This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 4. Rhythmic change and cumulative change. Into an economy that is characteristically static, disturbing influences are constantly entering. Some of these forces make a considerable temporary change which, however, is but rhythmic, as it calls into operation counter-forces, bringing back the old level of equilibrium. Other forces are more lasting.
Dynamic problems in economics are not always easily distinguishable from static problems; but in most cases the difference is clear. Changes may range from very slight and temporary departures from a certain static equilibrium to those that are relatively great and lasting. Accordingly, two types of dynamic change may be distinguished. One is the rhythmic change, the stato-dynamic change, where the movement more or less regularly oscillates above or below a " normal equilibrium"; it is cyclical, in that the change runs a cycle above and below the normal and back to the starting point. This appears, in any brief period, to be dynamic, but is merely rhythmic when viewed over a larger period. Another type of dynamic change is cumulative, or transformational, or permanent, meaning that the forces at work are not such as will of themselves generate resistance (as does a swinging pendulum) sufficient to carry them back to the starting point.
* In a completely static state the level of prices and incomes would continue unchanged throughout the successive periods of time, as represented by the line AAA which remains parallel with the base line. The dotted line B which oscillates above and below A represents the rhythmic change. Line C represents a transformational (truly dynamic) change through a period of time to a permanently higher static level of CC; whereas D represents a transformational change and a lower static level DD'.
§ 5. Some forces making for change. "With many of these changes there is nothing that makes for permanent progress. There is a maximum and a minimum of prosperity, but the pendulum has a limited swing. There is in a rhythmically dynamic society far more of risk and uncertainty, of need and opportunity for judgment, of range for enterprise and alert management, than in a purely static state. None of these forces and influences change with perfect regularity, and even when the general average is pretty even from one cycle to the other, there is an element of the unpredictable any year about the total movement as well as about the details.
Only a few of the influences that bring about rhythmic changes are mentioned here. Political forces are constantly changing and bring economic results. In the past it has been almost proverbial that in each generation a nation must have a war, having had just time enough to recover from the last one. A vacillating policy of taxation, of foreign trade and tariff duties, and of economic legislation keeps business in a constant process of adjustment.
The discovery and production of the precious metals, gold and silver, follows always a somewhat irregular cycle. There result changes in the supply of money and in the scale of prices. The treatment of these particular questions is reserved for a later volume, but some other dynamic changes will be here considered.
§ 6. Population-change as a dynamic force. Every kind of dynamic change involves a shift in the ratio of the various factors of production in the community. On one side of this ratio is always the human factor; and the most general and far reaching of all dynamic problems is presented by changes in population. The effects of the saving and conservation of material goods, of waste, luxury, and destruction, of multiplying tools and machines and of improving them in quality by invention, all are relative to the number of people in that economy. If the number of people increases in exactly the same ratio as the area of land (having like qualities) that is brought into use, as the number of tools and machines, and as the whole economic equipment, it is as if no change took place. But if any one of these factors moves faster or slower than any one of the other, or if other changes occur of a moral, political, or educational nature affecting the capacity, efficiency, and habits of choice of men, then the static equilibrium is disturbed. A new normal equilibrium is involved in every new setting of the population in its economic environment. Some of these changes may involve little more than a substitution of one material agent for another, such as electricity for steam, or cement for lumber; some of these changes affect the relative positions of various individuals without altering much the general or average level of income; but all of them involve more or less a shift in the general level of welfare, the most important economic change in the eyes of the social student.
We shall therefore take up first the problem of population, and ask what are the effects of a change in the number of people in and of itself, other things remaining equal. Then we shall consider what are the effects of changes in the objective factors, the area of land, its fertility, the discovery, use, and using up of natural resources, and the invention and increase of machinery. Finally we shall consider the subjective factor, human nature, in the use, saving, and accumulation of wealth.
§ 7. The Malthusian doctrine. The subject of population was brought into prominence in economic discussion by the writings of Malthus.2 Before that some thoughtful comments had been made here and there, but it had been generally assumed that the larger the population the better for the country. Malthus, an interested student of contemporary projects of social improvement, was struck by the significance of some facts of observation and of history, and arrived quickly at the conclusion that the excessive growth of population is the cause of much of the misery and poverty in the world.
2 An essay on the principle of population, as it affects the future improvement of society, by Thomas Robert Malthus, London, 1798. Second edition, 1803.
He believed also that this excessive increase would be sure to occur in a state of communism, and would alone be sufficient to wreck the ideal societies which the reformers of that period of the French Revolution were fond of picturing.
This was the general idea, but in some respects the thought was hazy and there is even yet room for discussion as to just what the Malthusian "principle of population" is. Some think it is expressed in the proportion of the opposing ratios; population has a tendency to increase in a geometrical ratio, and food in an arithmetical ratio. Thus, says Malthus, while food increases 1, 2, 3, 4, 5, 6, etc., population increases 1, 2, 4, 8, 16, 32, etc. This was the thought of Malthus: that population was always "pressing upon" the means of subsistence, and keeping large numbers on the verge of want.