The Vanishing Of Investment Opportunity

1. For every given state of human wants and of technology (in the widest possible sense of the term) there is of course for every rate of real wages a definite amount of fixed and circulating capital that will spell saturation. If wants and methods of production had been frozen for good at their state in 1800, such a point would have been reached long ago.

But is it not conceivable that wants may some day be so completely satisfied as to become frozen forever after? Some implications of this case will presently be developed, but so long as we deal with what may happen during the next forty years we evidently need not trouble ourselves about this possibility.

If ever it should materialize, then the current decline in birth rate, still more an actual fall in population, would indeed become an important factor in reducing opportunities for investment other than replacement. For if everyone’s wants were satisfied or nearly satisfied, increase in the number of consumers would ex hypothesi be the only major source of additional demand.

But independently of that possibility, decrease in the rate of increase in population does not per se endanger investment opportunity or the rate of increase in total output per head. 3 Of this we can easily satisfy ourselves by a brief examination of the usual argument to the contrary.

3 This also holds true for a small decline in absolute numbers of people such as may occur in Great Britain before very long (see E.Charles, London and Cambridge Economic Service, Memo. No. 40). A considerable absolute decline would raise additional problems. These we shall neglect however because this cannot be expected to occur during the space: of time under consideration. Still other problems, economic as well as political and socio-psychological, are presented by the aging of a population. Though they are beginning to assert themselves already—there is practically such a thing as a “lobby of the old”—we cannot enter into them

On the one hand it is being held that a declining rate of increase in total population ipso facto spells a declining rate of increase in output and hence of investment because it restricts the expansion of demand.

This does not follow. Want and effective demand are not the same thing. If they were, the poorest nations would be the ones to display the most vigorous demand. As it is, the income elements set free by the falling birth rate may be diverted to other channels and they are particularly apt to be so diverted in all those cases in which the desire to expand alternative demands is the very motive of childlessness.

A modest argument can indeed be made out by stressing the fact that the lines of demand characteristic of an increasing population are particularly calculable and thus afford particularly reliable investment opportunities. But the desires that provide alternative opportunities are, in the given state of satisfaction of wants, not much less so. Of course the prognosis for certain individual branches of production, especially for agriculture, is in fact not a bright one. But this must not be confused with the prognosis for total output. 4

On the other hand, we might argue that the declining rate of increase in population will tend to restrict output from the supply side. Rapid increase was in the past frequently one of the conditions of the observed development of output, and we might conclude a contrario that increasing scarcity of the labor factor might be expected to be a limiting factor. However, we do not hear much of this argument and for very good reasons. The observation that at the beginning of 1940 output of manufacturing industry in the United States was about 120 per cent of the average for 1923–1925 whereas factory employment was at about 100 per cent supplies an answer that is adequate for the calculable future. The extent of current unemployment; the fact that with a falling birth rate women are increasingly set free for productive work and that the falling death rate means prolongation of the useful period of life; the unexhausted stream of labor-saving devices; the possibility, increasing relatively to what it would be in the case of rapid increase of population, of avoiding complementary factors of production of inferior quality (warding off in part the operation of the law of diminishing returns)—all this gives either. But it should be observed that, as long as retiring ages remain the same, the percentage share of those who have to be provided for without contributing need not be affected by a decreasing percentage of persons under 15.

4 There seems to be an impression, prevalent with many economists, to the effect that an increase in population per se provides another source of demand for investment. Why—must not all these new workmen be equipped with tools and their complement of raw material? This however is by no means obvious. Unless the increase is allowed to depress wages, the implication as to investment opportunity lacks motivation, and even in that case reduction of investment per head employed would have to be expected.

ample support to Mr. Colin Clark’s expectation that product per man-hour is going to rise during the next generation. 5

Of course, the labor factor may be made artificially scarce through high- wage and short-hour policies and through political interference with the discipline of the labor force. Comparison of the economic performance in the United States and France from 1933 to 1940 with the economic performance of Japan and Germany during the same years suggests in fact that something of this kind has already occurred. But this belongs to the group of environmental factors.

As my argument will abundantly show before long, I am very far indeed from making light of the phenomenon under discussion. The falling birth rate seems to me to be one of the most significant features of our time. We shall see that even from a purely economic standpoint it is of cardinal importance, both as a symptom and as a cause of changing motivation. This however is a more complicated matter. Here we are concerned only with the mechanical effects of a decreasing rate of increase in population and these certainly do not support any pessimistic forecast as to the development of output per head during the next forty years. As far as that goes, those economists who predict a “flop” on this ground simply do what unfortunately economists have always been prone to do: as once they worried the public, on quite inadequate grounds, with the economic dangers of excessive numbers of mouths to feed, 6 so they worry it now, on no better grounds, with the economic dangers of deficiencies.