keynes declining population

8/2/2019 Keynes Declining Population

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Some Economic Consequences of a Declining PopulationAuthor(s): [John Maynard Keynes]Reviewed work(s):Source: Population and Development Review, Vol. 4, No. 3 (Sep., 1978), pp. 517-523Published by: Population CouncilStable URL: http://www.jstor.org/stable/1972863 .

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Some EconomicConsequencesof a DecliningARCHIVES Population

The most domninantorce in postwarWesterneconomic thought s undoubtedly that of the eminentBritishecono-mist,John Maynard Keynes. "Keynesian economics," as it has come to beknown,has until the past few years guided governmental conomic policy inalmosteveryadvanced capitalistnation.But Keynesiantheoryhas little to sayabout population change as a strategic conomic variable-it being assumed inthebest tradition fclassical and neoclassical economicsthatpopulationgrowthis "exogenously"determninedy the natural biological procreative nclinationsofhumanbeings.Moreover, teadypopulationgrowth along withcapital accu-mulation nd technologicalchange) was perceived by Keynes and othersas anessential ngredient or n expandingeconomy.It is interestingbut perhaps not surprising, herefore, o read in LordKeynes'sGaltonLecturedeliveredbeforethe Eugenics Society n 1937 a wvarn-ingagainstthewidespreadassumption hata stationary r decliningpopulationwouild be an unmitigatedsocial and economic good. Within the Keynesiantheoreticalframework, declining population would lead to a lower level ofeffective emand, loweraggregate savings,less capital accumulation,and ulti-mately a higher evel of unemployment. hus Keynes warnshis audience thatthe"chainingup ofone devil [population growth]may, fwe are careless,onlyserveto loose another tillfiercernd more ntractable unemployment]."Need-less to say, Keynes's predictionsabout a decliningpopulation proved grosslyincorrectthus confirmlingis initialstatemienthat "we do not knowwhat thefutureholds"). Moreover, n the contextof contemporary eveloping nations,thepositiverelationship etweenpopulation and income growth nd the nega-tive relationship ettween opulation and unemploymentncrease embodied inthe Keynesiantheoryappear to be reversed.And yet Keynes's ideas in this

517


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518 ARCHIVESspeech about the necessity f redistributingncomneso promotemore rapidincome rowthn theface of a declining opulation,ave a familiaring n thedevelopmentiteraturef the1970s.

Keynes'sGalton Lecture on the economic onsequences f a decliningpopulation as publishedn theEugenicsReview29, no.1 (1937): 13-17 andis reproduced elow.

Thefuture ever esembleshepast-as we well know.But,generallypeaking,our maginationnd our knowledge re too weak to tell us what particularchanges o expect.We do notknowwhat the future olds. Nevertheless,sliving nd moving eings,we are forced o act. Peace and comfort f mindrequiirehatwe shouldhiide romurselves ow littlewe foresee. et we mustbe guidedby somehypothesis. e tend, herefore,o substituteor he knowl-edgewhichs unattainableertainonventions,hechief f which s toassume,contraryo all likelihood, hatthe futurewill resemble he past.This is howwe act in practice. hough twas, I think, n ingredientn the complacencyof the nineteenthenturyhat, n theirphilosophical eflectionsn humanbehaviour, hey accepted an extraordinaryontraptionf the BenthamiteSchool, y which llpossible onsequencesf alternativeourses f actionweresupposed ohaveattached o them, irst number xpressingheir omparativeadvantage, nd secondly nother umber xpressing he probability f theirfollowingrom hecourseof action n question; o that multiplyingogetherthenumbersttached o all thepossibleconsequences f a given ctionandadding heresults, e coulddiscoverwhat o do. In thisway a mythicalystemofprobableknowledgewas employed o reduce he future o thesame calcu-lable status s the present.No one has ever acted on thistheory. ut evento-day believe hat urthoughts sometimesnfluencedysome uchpseudo-rationalisticotions.NowI emphasize o-nighthe mportancef this onventiony whichweassume hefutureo be muchmore ike hepastthan s reasonable-a onventionofbehaviour hichnoneofus couild ossibly o without-because,s I think,tcontinueso influenceurminds ven n thosecases wherewe do have goodreason oexpect definitehange.And,perhaps, hemost utstandingxampleof casewherewe infacthavea considerableower f eeing nto hefuturestheprospectiverend fpopulation.We know much more securely hanweknow lmost ny other ocial oreconomic actor elating o the future hat,ntheplaceofthesteady nd indeed teeply ising evel of populationwhichwehave xperiencedor great umberfdecades,we shallbe faced n a very horttimewith stationaryr a decliningevel.The rate fdecline s doubtful,ut tis virtuallyertain hatthe change-over,omparedwithwhatwe have beenused to,will be substantial.We have thisunusualdegreeofknowledge on-cerninghefutureecauseofthe ongbutdefiniteime-lagntheeffectsfvitalstatistics.everthelesshe dea ofthefutureeingdifferentromhepresentssorepugnantoourconventional odes fthoughtndbehaviourhatwe,mostofus,offergreat esistanceoacting n t npractice. here re, ndeed, everal


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EconomicConsequences fa Declitningopuilation 519important ocial consequences alreadypredictable as a resultof a rise in popu-lation being changed into a decline. But my object this evening is to deal, inparticular, with one outstanding economic consequence of this impendingchange; if, hat s to say, can, for moment, ersuade you sufficientlyo departfrom he established conventionsof yourmind as to accept the idea that thefuturewill differ rom hepast.

IIAn increasingpopulation has a very important nfluenceon the demand forcapital.Not only does the demand for apital-apart from echnicalchanges andan improved tandard of life-increasemore or less in proportion o population.But,businessexpectationsbeingbased muchmore on present than on prospec-tivedemand, an era of increasingpopulation tends to promoteoptimism, incedemandwill in general tend to exceed, rather hanfall short f,whatwas hopedfor.Moreover a mistake,resultingn a particulartype of capital being in tem-poraryover-supply, s in such conditionsrapidly corrected.But in an era ofdecliningpopulation the opposite is true. Demand tends to be below what wasexpected,and a state of over-supply s less easily corrected.Thus a pessimisticatmospheremay ensue; and, althoughat long lastpessimismmaytendto correctitself hroughts effect n supply, the first esultto prosperity f a change-overfrom n increasing o a decliningpopulation maybe verydisastrous.

In assessing thecauses of theenormous ncrease n capital duringthenine-teenthcentury nid since, too little mportance, think,has been given to theinfluenceof an increasingpopulation as distinct fromother influences. Thedemand forcapital depends, of course, on threefactors: on population,on thestandardof life, nd on capital technique. By capital techniqueI mean the rela-tive importanceof long processes as an efficientmethod of procuringwhat iscurrentlyonsumed,thefactor have in mind being conveniently escribed astheperiod ofproduction,which is, roughly peaking,a weightedaverage of theinterval which elapses between the work done and the consumptionof theproduct. n other words the demand forcapital depends on thenumberof con-sumers, heaverage level ofconsumption, nd theaverage periodofproduction.Now it is necessarily he case thatan increase in population increases pro-portionatelyhe demand forcapital; and theprogress f inventionmaybe reliedoni o raise thestandardof life.But the effect finvention n theperiod of pro-ductiondepends on the typeof inventionwhich is characteristic f the age. Itmay have been true of the nineteenth entury hatimprovementsn transport,standardsofhousingand public services were of such a character hatthey didtend somewhat to increase the period of consumption. t is well known thathighlydurable objects were characteristic f theVictoriancivilization.But it isnotequally clear that thesame thing s trueto-day. Manymodern nventions redirectedtowardsfindingways of reducing the amount of capital investmentnecessary oproduce a givenresult;and partly s theresultofour experienceasto the rapidityof change in tastes and technique, our preference s decidedlydirected owardsthosetypesofcapital goods which are not too durable. I do notbelieve,therefore,hat we can relyon current hanges oftechniquebeingofthe


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520 ARCHIVESkind whichtend of themselves o increase materially he average period ofpro-duction. t may evenbe the case that, part from he effect f possible changes nthe rate of interest, he average period may be tendingto diminish.Moreoveran improving verage level of consumptionmay conceivablyhave, in itself, heeffect f diminishinghe averageperiod of production.For as we getricher, urconsumption ends to be directed towardsthose articlesof consumption,par-ticularly he services of other people, which have a relatively hort averageperiod ofproduction.Now, if the numberof consumers s fallingoff nd we cannotrely on anysignificantechnical engthening f the period of production, he demand for anet increaseof capital goods is thrown ack into beingwholly dependenton animprovementn theaverage evelof consumptionr on a fall n the rateof nterest.I will attempt o givea few veryroughfigures o illustrate he orderofmagnitudeof the different actors nvolved.Let us considerthe periodof ust overfifty ears from1860 to 1913. I findno evidence of any important hange in the length of the technicalperiod ofproduction.Statistics f quantityof real capital presentspecial difficulties.utthose which we have do not suggestthat therehave been large changes in theamountof capital employedto produce a unitof output.Two of themost highlycapitalized services,those of housing and of agriculture, re old-established.Agriculture as diminished n relative mportance.Only ifpeople were to spenda decidedly ncreasedproportion f their ncomeson housing,as to which thereis indeed a certainamountof evidence for thepost-warperiod,should I expecta significantengthening f the technicalperiodof production. or thefifty earsbeforethewar,duringwhichthe long-period verage oftherate of interestwasfairly onstant, feel some confidence hatthe period was not lengthened bymuch morethan 10 per cent., fas much.Now during the same period the Britishpopulation ncreased by about 50per cent.,and thepopulationwhichBritishndustrynd investmentwas servingbya much higherfigure.And I suppose thatthe standardoflifemusthave risenby somewhereabout 60 per cent. Thus the increased demand forcapital wasprimarilyttributable o the increasingpopulationand to therising tandardoflife, nd only n a minordegree to technicalchanges ofa kindwhich called foran increasing apitalizationper unit ofconsumption. o sumup, thepopulationfigures,whichare reliable, ndicate thatabout half the increase in capital wasrequired to serve the increasingpopulation. Perhaps the figureswere about asfollows,though would emphasize that these conclusionsare veryrough andto be regardedonlyas broad pointers owhat was goingon:

1860 1913Real capital 100 270Population 100 150Standardof ife 100 160Periodofproduction 100 110

It followsthat a stationary opulationwith the same improvementn thestandardof life and the same lengthening f the period of productionwould


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EconomicConsequienicesfa Declining opulation 521have requiredan increase n thestockofcapital ofonly a littlemore thanhalfofthe increasewhichactuallyoccurred.Moreover,whilstnearlyhalfof the homeinvestmentwas requiredby the increase n population,probablya substantiallyhigherproportion f theforeignnvestment f thatperiodwas attributable o thiscause.On the otherhand it is possible thatthe increase in average incomes, thedecline in the size of families, nd a number of otherinstitutionalnd socialinfluencesmay have raised the proportion f the national income which tendsto be saved in conditions ffullemployment. do not feel confident bout this,since there re otherfactors, otablythetaxationof theveryrich,whichtenid ntheoppositedirection.But I thinkwe can safely ay-and this s sufficientormyargument-thatthe proportion f the national income which would be savedto-day n conditions ffullemployment ies somewherebetween8 per cent.and15 per cent. ofthe income ofeach year.What annual percentage ncrease n thestockof capital would this rate of saving involve?To answer this we have toestimatehow many years of our national income the existing tock of capitalrepresents. his is not a figurewhichwe know accurately,but it is possible toindicate an order of magnitude. You will probably findwhen I tell you theanswer that t differs good deal fromwhat you expect. The existingnationalstockof capital is equal to about four times a year'snational income. That is tosay, ifour annual income is in the neighbourhood f ?4,000 millions, ur stockof capital is perhaps ?15,000 millions. I am not here includingforeign nvest-ment,which would raisethefigure o,say, four nd a halftimes.) It followsthatnew investmentt a rateofsomewherebetween 8 per cent. and 15 per cent. ofayear's ncomemeans a cumulative ncrement n the stockofcapitalof somewherebetween 2 per cent. and 4 per cent. per annum.Let me recapitulatethe argument.Please take note that I have been mak-ing so far two tacitassuinptions-namely hatthere s no drasticchange in thedistributionfwealthor in any otherfactoraffecting he proportionl f incomethat is saved; and further, hatthere s no large change in the rate of interestsufficientomodify ubstantially helengthof the average period ofproduction.To theremovalofthesetwoassumptionswe shall return ater. On theseassump-tions,however,withour existingorganization, nd in conditionsof prosperityand fullemployment,we shall have to discovera demand fornet additions toour stockofcapital amounting o somewherebetween2 per cent.and 4 per cent.annually. And thiswill have to continueyear after year indefinitely.et us inwhatfollows akethelowerestimate-namely2 per cent.-since ifthis s too lowtheargumentwillbe a fortiori.Hithertothe demand fornew capital has come from wo sources,each ofabout equal strength: little ess thanhalf of t tomeetthedemands of a grow-ingpopulation; a littlemore thanhalf of it to meet the demands of inventionsand improvements hich ncrease outputper head and permit higher tandardof life.Now past experience howsthat a greater umulative ncrement han 1 percent.per annumin the standardof lifehas seldomproved practicable.Even ifthefertilityf nventionwould permitmore,we cannoteasilyadjustourselvestoa greaterrate of change than this involves.There may have been one oi two


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522 ARCHIVESdecades n this ountry uring he past hundred earswhen mprovementasproceeded t therate f 1 percent.per annum. utgenerallypeaking he rateof mprovementeems o havebeensomewhatess than1 percent.perannumcumulative.I amheredistinguishing,ouwill see,between hose nventions hich n-able a unit f capital o yield unit fproductwith he aid of ess abour hanbefore, nd thosewhich ead to a change n theamount f capital employedmore han nproportiono the resultingutput. amassuming hat hefolrmerclass of mprovementsill proceed n thefuture s in the recent ast, nd amready o take s my ssumptionhat heywill proceed n the nearfuture p tothebest tandard e have ever xperiencedn anyprevious ecade;and calcu-late that nventionsalling nder hishead are not ikely o absorbmuchmorethanhalf four avings, ssuming onditionsffull mploymentnd a stationarypopulation. ut nthe econd ategoryome nventionsut omewayand sometheother, nd it is notclear-assuming constant ateof interest-thathe netresult f inventionhangesdemand orcapitalper unitofoutput ne wayortheother.It follows,herefore,hatto ensure quilibriumonditions f prosperityover period fyears twillbe essential,itherhatwealter ur nstitutionsndthedistributionfwealthn a way which auses smaller roportionf ncometobe saved, rthatwe reduce herate f nterestufficientlyomakeprofitableveryarge hangesntechnique r nthedirectionf consumptionhichnvolvea much arger se ofcapital nproportionooutput. r,ofcourse, s would bewisest, e couldpursue oth olicies oa certain xtent.

IIIWhatrelation o theseviewsbear to theolder Malthusian heory hatmorecapital esources erhead (chieflynvisaged y the olderwritersn theshapeofLand) must e of mmense enefito the tandardf ife, nd that hegrowthofpopulation as disastrouso human tandards yretardinghis ncrease?tmay eem t firstight hat am contestinghis ld theory nd am arguing,nthecontrary,hat phase ofdeclining opulation illmake timmensely oredifficulthan eforeomaintainrosperity.In a sense his s a true nterpretationfwhat amsaying. ut f there reanyoldMalthusianserepresentet themnot uppose hat amrejectingheiressential rgument. nquestionably stationaryopulation oes facilitaterisingtandard f life;but on one conditionnly-namely hatthe ncrease nresources r in consumption,s the case may be, which he stationarinessfpopulationmakespossible, oes actually ake place. Forwe have now learnedthatwe haveanother evil at our elbow at least as fierce s theMalthusian-namely hedevilofunemploymentscaping hroughhe breakdown f effec-tivedemand.Perhapswe could call thisdeviltooa Malthusianevil, ince twas Malthus himselfwho first old us about him. For just as the youngMalthuswas disturbedythefacts fpopulation s he saw themroundhimand sought o rationalizehatproblem, o the olderMalthuswas no less dis-turbed ythe facts funemployments he saw them oundhimand sought-


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EconomicConsequences fa Declining opulation 523far less successfully o far as his influenceon the rest of the world was con-cerned-to rationalize that problem too. Now when Malthusian devil P. ischained up, Malthusian devil U. is liable to break loose. When devil P. ofPopulation s chained up, we are free of one menace; but we are moreexposedto theotherdevil U. of UnemployedResourcesthanwe were before.With a stationary opulation we shall, I argue, be absolutelydependentforthe maintenanceof prosperity nd civil peace on policies of increasingcon-sumptionby a more equal distributionf incomesand of forcingdown therateof interest o as to make profitable substantialchange in the length of theperiodofproduction. f we do not,of set and determinedpurpose,pursuethesepolicies,thenwithout questionwe shall be cheated of the benefitswhich westandto gain by the chainingup ofone devil,and shall suffer rom heperhapsmore intolerabledepredationsof the other.

Yet therewill be manysocial and political forcesto oppose the necessarychange. It is probable that we cannot make the changes wisely unless wemake themgradually.We must foresee what is before us and move to meetit half-way. f capitalistsociety rejects a more equal distribution f incomesand the forcesof banking and financesucceed in maintainingthe rate of in-terest omewherenear the figurewhich ruled on the average duringthe nine-teenthcentury which was, by the way, a little ower than the rate of interestwhich rules to-day), thena chronic endency owards theunder-employmentfresourcesmust in the end sap and destroythat form f society.But if,on theotherhand, persuaded and guided by the spiritof the age and such enlighten-ment as there is, it permits-as I believe it may-a gradual evolution in ourattitudetowards accumulation, so that it shall be appropriateto the circum-stances of a stationary r decliningpopulation, we shall be able, perhaps, toget the best of both worlds-to maintain the liberties nd independence of ourpresentsystem,whilst ts more signal faults graduallysuffer uthanasia as thediminishing mportanceof capital accumulation and the rewardsattachingtoitfall ntotheir roperpositionnthesocial scheme.A too rapidlydeclining population would obviouslyinvolve many severeproblems, nd thereare strongreasons lyingoutside the scope of this evening'sdiscussionwhyin that event,or in the threatof thatevent,measuresought tobe taken to prevent t. But a stationary r slowlydeclining populationmay,ifwe exercise the necessary trengthnd wisdom,enable us to raise the standardof life to what it should be, whilst retaining those parts of our traditionalscheme of life which we value the more now that we see what happens tothosewho lose them.In thefinal ummingup, therefore, do not departfrom heold Malthusianconclusion. onlywishtowarnyouthatthechainingup ofthe one devil may, fwe are careless,onlyserveto loose another tillfiercer nd more intractable.

keynes declining population

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