Malthus's Theory of Wages and Growth

Abstract

Many writers have produced models of economic growth based on the theories of Classical Economists, but reformulated with the aid of the modern techniques of economic analysis. These writers have mostly concentrated on Ricardo's theory, and many mathematical models of the Ricardian system are now available. However, in more recent times, Malthus's theory of growth has also been the object of this kind of analytical approach.' The present article suggests a new formulation of Malthus's system, based on some features of his work which have not been taken in full consideration until now. We have incorporated these elements in a model which seeks to capture his essential and, in our opinion, most original contributions to the theory of economic growth. This article is divided in two parts. The first part is devoted to a restatement of Malthus's argument concerning the influence of effective demand on the growth of the economy. The second part of the article then develops a model of long-term growth which combines Malthus's views on effective demand and diminishing returns with his principle of population. One of the most interesting aspects of this model is its explanation of unemployment as a permanent phenomenon and not merely a transitory phase. The writings of Malthus are sometimes obscure and difficult to interpret. However, this does not excuse the cavalier way in which his work is treated and some of its most fundamental features are ignored, such as, for example, his theory of value and real wage determination. The present article seeks to redress the balance by analysing in some detail Malthus's ideas on value and real wages; it also explores his ideas on growth and unemployment. For lack of space, we cannot deal with other aspects of his thought which also deserve attention (such as, for instance, his views on the transition from an agrarian economy to an industrial one, or on the role of fixed capital). However, this is not a serious problem for the issues covered in the present article are of central importance and can be considered in isolation from the rest of his ideas. To analyse the views of Malthus, we make use of a simple mathematical model and what follows is, in our opinion, a fairly accurate formalisation of these views. Moreover, quite apart from its merits as a formalisation of what Malthus himself believed, the model is interesting in its own right.