THE MALTHUSIAN ANALYSIS OF THE LAWS OF PRODUCTION IN AGRICULTURE

The population question provided Malthus's point of departure into political economy. But the postulates on which the principle of population rested - especially his views on the productive possibilities of agriculture - required further analytical support before they could carry conviction.

His work in economic theory provided an underpinning of the type required. The basic insight he developed is now often referred to as the 'law of diminishing returns' and a notion of much the same sort was hit upon almost simultaneously by three other writers: Ricardo, West and Torrens. The discussion of the point at issue thus marked one of those occasions - of which there have been several in the history of economic ideas - of a co-incidence in formulation of a fundamental theoretical proposition by several active minds.

Tempting as it is to describe the message of these contributors to classicism in modern terminology, it would distort part of their argument to do so. In current practice the concept of 'diminishing returns' is commonly stated in the following form: if all factors one are held constant, the increments to output obtainable from the additi units of a variable factor will, beyond a certain point, diminish. Thus, for e: more labour is engaged to work a fixed acreage with an unchanged amou

equipment, total output may thereby be expanded but when the number of workers is substantially enlarged the rate of increase in product will decline. This principle is usually interpreted as applying quite generally to all lines of production in any sector of the economy.

The divergence between the modern concept and the one worked out by writers in the classical tradition can be observed in the manner in which Malthus developed the analysis.

First, and mainly, That quality of the earth, by which it can be made to yield a greater portion of the necessaries of life than is required for the maintenance of the persons employed on the land.

Secondly, That quality peculiar to the necessaries of life of being able, when properly distributed, to create their own demand, or to raise up a number of demanders in proportion to the quantity of necessaries produced.

And, Thirdly, The comparative scarcity of fertile land, either natural or artificial.16

The first of these observations is reminiscent of the 'bounty of nature' view advanced by the Physiocrats and appropriated by Smith. The second links his population principle to an account of a perpetually assured demand for the products of the land. But it is the third that turns the analysis in a new direction. Land is not only limited in supply, but its quality is uneven. As population growth swells the demand for food and raises its price, cultivation will be extended to less fertile acreages and/or will be intensified on lands already under the plough. In either case, the average costs of production will rise because the effort required per unit of additional output increases. By the same token, the rise in prices necessary to induce landowners to extend cultivation to new lands or to improve cultivation on older ones will benefit the owners of the more fertile acreages. They can enjoy higher receipts without an increase in their costs; thus their rents will swell.

In appearance this argument bears a striking similarity to the latter-day version of 'diminishing returns'. Yet there are two important points of contrast. In the hands of Malthus and his contemporaries the analysis of the tendency for returns per successive unit of input in agriculture to diminish was not developed around static conditions in which all factors, save one, are held constant. Instead the argument was constructed in a context of change - particularly of population and of the size of the capital stock. In the form presented, it provided an answer to those who had maintained that the Malthusian population prognosis should be rejected on the grounds that for each mouth God sends a pair of hands.

In another respect the classical notion of diminishing returns diverged from the interpretation that later acquired currency. For Malthus (and for most classical economists) this analysis was intended to refer only to agricultural production. The tendency to ‘diminishing return' was not extended to all lines of production. On the contrary, they anticipated that in manufacturing - where the basic instruments of production could be multiplied without natural limit - the same problem would not arise. The returns reaped by capitalists (i.e. profits) were likely, over the long term, to diminish. But this phenomenon was related more to the effect of rising rents and food prices than to the conditions attached to the production of manufactured goods.

This analysis of production problems in agriculture buttressed Malthusian population arguments, but it also had a number of further consequences. In effect it challenged one of the presuppositions on which The Wealth of Nations had been built. Smith had viewed rent as an unearned income arising primarily from the bounty of nature. Malthus brought another side of nature to the foreground - its stinginess in limiting the cultivable acreage and in restricting the supply of lands with high fertility. Natural conditions thus imposed severe limitations on the rate at which agricultural output could grow.

This finding, in turn, was symptomatic of a broader re-orientation in the classical outlook. Given the nature of agricultural production as it was seen by Malthus and by Ricardo, a re-distribution of income in favour of rents and at the expense of profits was likely to occur at a faster pace than Smith had been prepared to allow. Malthus added the qualification that rents, while rising in absolute magnitude in the course of economic expansion, would not necessarily increase as a proportionate share of total revenue. But his view - which Ricardo, among others, did not share - rested on the assumption that rising rents would spur capital improvements in agriculture with the result that a growing share of the income of landowners could be treated as profit. In any event, the combined effects of capital accumulation and population growth were likely to be associated with rising food prices, higher 'honey wages (even though the real wage was unchanged), and a squeeze on the profits of capitalists. The prospect A the stationary state - when growth would cease and capital accumulation would be restricted to replacement requirements - thus became a less distant possibility.

Malthus's analysis of population and of agricultural production did much to cast a shadow over the optimism of early classicism. In some degree this part of his message was absorbed into the mainstream of later classical thought. The inferences flowing from these findings were largely responsible for provoking Carlyle to label political economy as 'the dismal science'.

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