Luxury Goods and the Malthusian Trap

A review of If Not Malthusian, Then Why?, by Lemin Wu.

For many thousands of years prior to the Industrial Revolution, people around the world lived subsistence lives.  Families toiled amidst stagnant living standards despite technological advances in agriculture, tools, and some forms of luxury production.  Scholars have mostly settled on the “Malthusian Trap” as the primary explanation for this long-term stagnation.  In the early 1800s, the political economist Thomas Malthus theorized that as technologies advanced, particularly agricultural technologies, the population would grow; however, the size of the population would eventually “catch up” with the new technologies, leading the populace to remain near subsistence level in the long term, i.e., the Malthusian Trap.  For example, in Ireland, the advent of the potato crop led to a population explosion, but then ultimately to widespread famine.  Historical data shows that some ancient societies, such as the market economies of China’s Song Dynasty and ancient Rome, had significantly higher living standards, but lacking any alternative to Malthus’ theory, scholars view these cases as anomalies that do not fundamentally challenge the Malthusian explanation of long-run stagnation.

In his new study, If Not Malthusian, Then Why?, the economist Lemin Wu of Peking University shows that the Malthusian Trap alone can not explain the persistent poverty of millennia.  Wu argues that although the Malthusian Trap makes the correct predication (that is, long-term stagnation), the reasoning behind the prediction is wrong.  Essentially, the Malthusian analysis assumes a one-sector economy.  In contrast, Wu models the pre-industrial economy as having two sectors, subsistence and luxury, and this model accommodates variations in living standards in pre-industrial times, rather than viewing them as anomalous.  According to Wu, luxury goods increase living standards and quality of life, and of course, in the real world, what constitutes a luxury has varied by time and place.  Importantly, luxury goods do not increase the population, but the availability of subsistence goods does increase the birth rate and population, without necessarily increasing living standards.  To illustrate this, Wu gives the example of wheat.  He notes: “The affordability of wheat, once considered a luxury, had little impact on population growth in Britain, but the affordability of barley and oats, poor people’s staple foods, almost solely explained the impact of real wages on birth and death rates [i.e., leading to higher birth rates and thus population growth].  However, barley and oats were merely ten percent of the English economy, much smaller than the share of wheat. The remaining ninety percent, including wheat, beef, cottons and candles, hardly mattered demographically.  Productivity improvements in the ninety percent increased the long-term living standards with more families switching from porridge to bread and starting to call tea, sugar and coffee ‘necessities’” (p. 15).  Wu articulates several reasons why — in theory — advances in luxury technologies should outpace advances in subsistence (agricultural) technologies.  For example, “industrial innovations are less constrained by the possibilities of nature than agricultural innovations” (p. 18).  Given this, in the long span of history, the faster clip of luxury-related advances should have enabled living standards to rise.  Yet, luxury advances did not outpace those in the subsistence realm.  Instead, economic growth remained somehow “balanced” between the luxury and subsistence sectors, resulting in stagnation.

Wu’s study is concerned with how the economy maintained this “balance” over the centuries.  According to Wu’s analysis, the balance occurred due to competition between the luxury and subsistence sectors.  Wu argues that advances in luxury production (e.g., diamonds, circuses, etc.) increase individual welfare, but advances in subsistence production increase the population, thus promoting what Wu calls “group fitness” (pp. 13-14).  This differs from Malthus’ one sector pre-industrial society, which does not account for competition between individual welfare and group fitness.  Wu finds that potential economic growth and gains in living standards from luxury production were tempered by the fact that groups of people living in regions that were largely subsistence-based would tend to re-locate to regions where luxury production was higher.  Wu calls this “biased migration.”  Wu explains: “Luxury-rich groups have a higher death rate than birth rate.  The under-reproduction is filled up with continuous immigration from subsistence-rich groups whose birth rate exceeds the death rate.  The luxury-rich region thus becomes a demographic sink [a ‘source-sink’] that devours the surplus population of the subsistence-rich regions” (p. 4).  Ultimately, Wu’s study shows that even a small degree of biased migration will suppress the increase in living standards that would accrue due to luxury technologies advancing faster than subsistence technologies.

In Section Two, Wu situates this research among scholars who have also used two-sector models to examine long-run economic growth.  Among this research, Wu’s approach is unique in that he models consumption sectors (luxury versus subsistence) as well as considering why the potential economic growth from the luxury sector was not realized in the pre-industrial world.  Other scholars have defined sectors by production, e.g., agricultural production uses land while manufacturing does not.  As examples, Wu cites the work of Diego Restuccia, Dennis Yang, and Xiaodong Zhu (“Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis,” Journal of Monetary Economics 55 (2): 234–250, 2008) as well as Nico Voigtlander and Hans-Joachim Voth (“The Three Horsemen of Riches: Plague, War, and Urbanization in Early Modern Europe,” The Review of Economic Studies 80 (2): 774–811, 2013.)  When other scholars have used consumption sectors, their research has not addressed how the luxury sector – if not suppressed by biased migration – could allow society to escape the Malthusian Trap.  Here, Wu mentions John Davies’ work (“Giffen Goods, the Survival Imperative, and the Irish Potato Culture,” Journal of Political Economy: 547–565, 1994) and research by Scott Taylor and James Brander (“The Simple Economics of Easter Island: A Ricardo-Malthus Model of Renewable Resource Use,” The American Economic Review 88 (1): 119–138, 1998).  Richard Lipsey, Kenneth Carlaw, and Clifford Bekar (Economic Transformations: General Purpose Technologies and Long-Term Economic Growth, Oxford University Press, 2005) and Jacob Weisdorf (“Malthus Revisited: Fertility Decision Making Based on Quasi- Linear Preferences,” Economics Letters 99 (1): 127–130, 2008) have also modeled consumption sectors.  Wu sees his analysis as most similar to that of David Levine and Salvatore Modica (“Anti-Malthus: Conflict and the Evolution of Societies,” Research In Economics, 2013).  Their two-sector analysis considered resource allocation between the state and the people, emphasizing how the state can use resources for wars and other conflicts.

Sections Three and Four constitute the analytical core of Wu’s study.  In these sections, Wu challenges the reasoning behind the Malthusian Trap by doing three things:.  “First, I show that sectoral division is a salient feature of historical data.  Second, I uncover the source-sink pattern in historical migrations.  Third, I simulate and mathematically prove that living standards would grow in a Malthusian economy unless [biased migration toward higher luxury areas] is introduced, and that a tiny bit of [biased migration] can suppress a strong tendency toward growth” (p. 4).  The body of Wu’s study is a concise and well-organized 45 pages, and in the key analytical sections, he includes elegant charts for his two-village, two-sector general equilibrium model.  These charts show the shifts in production possibility frontiers, indifference curves, and constant population curves.  Sections Three and Four provide Wu’s mathematical proof for a new rationale – namely, “biased migration” – for the Malthusian Trap.

In Section Five, Wu rethinks major events of economic history to show how biased migration likely suppressed economic gains that would have accrued from the luxury sector.  Wu notes: “The sea peoples raided Anatolia, Levant and Egypt; the Huns and Goths ruined the Western Roman Empire; the Jurchens and Mongols conquered the Song Dynasty of China” (p. 37).  Wu’s explanation about the Roman Empire is appealing. In the Malthusian view, the average Roman lived just beyond subsistence only because – for a short while – the Roman population had not caught up with technology; when it finally did, prosperity was gone (Peter Temin, The Roman Market Economy, Princeton: Princeton University Press, 2013).  But Wu argues that this does not explain why the Roman emperor “recruited armies of ‘barbarian’ immigrants, allowing the Gothic refugees from the Huns to reside within Roman territory…”  This constituted, in effect, biased migration.  Moreover, Wu notes: “After the collapse of Rome and the decline of the population that followed, …average living standards did not rise as Malthusian theory predicts.”  According to Wu, “the Romans were rich because their economic system encouraged luxury production and consumption” (p. 37) through market-friendly policies and institutions.  This context supported commerce and manufacturing more than agriculture.  Wu suggests that after the fall of Rome, Europeans were poor because the new rulers did not continue with policies that were friendly to commerce and industry and thus to the luxury sector.

Wu’s research also suggests how we might re-interpret the economic take-off from the time of the Industrial Revolution.  The take-off is usually understood from the Malthusian view as a demographic transition, i.e., changes in birth, death, and fertility rates.  However, Wu’s modeling suggests that the economic gains may have been predicated on changes in “institutions, trade, social insurance, Renaissance, or Scientific Revolution” (p. 42).

If Not Malthusian, Then Why? will challenge scholars’ understanding of pre-industrial economic history and suggest new ways to analyze major events in economic history, including the Industrial Revolution.  By utilizing multi-sectoral analysis, this study also provides a launching point for further research on economic development, migration, and sectoral competition in the contemporary era.

Susan Mays and Hua Cheng
Center for Asian American Studies and Department of Economics
The University of Texas at Austin
smays@utexas.edu; harrychenghua@utexas.edu

Primary Sources
Broadberry & Gupta, “Modern Great Divergence,” Economic History Review, 2006.
Chen & Kung, “Of Maize and Men…Population and Economic Growth in China,” 2013.
G. Clark, “Macroecon. Aggregates…1209–2008” Research In Economic History, 2010.
Hersh & Voth, “…Goods and the Rise of European Living Standards after 1492,” 2009.
A. Maddison, The World Economy: Historical Statistics, OECD Publishing.

Dissertation Information
University of California, Berkeley. 2013. 55pp. Primary Advisor: Bradford DeLong.

Image: Photograph by Author

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