Opinion Analysis by Sandro Joseph Azzam, Staff Writer

November 23rd, 2020

In his 1798 book “An Essay on the Principle of Population”, English economist and cleric, Thomas Malthus, first introduced a fundamental piece of development economics: the Malthusian Trap. 

To explain this phenomenon, let us first introduce the concept of GDP per capita. Gross Domestic Product is the final value of goods and services produced within a country’s borders. Intuitively, if there are only 10 pizzerias in Italy, the Italian GDP in a given year would be the value of the pizzas that the pizzeria produces in a year. But GDP is not necessarily the best metric to evaluate development. If the 10 pizzerias produce 10 euros worth of pizza per year, the GDP of Italy is 100 euros. But if the Italian population is 5, then the GDP per capita of Italy is 100 divided by the total population, so, 20. GDP per capita has other names such as income per person which we will be using interchangeably in the rest of our analysis. 

For almost 3000 years, income per person was relatively stagnant for populations of the world at large. In 500BC, the average person was just as well off as the person living in 1800. Jesus literally had the same living standard as those living just 2 centuries ago. Let that sink in. This stagnation is explained by demographics. The population was growing but with it came a stagnation in GDP. What this meant was that population growth was outpacing GDP growth leading to a stagnation or even a decline in income per person. Enter, the Malthusian Trap. This scenario held for the better part of 3 millennia, until the Industrial Revolution which allowed us to break free from the Malthusian Trap and into the Great Divergence. 

The Malthusian trap laid upon 5 assumptions. The world Malthus imagined was one in which resources were finite and where land available for cultivation was limited. The better off people were, the more kids they’d have meaning that population would grow as income per capita would grow. But if these families were unable to feed the children they would have, they simply wouldn’t have kids. From this we draw another fundamental assumption: Population growth was constrained by food supplies. Finally, Malthus assumed that technological change was impossible, which ultimately led to the failure of his theory in the post-Industrial Revolution world. 

The resource constraint would keep population at a subsistence level, meaning that people would consume exactly what they needed to stay alive, no more. 

To explain the process, let’s take an example. Let’s assume that in the beginning, there are a lot of resources and a small population. The consequence is that, since people are better off, they can afford to have children. But once population starts to grow, more food must be produced to keep up. The way to do so was to enlarge cultivated land which was of poor quality and wasn’t prime for agriculture. The biggest victim were forests but chopping them down came with a massive side effect. Imagine if you cut forests to plant wheat. The availability of timber is reduced but timber was one of the most important resources available. When we reduced livestock land, it reduced the availability of meat and pushed up the price which deteriorated diet quality. Animals were also a large source of energy for a number of industrial tasks and produced fertilizers. Less animals meant less manure to fertilize the land. Since diet quality deteriorated, standard of living dropped with it which led to an increase in mortality and a return to a balanced population/resources ratio. 

The Industrial Revolution eventually allowed us to break free from the Malthusian Trap thanks to a breach of the very assumptions that Malthus had made. Remember, the Malthusian world was based on the absence of technological change and resources constraining population growth. 

In light of the Industrial Revolution, humanity broke free from the Malthusian trap through technological innovation and behavioral changes. The division of labor allowed for increased productivity in the agricultural and manufacturing sectors. In terms of productivity, advances in technology and marketisation made for higher output per person. Long term agricultural leases were crucial in securing this effort. Think about it: When tenants had a larger time horizon, they could improve the land and were incentivized to put effort into the work. Better yet, with the industrial revolution came privatization of land making sure that farmers had an extra incentive to maintain the productivity of their land. Increases in land sizes meant increasing returns to scale for the farmers. If you want to sow 1000m2 of land, you need 1 tractor. But if you want to sow 10000m2 of land, you still need one tractor meaning that the productivity is highest in the latter. 

Moreover, families were smarter than Malthus thought so they adopted strategies to reduce fertility. This society managed to keep population growth in check. They limited the number of women that were allowed to get married by sending a portion of women to monasteries. These choices reduced population sized and increased output. Since population was constrained because women simply weren’t able to bear children, the denominator of our GDP per capita equation decreases. On the flip side, since higher output was being produced, nominal GDP was increasing. 

Another fundamental factor is the shift of jobs from one sector to the other. In advanced economies, the bulk of jobs was no longer in agriculture. There was also the emergence of new institutions that organized economic activity. The factory came with industrial revolutions, as did the steam engine, the spinning mule and urbanization. These all allowed the development of factories. 

Production processes needed to be concentrated. The spread of the factory system imposed a number of challenged to both production sides, entrepreneurs and workers. There was a strong learning process. Entrepreneurs needed to learn how to manage large amounts of people. Previously, it was all in artisanal shops with a few apprentices. Now there are several hundreds in the factories. Workers needed to get accustomed to working times, discipline as well as other realities. This helps us understand why it took time for the Industrial Revolution to become efficient allowing us to truly break free from the Malthusian trap. 

The commercial sector could not have developed without the development of transport infrastructure. It included road and canal construction. 1750-1820 was the apogee of canal construction. Waterway transportation freight cost was 50-75% cheaper than land transport. 3000 miles of waterways were added to the existing 1000 miles and 17 million pounds were invested in the process in Britain. By 1840, Britain had over 7000 miles of navigable waterways connecting all major centers of production and consumption. How could they fund these developments? Well, we like to call this OPM: other people’s money. This led to the creation of turnpike trusts. These turnpike trusts were entities under authorization from parliament that were made up of influential individuals and the process through which funding was obtained is that the turnpike trusts would issue debt and sell it to wealthy individuals. They would repay the debt through tolls that would be levied upon using the roads or canals.

All of these factors converged to move us away from the classic Malthusian constraints and into the world of economic growth and opportunity that we have come to know today. The Industrial Revolution is credited with having created the steam engine which in turn allowed us to build factories which moved people into the commercial field which itself created trade sponsored by developments in infrastructure.

Resources

Institutions as a fundamental cause of long-run growth D Acemoglu, S Johnson, JA Robinson - Handbook of economic growth, 2005

The European Enlightenment, the Industrial Revolution, and Modern Economic Growth, JOEL MOKYR, Lecture delivered on March 28th 2007 at the European University Institute 

Global Economic History: A Very Short Introduction by Robert C. Allen

A Concise Economic History of the World: From Paleolithic Times to the Present by Larry Neal and Rondo Cameron, Oxford University Press