Adam Smith on the Demographic Throttle
Introduction
Adam Smith lived from 1723 to 1790 and is widely regarded as the father of economics. He was a Scottish moral philosopher and taught at the University of Glasgow. His masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations was first published in 1776. This book is considered a seminal work in the field of Economics.
Talking About My Generation
Smith notes that where national economic growth is slow, the wages of labor are not high. This is certainly evident in the current economic downturn. Most companies froze wages during 2008 and 2009 – and many forced employees to take wage cuts. Smith believes that the wages paid to workmen act as a natural throttle on population growth. Where wages are increasing, families can afford to properly rear children and the children have a chance for prosperity. Where the purchasing power of wages is decreasing, children become more difficult to care for and families are less likely to produce them. One problem with this idea is that the throttling has such a delayed effect: 15-25 years. As the workforce expands (because of increased population) there’s more competition for jobs causing wages to drop. Where there is strong demand for labor and a steady or shrinking supply, the competition for labor will keep wages growing. Smith maintains that
The demand for those who live by wages, therefore, necessarily increases with the increase of the revenue and stock of every country, and cannot possibly increase without it. The increase of revenue and stock is the increase of national wealth. The demand for those who live by wages, therefore, naturally increases with the increase of national wealth and cannot possibly increase without it.
I suppose that if productivity were increasing faster than GDP, this would be seen as an increase in GDP without an increase in average wages. A disruptive new technology could have this effect.
I do not think that it makes sense to use economic conditions to try to predict major demographic shifts like an increase or decline in birth rate. The US has experienced several recessions since the beginning of the 20th century and these cannot be tied to bad times. Drucker notes that the two largest Baby Busts (1925-1935 and 1961-1975 began during boom times (Drucker, 2008, p. 49).
I did most of my reading in The Wealth of Nations using a free audio book from LearnOutLoud.com. The free audio edition by Michael Edwards is very well done and made the book much more approachable.
Drucker, P.F. (2008). Management, revised edition. New York, NY. HarperCollins Publishers
Smith, A. (1776). The wealth of nations. New York, NY. Random House
