Overview
Malthus' theory is often understood to be a gloomy forecast of the future of the economy. In actuality, it was a theory of a cyclical behaviour of the economy, which has its gloomy down cycle.
Malthus was primarily analyzing an agricultural economy and made the following assumptions.
- Capital (land) is in fixed supply
- Technology is constant
Malthus then reasoned that as population rises, the ratio of capital to labor would fall and lead to declining living standards. Eventually, this process would lead to poverty and starvation. However, as the population falls, the capital to labor ratio rises again, and the process starts over.
The process that Malthus hypothesized can be seen as a economic cycle of rising and then decling living standards.