Nearly a week ago, I intervened in a debate between Anton Howes of King’s College London whose work I have been secretly following  (I say “secretly” because as an alumnus of the London School of Economics, I am not allowed to show respect for someone of King’s College) and Pseudoerasmus (whose identity is unknown but whose posts are always very erudite and of high quality – let’s hope I did not just write that about an alumnus of King’s College). Both bloggers are heavily involved in my first field of interest – economic history.

The debate concerned the “Smithian” counter-effect to “Malthusian pressures”. The latter concept refers to the idea that, absent technological innovation,  population growth will lead to declining per capita as a result of marginally declining returns. The former refers to the advantages of larger populations: economies of scale, more scope for specialization and market integration thanks to density. Now, let me state outright that I think people misunderstand Malthusian pressures and the Smithian counter-effect.

My point of is that both the “Smithian counter-effect” and “Malthusian pressures” are merely symptoms of rent-seeking or coordination failures. In the presence of strong rent-seeking by actors seeking to reduce competition, the Smithian counter-effect wavers and Malthus has the upper hand. Either through de-specialization, thinner of markets, shifting to labor-intensive technologies, market disintegration and lower economies of scale, rent-seeking diminishes the A in a classical Cobb-Douglas function of Total Factor Productivity (Y=AKL). This insight is derived from my reading of the article by Lewis Davis in the Journal of Economic Behavior and Organization which contends that “scale effects” (another name for a slight variant of the “Smithian counter-effect) are determined by transaction costs which are in turn determined by institutions. If institutions tend to favor rent-seeking, they will increase the likelihood of coordination failure. It is only then that coordination failures will lead to “Malthusian pressures” with little “Smithian counter-effect”. Institutions whose rules discourage rent-seeking will allow markets to better coordinate resource use so as to maximize the strength of the “Smithian counter-effect” while minimizing the dismal Malthusian pressures.

In essence, I don’t see the issue as one of demography, but as one of institutions, public choice and governance. I am not alone in seeing it this way (Julian Simon, Jane Jacobs and Ester Boserup have documented this well before I did). Why the divergence?

This is because many individuals misunderstand what “Malthusian pressures” are. In an article I published in the Journal of Population Research, me and Vadim Kufenko summarize the Malthusian model as a “general equilibrium model”. In the long run, there is an equilibrium level of population with a given technological setting. In short-run, however, population responds to variation in real wages. Higher real wages from a “temporary” positive real shock will lead to more babies. However, once the shock fades, population will adapt through two checks: the preventive check and the positive check. The preventive check refers to households delaying family formation. This may be expressed through later marriage ages, planned sexual activities, contraception, longer stays in the parental household and greater spacing between births. The positive check refers to the impact of mortality increasing to force the population back to equilibrium level. These checks return to the long-term equilibrium. Hence, when people think of “Malthusian pressures”, they think of population growth continuing unchecked with scarce ressources. But the “Malthusian model” is basically a general equilibrium model of population under fixed technology. In that model, there are no pressures since the equilibrium rates of births and deaths are constant (at equilibrium).

However, with my viewpoint, the equilibrium levels move frequently as a result of institutional regimes. They determine the level of deaths and births. “Poor” institutions will lead to more frequent coordination failures which may cause, for a time, population to be above equilibrium – forcing an adjustment. “Poor” institutions would also lead to an inability to respond to a change in constraints (i.e. the immediate environment) by being rigid or stuck with path-depedency problems which would also imply the need for an adjustment.  “Good” institutions will allow “the Smithian counter-effect” to intervene through arbitrage across markets to smooth the effect of local shocks, a greater scope for specialization etc.

My best case for illustration is a working paper I have with Vadim Kufenko (University of Hohenheim) and Alex Arsenault Morin (HEC Montréal) where we argue that population pressures as exhibited by the very high levels of infant mortality rates in mid-19^th century Quebec were the result of institutional regimes. The system of land tenure for the vast majority of the population of Quebec was “seigneurial” and implied numerous regressive transfers and monopoly rights for landlords. This system was also associated with numerous restrictions on mobility which limited the ability of peasants to defect and move. However, a minority of the population (but a growing one) lived under a different institution which did not impose such restrictions, duties and monopolies. In these areas, infant mortality was considerably lower. We find that, adjusting for land quality and other factors, infant mortality was lower in these areas for most age groups. Hence, we argued that what was long considered as “Malthusian pressures” were in fact “institutional pressures”.

Hence, when I hear people saying that there are problems linked to “growing population”, I hear “because institutions make this a problem” (i.e. rent seeking).