Some Economic Consequences of a Declining Population Author(s): [John Maynard Keynes] Reviewed work(s): Source: Population and Development

Review, Vol. 4, No. 3 (Sep., 1978), pp. 517-523 Published by: Population Council Stable URL: . Accessed: 29/02/2012 20:49
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact

Population Council is collaborating with JSTOR to digitize, preserve and extend access to Population and Development Review.

if we are careless.steady population growth(along with capital accumulationand technologicalchange) was perceived by Keynes and othersas an essentialingredient an expandingeconomy." as it has come to be read in Lord Keynes's Galton Lecture delivered beforethe Eugenics Society in 1937 a wvarning against the widespread assumptionthat a stationary declining population or wouild be an unmitigated social and economic good."Needless to say. less capital accumulation. for It is interestingbut perhaps not surprising. But Keynesian theoryhas little to say about population change as a strategiceconomic variable-it being assumed in the best tradition classical and neoclassical economics that population growth of is "exogenously"determnined the natural biological procreative inclinations by of human beings. the positiverelationshipbetween population and income growthand the negative relationshipbettween population and unemployment increase embodied in the Keynesian theoryappear to be reversed. Keynes's predictions about a declining population proved grossly incorrect (thus confirmling initial statemient his that "we do not know what the futureholds"). "Keynesian economics. Moreover. lower aggregate savings. in the context of contemporary developing nations. Thus Keynes warns his audience that the "chainingup of one devil [population growth] may.therefore. only serve to loose anotherstillfiercer and more intractable[unemployment]. Within the Keynesian theoreticalframework. John Maynard Keynes. and ultieffective matelya higherlevel of unemployment. And yet Keynes's ideas in this 517 . has until the past few years guided governmentaleconomic policy in almost every advanced capitalist nation.ARCHIVES Some Economic Consequences of a Declining Population The most domninant force in postwar Western economic thoughtis undoubtedly that of the eminent British economist. declining population would lead to a lower level of a demand. Moreover.

changesto expect.But. most to modesof thought behaviour so repugnant ourconventional several a to Thereare. beingdifferent thepresent and thatwe. The future neverresembles past-as we well know. Peace and comfort mind Yet ourselves how little foresee. mostoutstanding the ofa case wherewe in facthave a considerable is powerofseeingintothefuture the prospective thanwe trendof population. 1 (1937): 13-17 and was in is reproduced below. resistance acting itin practice. We knowmuchmoresecurely that.518 ARCHIVES more rapid to speech about the necessity redistributing of incomnes promote ringin the population. Thoughit thatmultiplying the together following the numbers attachedto all the possibleconsequences a givenactionand of system whatto do. it compared withwhat we have been is virtually certain thatthe change-over. of Keynes'sGalton Lectureon the economicconsequencesof a declining population published theEugenicsReview29.We do not knowwhat the future of livingand moving beings. speaking.offer great . tend. to thatthe future in an we act in practice. coulddiscover we of probableknowledge was employed reducethe future the same calcuto to But even lable statusas the present. This is how the contrary all likelihood.The rateofdeclineis doubtful.they accepted an extraordinary of of courses actionwere School. a number to to of numberexpressing probability their the theirphilosophical century of contraption the Benthamite behaviour.we are forcedto act. ingredient the complacency reflections human on of the nineteenth that. on ofus. have thisunusualdegreeof knowledge We in of the becauseofthelongbutdefinite time-lag theeffects vital cerning future is from Nevertheless idea of thefuture the statistics. and secondlyanother from courseof actionin question.indeed. conused to. substitute theknowlconventions. do our to continues influence mindseven in thosecases wherewe do have good a example reasonto expect definite change. No I influenced somesuchpseudois by to-day believethatourthought sometimes rationalistic notions. factor relating the future to knowalmost any other socialor economic theplace of the steadyand indeedsteeply whichwe rising levelof population short of haveexperienced a great for number decades.perhaps.generally the our imagination our knowledge and are too weak to tell us what particular as holds.we shallbe facedin a very but time witha stationary a declining or level.bywhichall possible consequences alternative comparative first expressing their supposed have attached them. the of edge whichis unattainable certain will resemble past. one has ever acted on thistheory. In thiswaya mythical addingtheresults. chief whichis to assume.And. Nevertheless. will be substantial. I think. by Now I emphasize the of to-night importance thisconvention whichwe assume future be muchmorelikethepastthanis reasonable-aconvention the to ofbehaviour as it whichnoneofus couild possibly without-because. I think. we must we requiire we shouldhiide that from We to for be guidedby somehypothesis. a familiar have income growth theface of a declining in development literature the1970s.therefore.

with one outstanding economic consequence of this impending to change. roughlyspeaking. Moreover a mistake. In otherwords the demand forcapital depends on the number of conand the average period of production. if.the average level of consumption. By capital technique I mean the relative importanceof long processes as an efficient method of procuringwhat is currently described as consumed. and. althoughat long last pessimismmay tend to correct itselfthroughits effect supply. thatwe can relyon current changes of technique being of the .Many moderninventions are directed towards findingways of reducing the amount of capital investment necessaryto produce a given result. our preferenceis decidedly directedtowardsthose typesof capital goods which are not too durable. But.thatis to say.It is well known that highlydurable objects were characteristic the Victoriancivilization. Not only does the demand forcapital-apart fromtechnical changes and an improvedstandard of life-increase more or less in proportionto population. and a state of over-supplyis less easily corrected. But the effect inventionon the period of proof duction depends on the type of inventionwhich is characteristic the age. But in an era of decliningpopulation the opposite is true.and partlyas the resultof our experience as to the rapidityof change in tastes and technique.The demand for capital depends. fora moment. I can. sumers. the factorI have in mind being conveniently the period of production. ratherthan fall shortof.and on capital in such conditions rapidly corrected. II An increasing population has a very importantinfluence on the demand for capital. and the progressof inventionmay be relied onito raise the standardof life.But it is of not equally clear that the same thingis true to-day.Thus a pessimistic atmosphere may ensue. therefore. in standardsof housing and public serviceswere of such a characterthat they did tend somewhat to increase the period of consumption. business expectationsbeing based much more on present than on prospective demand. on the standardof life. on three factors: on population.resultingin a particulartype of capital being in temporary over-supply.EconomicConsequences a Declitning of Popuilation 519 important social consequences already predictable as a resultof a rise in population being changed into a decline. the first on result to prosperity a change-over of froman increasingto a decliningpopulation may be very disastrous. which is. Demand tends to be below what was expected. a weighted average of the interval which elapses between the work done and the consumption of the product. Now it is necessarilythe case that an increase in population increases prothe portionately demand forcapital. of course. I do not believe.I think.persuade you sufficiently depart fromthe established conventionsof your mind as to accept the idea that the future will differ fromthe past.what was hoped for. It of may have been true of the nineteenthcenturythat improvements transport.since demand will in general tend to exceed. in particular. But my object this evening is to deal. an era of increasingpopulation tends to promote optimism. too little importance. In assessing the causes of the enormousincrease in capital duringthe nineteenth centuryanid since.has been given to the influenceof an increasing population as distinct from other influences.

For the fifty was beforethe war.and the populationwhich Britishindustry And I suppose that the standardof lifemust have risen by a much higherfigure. I find Let us considerthe period of just over fifty no evidence of any importantchange in the length of the technical period of But production.Only if people were to spend of a decidedly increased proportion theirincomes on housing. those of housing and of agriculture. required to serve the increasingpopulation.Statisticsof quantityof real capital present special difficulties. indicate that about half the increase in capital was figures.. the population which are reliable. the to I will attemptto give a few veryroughfigures illustrate orderof magnitude of the different factorsinvolved.apart fromthe effect possible changes in the average period may be tending to diminish. Now.and only in a minordegree to technical changes of a kind which called for an increasingcapitalizationper unit of consumption.Moreover the rate of interest. has Agriculture diminishedin relativeimportance. duringwhich the long-periodaverage of the rate of interest to which there is indeed a certainamount of evidence forthe post-warperiod. Now duringthe same period the Britishpopulation increased by about 50 and investment was serving per cent. years from1860 to 1913.the demand for a significant net increase of capital goods is thrownback into being wholly dependent on an or in improvement the average level of consumption on a fallin therateofinterest.our consumptiontends to be directed towards those articles of consumption. in itself.For as we get richer.I feel some confidencethat the period was not lengthened by much more than 10 per cent.It may even be the case that. if as much.though I would emphasize that these conclusions are very rough and to be regardedonly as broad pointersto what was going on: 1860 Real capital Population Standardof life Period of production 100 100 100 100 1913 270 150 160 110 in It follows that a stationary population with the same improvement the standard of life and the same lengtheningof the period of productionwould .are old-established. those which we have do not suggest that there have been large changes in the amountof capital employed to produce a unit of output.Two of the most highly capitalized services.520 ARCHIVES kind which tend of themselvesto increase materiallythe average period of proof duction. should I expect years a significant of lengthening the technicalperiod of production.the an improvingaverage level of consumption the of effect diminishing average period of production.particularlythe services of other people. Perhaps the figureswere about as follows.. Thus the increased demand for capital was attributableto the increasingpopulation and to the risingstandard of primarily life. which have a relativelyshort average period of production. if the numberof consumersis fallingoffand we cannot rely on any of technical lengthening the period of production. by somewhere about 60 per cent.To sum up. may conceivably have.

our stock of capital is perhaps ?15. new investment a rate of somewherebetween 8 per cent. There may have been one oi two .000 millions.whilst nearlyhalf of the home investment was required by the increase in population. and 4 per cent. This is not a figurewhich we know accurately.but it is possible to indicate an order of magnitude. to the To the removalof these two assumptionswe shall return later. do not feel confident I about this. per annum.which would raise the figure say.) It followsthat to. What annual percentage increase in the stock of capital would this rate of saving involve? To answer this we have to estimate how many years of our national income the existingstock of capital represents. and 15 per cent.probably a substantially higherproportion the foreign of to investment thatperiod was attributable this of cause.EconomicConsequienices a Declining of Population 521 have requiredan increasein the stockof capital of only a littlemore than half of the increase which actually occurred. That is to say. fourand a half times.and a number of other institutional and social influences may have raised the proportionof the national income which tends to be saved in conditionsof full employment. Moreover. On the otherhand it is possible that the increase in average incomes. with our existingorganization. shall have to discover a demand for net additions to we our stockof capital amountingto somewherebetween 2 per cent.which tenidin the opposite direction. per annum in the standard of life has seldom proved practicable. if our annual income is in the neighbourhoodof ?4.we cannot easily adjust ourselvesto a greaterrate of change than this involves. and further. notablythe taxationof the veryrich.however. annually. of a at year'sincomemeans a cumulativeincrement the stockof capital of somewhere in between 2 per cent. (I am not here including foreigninvestment. Hithertothe demand for new capital has come fromtwo sources. Even if the fertility invention of would permitmore. each of about equal strength: littleless than half of it to meet the demands of a growa ing population.Please take note that I have been making so far two tacit assuinptions-namelythat there is no drastic change in the of distribution wealth or in any other factoraffecting the proportionl income of that is saved. the decline in the size of families. a littlemore than half of it to meet the demands of inventions and improvements which increase output per head and permita higherstandard of life. You will probably find when I tell you the answer that it differs good deal fromwhat you expect. that there is no large change in the rate of interest sufficient modifysubstantially lengthof the average period of production. Let us in what followstake the lower estimate-namely2 per cent. of the income of each year. And this will have to continue year afteryear indefinitely. since thereare otherfactors. Let me recapitulatethe argument.But I thinkwe can safelysay-and thisis sufficient my for argument-thatthe proportionof the national income which would be saved to-dayin conditionsof fullemployment lies somewherebetween 8 per cent. The existingnational a stockof capital is equal to about fourtimes a year's national income.and in conditionsof prosperity and full employment. and 4 per cent. On these assumptions. Now past experienceshows that a greatercumulativeincrement than 1 per cent. and 15 per cent.000 millions.-since if thisis too low the argumentwill be a fortiori.

III What relation theseviewsbear to the older Malthusian do theory thatmore capitalresources head (chiefly per in envisaged the olderwriters the shape by ofLand) must ofimmense be benefit thestandard life. of it either we alterourinstitutions that and thedistribution wealthin a way whichcausesa smaller of of proportion income to be saved. I am heredistinguishing. For we have now learned thatwe have another devil at our elbow at least as fierce the Malthusianas namelythe devil of unemployment escapingthrough breakdown effecthe of tivedemand. to of and thatthegrowth of population was disastrous humanstandards retarding increase? It to this by mayseemat first sight thatI am contesting old theory am arguing.and am readyto takeas myassumption theywillproceedin thenearfuture to that up thebeststandard haveeverexperienced anyprevious we in decade.perannum. wouldbe as use to Or. and thosewhichlead to a changein the amountof capitalemployed morethanin proportion theresulting to output. ifthere of But are anyold Malthusians herepresent them supposethatI am rejecting let not their essential argument. the case may be. am assuming I thatthefolrmer classof improvements proceedin thefuture in the recent will as past. between you thoseinventions whichenable a unitof capitalto yielda unitof product withtheaid of less labourthan before. couldpursue to bothpolicies a certain extent.per annum less cumulative. It follows. of course. on this and thecontrary. For just as the young Malthuswas disturbed the factsof population he saw themroundhim as by and sought rationalize to thatproblem.or thatwe reducetherateofinterest to sufficientlymakeprofitable in very which largechanges technique in thedirection consumption or involve of a muchlarger of capitalin proportion output. at But generally speaking rate the of improvement seemsto have been somewhat than1 per cent. it is not clear-assuming constant of interest-that net and a rate the result invention of changesdemandforcapitalper unitof outputone way or theother. a phaseof declining that will more population makeit immensely difficult before maintain than to prosperity.since it was Malthushimself who first told us about him. assuming conditions fullemployment a stationary of and population. does actually takeplace.522 ARCHIVES decadesin thiscountry during past hundred the yearswhenimprovement has proceeded therateof 1 percent. the older Malthuswas no less disso turbed thefactsof unemployment he saw themroundhimand soughtby as .Perhapswe could call thisdevil too a Malthusian devil. we wisest. In a sensethisis a trueinterpretationwhatI am saying. to ensureequilibrium that conditions prosperity of overa period years willbe essential. willsee.but on one condition of only-namely thatthe increasein resources in consumption. and I calculate thatinventions falling underthishead are notlikely absorbmuchmore to thanhalfofoursavings. therefore. Unquestionably stationary a populationdoes facilitate a rising standard life. whichthe stationariness or as of population makespossible. in thesecondcategory But someinventions someway and some cut theother.

If we do not.Population of EconomicConsequences a Declining 523 far less successfullyso far as his influenceon the rest of the world was concerned-to rationalize that problem too. so that it shall be appropriate to the circumstances of a stationaryor declining population. It is probable that we cannot make the changes wisely unless we make them gradually. then a chronictendencytowards the under-employment resourcesmust in the end sap and destroythat formof society. do not depart fromthe old Malthusian I conclusion.I onlywish to warn you that the chainingup of the one devil may. is chained up. we are freeof one menace. a little lower than the rate of interest of which rules to-day). if and wisdom. But if. pursue these policies. by the way. whilst retaining those parts of our traditional scheme of life which we value the more now that we see what happens to those who lose them.and there are strongreasons lyingoutside the scope of this evening's discussion why in that event. perhaps. is liable to break loose. we shall be able. to get the best of both worlds-to maintain the libertiesand independence of our euthanasia as the presentsystem. persuaded and guided by the spiritof the age and such enlightenment as there is. of Population is chained up. measures ought to be taken to prevent it. If capitalist society rejects a more equal distributionof incomes and the forces of banking and finance succeed in maintainingthe rate of interestsomewhere near the figurewhich ruled on the average during the nineteenthcentury(which was. Yet there will be many social and political forces to oppose the necessary change. if and more intractable. But a stationaryor slowly declining population may. be absolutely dependent and civil peace on policies of increasingconforthe maintenanceof prosperity of sumptionby a more equal distribution incomes and of forcingdown the rate of interestso as to make profitablea substantial change in the length of the period of production. With a stationarypopulation we shall. on the otherhand. but we are more exposed to the other devil U. Malthusian devil U. We must foresee what is before us and move to meet it half-way. or in the threatof that event.only serve to loose anotherstillfiercer . In the finalsummingup. we are careless. Now when Malthusian devil P. therefore. When devil P. of set and determinedpurpose. enable us to raise the standard we exercisethe necessarystrength of life to what it should be. then without question we shall be cheated of the benefitswhich we fromthe perhaps stand to gain by the chaining up of one devil. it permits-as I believe it may-a gradual evolution in our attitude towards accumulation. and shall suffer more intolerabledepredations of the other.whilst its more signal faults gradually suffer diminishingimportanceof capital accumulation and the rewards attaching to properpositionin the social scheme. of Unemployed Resources than we were before. it fallintotheir A too rapidly declining population would obviously involve many severe problems. I argue.

Sign up to vote on this title
UsefulNot useful