Classical Economics – Malthus and Ricardo Flashcards
What was the main theory Malthus argued for?
The Malthusian trap
What was the Malthusian trap?
Where is a more simple economy where the main produce is food, if there is a rise in incomes (crops) then there will be a rise in population growth and in turn a rise in population.
As land is fixed there will be less land per person and so income will fall, causing a fall in population and a return to the initial point.
Therefore, Malthus said the majority of the population would never reach above a subsistence level of income.
What did Malthus say the impact of a one off technological advancement would be?
In Malthus’s time technological advancement was rare and so there may only be a single improvement in technology over a period of time.
This would cause a rise in income as land became more productive causing the same rise in population and fall in incomes.
However as more food can be produced with the same amount of land, income (per capita) wouldn’t rise in the long term but population would. This would be seen by the initial rise before growth returns to 0 as peoples incomes return to a subsistence level.
Was Malthus correct?
Up until his time and the evidence he had available he was correct, however, at around the point of writing the industrial revolution was about to begin and his correct theory was about to become incorrect.
What happened in the 1300s that caused a rise in income and an example of the Malthusian trap?
The black death caused a rise in death rate and fall in the population, causing a subsequent increase in incomes per capita as people had more land each.
However by the 1600s the income per capita was back to the original levels and showed as an example of the Malthusian trap.
What did Malthus say about charity?
Although it isn’t certain that this is directly his view, Malthus did say that charity didn’t help the poor but just impoverish the rich.
This was because the donation would increase the income per capita temporarily but due to increases in population and the concurrent decrease in income per capita they would be in the same place as before the charity but the rich would be worse off.
Did Malthus believe that a country could escape the Malthusian trap?
He argued that as long as technology stayed ahead of population. the population would keep rising and when population eventually caught up the country would return to the Malthusian trap.
Therefore, in the long run they would return to their original state.
How did the industrial revolution allow Britain and other countries to escape the Malthusian trap?
After the industrial revolution, innovation stayed ahead of population for so long that attitude changed and higher income stopped leading to an increase in population.
The main reasons for the break in income to population trend were:
* The opportunity cost of having children due to given up income as parents stay at home.
- Real cost of having children rises due to urbanisation raising the prices of large houses.
- Falling returns of having children as child labour becomes banned due to industrialisation.
- Higher income reduces the death rate and so infant mortality falls and there is less of a chance that all of your children die so you can have less children to have the same number of survived children.
What was Smiths case for free trade?
Smith talked about absolute advantage and that they would both benefit from free trade and so there should be no restrictions in place.
How does Ricardos case for free trade go further?
Ricardo makes the case for comparative advantage where one country can produce both cheaper but one can produce a good at a lower opportunity cost.
Ensure understanding of comp advantage graphs and how the points move when they begin to trade
Look at notes with reference to how there is a range of points where both countries benefit to differing degrees if one country desperately needs a product.
What are the reasons against free trade?
For national security – don’t want to buy from / fund hostile nations
Protect infant industries and domestic employment
Why might you not want to protect infant industries?
Governments aren’t often good at picking which industries should be protected.
Also, the benefits are small and spread out across an economy so aren’t noticed but the decision can’t be backtracked as they will lose votes and cause job losses that would have occurred naturally.
What are the arguments for free trade?
Increases size of firm’s market – economies of scale and incentive to innovate
Movements of knowledge as efficient goods can be imported and replicated
Increases competition in monopolistically competitive markets creating innovation and efficiency gains.
What were Ricardos beliefs about tariffs?
Ricardo believed that tariffs should never be used even as retaliation as they damage consumers even more than they benefit producers.
He also believed that tariffs should be removed even if the other country also has tariffs enforced.
