5. You’ll probably also bring fewer loaves to the market next week.
But if 1,000 people show up wanting bread, you can raise your prices. You’ll probably also bring more bread next week!
Market prices are messages to producers. They will cut production when prices decrease and raise production when prices go up. And thanks to the magic of steadily improving machinery, your outputs scale faster than your inputs.
That last bit means that in an industrialized economy, each worker produces more than one person’s worth of stuff. In other words, each new worker creates enough wealth to support himself plus a little bit more to share with everyone else.
That’s how the world grew from around 950 million people in 1789 – about 95% of whom lived in extreme poverty – to over 8.3 billion people today, with a little under 10% still living in extreme poverty.
Industrialization plus free markets mean there’s simply a lot more wealth in the world.
Malthusian intuitions about population increases are true in a world where total stock of resources is fixed. The pre-industrial world was pretty much like that.
The Industrial Revolution freed us from that Malthusian trap. All else being equal, population growth increases wealth, not the other way around.
joe.miller@fountaindigitalconsulting.com
