Notes for Lecture 3: Malthus in 1800 and Malthus 2000
[September 25, 2007]
compound interest rule of 72, the concerns of Malthus, one variable input
model, total physical product of labour, marginal physical product of labour [marginal
productivity], average physical product of labour [average productivity], the four divisions of
marginal productivity, the law of diminishing marginal productivity [returns], Malthus today and
the poverty crisis, disguised unemployment, exogenous changes in the one variable input model,
definition of sustainable development, the limits to growth scenario, the I = PAT equation, the
pessimistic model and the optimistic model for economic growth.
Features of Compound Interest
If $1 were placed in a fund which grew at 1% [compounded] per period, then it would take 72
periods for $1 financial investment to grow to $2.
This has been called the “Rule of 72".
Similarly, a country which has a population growth rate of 1% per annum would double its
population level in 72 years. But if the population growth rate were 2%, then the population
would double in 36 years [72 divided by 2] and at 3%, the population would only take 24 years
[72/3] to double.
During the 1950's and 1960's, many developing countries in Africa, Asia and
Latin America experienced population growth rates approaching 3% per annum and Nigeria still
The Concern of Malthus
[Essay on Population in 1799]
Malthus was concerned about the increases in the rate of population growth measured against the
rate of growth of food production in Europe in future generations in the nineteenth century. By
observation, population was doubling every generation in Europe.
However, increases in the
availability of food in Europe were growing much more slowly.
Malthus was concerned that,
in some future generation, there would be a severe shortage of food and therefore both starvation
and death from wars [over land acquisition] would occur as a control on population growth.
Population checks through increased in the death rate greatly disturbed Malthus.
advocated a control of population growth through a reduced birth rate i.e., each family to have a
smaller number of children which would reduce the rate of population growth.
The One Variable Input Model [land in fixed supply with labour variable]
Assume that grain [wheat] is grown with land fixed [e.g.
., on a specific field] with a variable
No changes in weather conditions or technology are allowed i.e., EXO is initially
barred in the production function.
When workers are incrementally added to this field, initially there would be positive and
increasing incremental [marginal] outputs.
But at some point,
the positive increment in
would be less than the previous increment in output. At this labour input, diminishing
marginal productivity [returns] would start to be experienced.
This is a physical law which
must always hold.