Henry Charles Carey and Allyn Young on increasing returns and population growth
In his Principles of Social Science Carey pointed out that there could not be a permanent imbalance between population and resources because, with the growth of population, other phenomena were triggered to counteract the initial phenomenon.
In particular, as the population grows, there is an increase in “the power of association and combination”. Through these processes, “man is enabled to control and direct the earth’s forces, and to pass from the condition of nature’s slave, to that of nature’s master” (Carey 1859 [1963]: 313). The powers of association and combination supposedly derive from the human organizational capacity that develops only when the population grows.The example given by Carey was the classical example of the transition from a primitive to a developed society, where it was the greater number of people that allowed the natural resources to be exploited more productively (Smith 1776 [1976]: 325). This process also gave rise to a greater power of accumulation due to the use of machinery in production (ibid.: 316, 325).
The elements of originality in Smith’s approach, which, as we have seen, explain demographic dynamics as part of a general analysis on economic development and well-being, do not play an important role in the subsequent theoretical tradition. The long debate sparked off by Malthus’s (1798) publication was a catalyst for all economic thought on the issue of the relation between demographic dynamics and economic development. At the same time it became important for every nineteenth century economist to adopt a position that was generally in favour of or opposed to that of Malthus, but which was in any case removed from Smith’s thoughts on high wages and on the great potential for development generated by economic and social progress. Moreover, Smith’s characteristic connection between increasing returns and population growth was not taken up either by the classical authors or later by the marginalists, and remained “hidden” until it again became relevant in the thought of Alfred Marshall and, above all, in that of Allyn Young.
Young’s thoughts on increasing returns revolve around the concepts of “external economies” and “division of labour” deriving respectively from the analyses of Marshall and Smith.
As for the question of population in relation to prospects of development, Young argues:It is a point of controversy, but I venture to maintain that under most circumstances, though not in all, the growth of population still has to be counted a factor making for a larger per capita product - although even that cautious statement needs to be interpreted and qualified. But just as there may be population growth with no increase of the average per capita product, so also... markets may grow and increasing returns may be secured while the population remains stationary. (Young 1928: 536)
The point is controversial, because in the 1920s both in the USA and in Europe the debate on the economic effects of demographic dynamics was very heated, owing to an increased awareness of the demographic transition. In other words, it had become clear that the population of advanced countries had ceased to grow and the debate had shifted to the “undesirable” effects of this trend, that is, the supposed presence of a eugenic selection opposed to development or even, in the so-called “race suicide” position, of the possible extinction of western civilization. Young evidently wants to stay well away from these subjects, and for this reason underlines that when increasing returns prevail, both a growing population and a stationary population are compatible with an increase in the per capita product; but he also wants to reiterate the validity of Smith’s argument on population and increasing returns.