Declining population growth and economic stagnation theory

Abstract

The fundamental backgrounds of this thesis are the severe depression and weak recovery of the thirties and the trend of declining population growth since 1925. The stagnation theory relates these economic and demographical phenomenon in the way that the fundamental cause of the trend of the secular under-employment fluctuation is the increasing proportion of total saving and the vanishing of investment opportunities among which declining population growth is almost the most important one. This thesis aims at the investigation of whether and how the decline of population growth affects the business activities and precipitates the under-employment condition as the stagnationists stated. Throughout the study, decline of population growth means the decline of the annual increment of population. This annual increment as well as the total population at any time consists of three different groups of people: the dependant group, young and old, and the working age group. When population growth declines the age composition will be correspondingly shifted. The young people group will be smaller, the working age group will increase slowly and the old aged group will be larger. The continueous decline of population growth is unfavorable to the business' expectation of profit and, therefore, discourages investment. Some businesses like public utilities residential and railroad construction depend primirily upon that increase of population. The shift of age composition will, as a whole, and especially under the condition of rising social income, decrease the demands for necessities like food, clothing and housing which require more capital per worker or per unit of product and increase the demands for luxuries like personal services and fashionable goods which not only require less: capital per worker but also increase the risk and uncertainty of the business. At the same time savings will also be increased which makes the task of maintaining full employment more difficult. All these are long run secular effects. In the short run, these effects are not easy to perceive. However, even if we can not attribute the cause of business cycle to population change, we can see that the decline of population growth tends to shorten the period of prosperity and deepening the period of depression. Chapter on the theoretical controversies throws light on the fact that the predictions of the stagnationists are not well founded although their theoretical analysis seems sound. The anti-stagnationists have good reasons to doubt the predictions but their theoretieal argument are very unsystematical. The last chapter on optimum population was touched by the stagnationists nor by the anti-stagnationists. It was discussed because it was implied in their arguments. As a whole, the stagnationist emphasized the maximization of national product while the anti-stagnationists emphsized the maximization of per capita income. Consequently, in most cases, the optimum population of the stagnationists is larger.