Adamalthus is the concatenation of the first name of ‘Adam’ Smith and the Last name of Thomas Robert ‘Malthus’ two of the most influential thinkers of their time whose ideas still resonate nearly three centuries later.
Smith is recognized as the father of modern economics and specifically one of the first theorists in political economy.
He outlined two central propositions in his book An Inquiry into the Nature and Causes of the Wealth of Nations.
The first of these propositions is the ‘Pin Factory’ a device Adam’s uses to explain that increasing specialization and division of labor leads to ever greater economies of scale which are ultimately limited by the “Extent of the market.”
Smith’s second proposition was the ‘Invisible hand’ which is more abstract but can be understood as the self correcting nature of markets where the actions of ‘Self interested’ individuals trading in a free market lead to a perfect equilibrium between prices and the amount of goods produced.
With these ideas Smith laid the foundations for modern market economics.
In his excellent book Knowledge and the Wealth of Nations David Warsh points out that Smith’s two central ideas are essentially in conflict. Increasing improvements in efficiency and economies of scale in the ‘Pin Factory’ would tend to lead to the formation of monopolistic positions for first movers. Yet self interest and competition inherent in the ‘Invisible hand’ will tend to keep prices at the lowest possible level and will prevent any manufacturer from achieving an advantage in the market. The ‘Invisible hand’ will tend to limit the supply of goods to perfectly match the demand for those goods. As Warsh eloquently explains it would take nearly three centuries for economists to understand how that conflict is resolved in the real world.
The Revd. Thomas Robert Malthus was ten years old when Smith published The Wealth of Nations. He became a highly influential scholar in the fields of economics, science and social issues.
He is most influential for his writing and ideas on population growth and is recognized as one of the first demographers. Where Smith saw a society benefiting from economic growth driven by specialization and free markets, Malthus had a contrary view.
In his book An Essay on the Principle of Population Malthus predicted that the power of population growth would outstrip the ability of agriculture to provide enough food for the expanding population. This simple, but highly influential idea has been expanded over time into the broader concept of a Malthusian catastrophe where economic or natural resource limits are seen as placing an ultimate boundary on the growth of the human population.
It is relevant that both Smith and Malthus’ ideas were put forward during an early stage of the industrial revolution. Not surprisingly, their various theories do not internalize the profound effect that technological improvement would have on economies and societies.
Mathus’ theories about exponential population growth were correct; the global population has grown exponentially since his time. However, technology lead improvements in crop yields and agricultural production have enabled us to continue to produce enough food to feed this growing population (Not withstanding the frequent famines witnessed in Africa that have more to do with our ability and willingness to make sure that surplus food production is distributed effectively around the world.) In this regard his theory that linear improvements in agricultural production would place limits on an exponentially growing population proved to be false.
It has now been recognized that the production and distribution of ‘Knowledge’ increasingly aided by technological improvement was the key to resolving the conflict in Smith’s two great propositions. Ultimately the thing that enables one manufacturer to gain advantage over another even in a market with perfect competition is ‘Innovation’.
The ideas of Smith and Malthus still define the greatest challenge facing our global society. Can we continue to chase growth as an economic ideal without exceeding the carrying capacity of the planet; triggering the ultimate Malthusian catastrophe?
Growing up as a child of the late 60s – watching the moon landings and being the first generation to have access to a personal computer – I have always had an optimistic view about technology’s ultimate ability to help us innovate our way out of danger. With maturity and the experience of traveling around the world for the last 25 years seeing the complete range of economic, social and environmental challenges I am no longer so sure.
Perhaps the most significant influence on my personal philosophy was a chance meeting with the renowned political economist John Zysman at a European Commission foresite conference back in 2005 (I now count John as one of my closest friends.) It was John that helped me to understand that society’s ability to tap technology’s full potential is ultimately constrained by political and cultural frameworks and decision making.
The human race has faced its share of challenges. The Toba Catastrophe Theory proposes that a super volcanic eruption some 70,000 years ago initiated a ‘Nuclear winter’ which lead to an extended period of global cooling. It is proposed that this event had the effect of reducing the total global hominid population to no more that 10-15,000 individuals. From that group the human race evolved into what it is today. Creativity and innovation were the keys to their survival and the creation of our opportunity.
The challenges facing the human race today are profound: Climate change, fresh water supplies and nuclear proliferation amongst many. My interests lie in how we will, or will not, innovate our way through these challenges, technologically, socially and politically?