CHAPTER 25
           POPULATION GROWTH AND THE STOCK OF CAPITAL

Chapter 25:  Table of Contents:
Simple Theory and Data
The Transportation Connection
The Effect of Population on Transportation Systems
Summary
Afternote: A Parable of Population Growth, Racquetball and Squash

   The amount of physical capital - equipment and buildings - 
available to a worker influences his or her output and income. 
Nonphysical capital such as the education, skill, and dedication of 
the worker - whether at a machine or at a desk - is very important, 
too, and we shall discuss it shortly.  But the availability of 
machinery, buildings, and other physical capital certainly has a 
strong effect on the amount of goods and services that a person can 
produce.
   People must save some part of their income in order to build a 
stock of capital. Therefore, the amount we save from our present 
incomes influences our future incomes and consumption. And 
population growth and size may influence the amount of saving. 

   Population affects our stock of physical capital both positively 
and negatively.  On balance, the effect is positive. 

   The productivity of the equipment available for purchase at a 
given moment also is affected by population size.  A larger 
population, and a higher income level, increases the demand for new 
capital goods to be invented and developed, and a larger population 
also increases the supply of new inventors, both of which lead to 
more efficient equipment.  So by way of the forces of both supply 
and demand, a larger population increases the technology of capital 
goods.  More about that in the next chapter.

                     SIMPLE THEORY AND DATA

   Let us start the analysis with a given population of workers and 
a given supply of physical capital - a given farm acreage, a given 
number of factories, and a given number of machines. If the number 
of workers increases, then the supply of capital will be diluted; 
that is, if there are more workers, there is less capital available 
for each worker to use. If there is less capital per worker, output 
(and income) per worker will fall. This Malthusian dilution effect 
is one of the main liabilities of additional population. The extent 
of the loss can be calculated easily. Twice as many workers with 
the same capital implies half as much capital per worker. In a 
typical modern economy this would reduce each worker's output (and 
hence income) by about one third.

   Population growth also may reduce the available capital per 
worker because, in order to build and maintain a stock of capital, 
people must save part of their incomes. Savings can come directly 
from individuals and businesses, and some of the money extracted as 
taxes can also be saved by the government. We shall focus on 
individual saving, however.

   A higher birthrate was long thought to reduce the rate of 
individual saving simply because an additional child is a burden on 
the family's income. This line of argument assumes that additional 
children induce parents to give a higher priority to immediate 
consumption (baby shoes now) than to later consumption (a trip 
around the world after retirement).  That is, parents with (say) 
five hungry children were assumed to spend more out of income, and 
hence save less, than with (say) two children. The basis for this 
assumption is simply the psychological guess that more children 
mean more pleas, requests, and demands, pressure that shifts the 
parents' preferences in such a way that they spend more of their 
income sooner.  But there may also be an opposing effect.  More 
children may induce parents to forego some luxuries in order to 
save for the children's future needs - for example, a college 
education. 
   The former line of argument implicitly (but wrongly) assumes 
that earning opportunities are fixed, so that a greater number of 
children cannot induce parents to go out and work more. But to 
assume that income is fixed, rather than variable in response to 
the number of children, also is unrealistic. It is well-documented 
that the more children men have, the more they work; so, too, women 
after their children are no longer young. Assuming income to be 
fixed is particularly inappropriate for subsistence agriculture; a 
large portion of agricultural saving - especially the clearing of 
new land and the construction of irrigation systems - is 
accomplished through the farmers' own labor, and this is usually 
added to the labor they expend in raising their crops. Population 
growth stimulates this extra labor, and hence adds to the 
community's stock of capital.

   The effects of more children on governmental saving may also be 
important. It is often assumed that in poor countries governments 
have less power to tax if people have more children, because the 
competition in the family budget between feeding children and 
paying taxes is then more acute. One can also reason in the 
opposite direction, however. If there are more children, 
governments may be able to extract more in taxes, because people 
recognize a greater need for taxes to buy additional schools and 
other facilities.  The number of children may also affect the kinds 
of investments that governments make. For example, an increase in 
children may induce a government to invest more, but much of this 
increase might be in housing and other "demographic" investment at 
the expense of the sort of capital investment that will immediately 
increase the production of goods.
   The statistical evidence about the effect of population growth 
upon the savings rate is as mixed and inconclusive as the 
theorizing. Taken together, the data suggest that a population 
increase may slightly reduce the formation of industrial capital, 
but this is probably not an important effect. 
   The efficiency of capital, as well as the quantity of it, is 
also important. And there has recently developed a strong body of 
evidence showing that capital is used more efficiently in larger 
communities. For example, less capital is needed for a given amount 
of productivity per person in larger cities. This jibes with the 
fact that wages are higher in bigger cities in a sample of 
countries.  Further, interest rates are lower in bigger cities, 
which implies that capital is cheaper. In sum, the evidence 
suggests that one can get more output from a given capital 
investment where there are more people.  
   When we think about the effect of additional children on the 
supply of capital it is crucial that we keep in mind farm capital 
and social-overhead capital as well as industrial capital. In 
chapter 28 we shall see that the supply of farm capital - 
especially arable land - increases when population increases 
because people respond to the demand for additional food with 
increased investment, much of which is additional labor to clear 
trees and stones, dig ditches, and build barns.
   The effect of additional persons on the supply of capital is 
most marked with respect to social-overhead capital such as roads, 
which are crucial for the economic development of all countries and 
especially poor countries. Here the effect of population is sharply 
positive, especially in less-developed countries.


                  THE TRANSPORTATION CONNECTION

   If there is a single key to economic development other than 
economic liberty, that key is the transportation and communication 
system.  Transportation obviously includes roads and railways and 
airlines, which carry agricultural and industrial products as well 
as persons and messages. It also includes irrigation and electrical 
systems, which transport water and power.  There is abundant 
testimony by scholars of contemporary and historical economic 
development that "the one sure generalization about the 
underdeveloped countries is that investment in transport and 
communications is a vital factor."
   Enabling farmers and businesses to sell in organized markets, 
and to deliver output and obtain delivery of inputs at reasonable 
cost, is crucial to a developing economy.  A comparison of the 
costs of transportation by various methods is illuminating.  
Examples: 1) Canal transportation cost only 25-50 percent as much 
as land transportation between cities in England about 1790. 2) "In 
August 1799 a courier set out from Detroit to deliver U.S. Army 
muster rolls to headquarters in Pittsburgh [perhaps 200 miles].  
His trip took fifty-three days of hard riding."  3) Carrying loads 
on human backs is seventeen times as expensive as by ship or train, 
on average.  (See Table 25-1.)  Such cost differences greatly 
affect the amounts of merchandise transported, and the prices at 
various distances from the producer. 
             Table 25-1 [Table 12-2 p. 266 of 1977]
   Lack of a good transportation system presents an enormous 
barrier against development.  In the early nineteenth-century U.S., 
for example, farm products could be transported only where there 
were natural waterways.  As for overland transport, "the cost...was 
so high that even if corn had cost nothing to produce, it could not 
have been marketed twenty miles from where it was grown. It was 
cheaper to move a ton of iron across the Atlantic than to carry it 
ten miles through Pennsylvania."  But the Erie Canal reduced 
freight rates from New York City to the Great Lakes from $100 to 
$15 per ton.  (Similarly in eighteenth-century France, "food would 
not normally be transported more than 15 kilometers from its place 
of origin.")  Flour that sold for $10 or $20 a barrel on the East 
Coast cost $100 a barrel in Ohio.  Coal cost three or four times as 
much in Philadelphia as at the mineheads in western Pennsylvania.  
Such inability to transport food from farms to large markets caused 
a large difference between at-the-farm prices and market prices, 
and was responsible for frequent local famines even when food was 
plentiful a short distance away.  My 1977 book gives a variety of 
other historical and contemporary examples of how improved 
transportation systems have stimulated agriculture and improved the 
efficiency of industry in various countries.
   Transportation is also important in the flow of information - 
technical agricultural know-how, birth control, health services, 
modernizing ideas, and so forth. It makes an enormous difference if 
a particular village in India can be reached with a truck, or even 
a jeep or a bicycle, rather than just by a bullock, with which a 
trip to the big city is out of the question. Most villages in 
countries such as India and Iran cannot easily be reached by motor 
transportation. When transportation is improved, radical 
developmental changes will occur.
   There is great room for improvement in poor countries' 
transportation systems, especially local rural transportation. This 
may be seen by a comparison between countries with well-developed 
agriculture and countries where agriculture is less developed.

     In agriculturally advanced Western countries, there are      from 3 to 4 miles of 
farm to market roads per square mile      of cultivated land....In India there is only 
about 0.7 of      a mile of road per square mile of cultivated land. In      Malaya it is 
about 0.8 mile and in the Philippines about 1 mile.  None of the developing countries 
that are dependent on agriculture has sufficient rural access roads.
   And in industrial areas, too, the low transportation and communication costs in larger 
cities lead to their higher productivity compared with smaller cities.

        THE EFFECT OF POPULATION ON TRANSPORTATION SYSTEMS

   Population density and the system of transporting goods, people, and information 
influence each other.  On the one side, a dense population makes a good transportation 
system both more necessary and more economical.  Having twice as many people in a village 
implies that twice as many people will use a wagon path if it is built, and twice as many 
hands can contribute to building the path.  This is what happened on the Continent and in 
England, where "the growth of population made it worthwhile to improve and create 
transport facilities." On the other hand, a better transportation system brings an 
increased population, and probably leads at first to higher birthrates because of a 
higher standard of living. (But later the birthrates drop, as we have seen in chapter 
24.)  Furthermore, good transportation connections are likely to reduce a village's death 
rate because the village is less vulnerable to famine.
   The opposite condition, population sparsity, makes 
traveling slow and difficult.  This is how it was near 
Springfield, Illinois, when Abraham Lincoln was a lawyer 
"riding the circuit" of courts.
     ...Traveling was a real hardship - so real that the 
words of old lawyers, describing early days, become fresh 
and vivid when the circuit is the subject. "Between Fancy 
Creek and Postville, near Lincoln," wrote James C. 
Conkling, "there were only two or three houses.  Beyond 
Postville, for thirteen miles was a stretch of unbroken 
prairie, flat and wet, covered with gopher hills, and 
apparently incapable of being cultivated for generations.  
For fifteen or eighteen miles this side of Carlinville, 
the country was of a similar character, without a house 
or improvement along the road.  For about eighteen miles 
between South Fork and Shelbyville, there was only one 
clearing. I have travelled between Decatur and 
Shelbyville from nine o'clock in the morning until after 
dark over a      country covered with water, from recent 
rains, without      finding a house for shelter or 
refreshment."

   Donald Glover and I made a cross-national study of the relationship between road 
density and population density, and we found that relationship to be very strong, as 
figure 25-1 shows. Population growth clearly leads to an improved transportation system, 
which in turn stimulates economic development and further population growth. This 
unexciting but important statistical finding cannot, of course, match in dramatic appeal 
the photographs that purportedly show population growth to be an unmitigated evil. A 
picture of an emaciated starving child is surely tragic and compelling, but it conveys no 
verifiable information as to why that child is suffering - as likely for the lack of a 
good road and the medical attention it could bring as for any other reason. Though the 
statistical fact is less exciting, it reveals an irrefutable story - the enormous social 
benefits of population growth.  Yet it is the picture of the emaciated child that appears 
in the popular press and remains in people's minds. 
                     Figure 25-1[-xx Glover]
   When roads and other infrastructure become burdened and congested with an increased 
population and the traffic that accompanies increased income, a variant of the basic 
theoretical process described in this book comes into play: More people, and increased 
income, cause problems of strained capacity in the short run.  This causes transportation 
prices to rise and communities to become concerned.  This same state of affairs also 
presents opportunity to businesses and to ingenious people who wish to contribute to 
society by improving roads, vehicles, and services or inventing new forms of 
transportation.  Many are unsuccessful, at cost to themselves.  But in a free society, 
new facilities are eventually designed and built. And in the long run the new facilities 
leave us better off than if the problems had not arisen.  That is, prices end up lower, 
and access to transportation becomes greater, than before the congestion occurred. 
   The development of the Panama Canal passage from the Atlantic to the Pacific 
illustrates the theory.  When the canal was first opened, the locks were considered 
larger than would ever be needed.  By 1939 the locks were too small to handle ships then 
being built, and the volume of shipping was straining capacity, so the canal was 
modified.  An addition was planned and begun (but halted by World War II).  Now the 
Panama Canal is so inadequate that some ships go around South America at the Straits of 
Magellan. Hence a new canal probably will be built - and the new one will probably be at 
sea level rather than using locks to lift ships up and down over the terrain - which will 
be a great improvement. 
   Population density brings a similar increase in the efficiency of communications, 
easily seen in a comparison of cities of very different sizes.  For the same price to the 
reader, the daily newspaper is much larger and supplies much more information in (say) a 
big city like Chicago than in smaller Illinois cities.  There are generally more radio 
and television programs available to people in larger cities (though cable television has 
made this more equal).  And the price charged an advertiser - whether a department store 
or an individual seeking employment - is much lower per 1,000 readers reached in a large 
city than in a small city, a clear benefit stemming from a larger population (see figure 
25-2). 
                      Figure 25-2 [oldA22]                             
SUMMARY

   Population growth is responsible for great improvements in the social infrastructure, 
especially in the transportation and communications systems that are crucial to economic 
development. Growth also gives a boost to agricultural saving. Population growth may or 
may not reduce non-agricultural saving; this is still a matter of scientific controversy. 
For readers who wish more detail, chapters 2, 3, 10, 11, and 12 in my technical 1977 book 
cover the effects of population growth on capital.


                            AFTERNOTE

     A PARABLE OF POPULATION GROWTH, RACQUETBALL AND SQUASH

   This parable was written in 1980.  Nothing in it has changed in the book's second 
edition, except the last paragraph.
   There are twenty-three wonderful handball-racquetball courts on the Urbana campus of 
the University of Illinois, and seven excellent squash courts, in addition to a batch of 
old courts. The new racquetball courts are frequently crowded nowadays, though not so 
badly that people complain a lot. From time to time, however, players worry about the 
future growth of the university, saying that it is going to be tough to get a racquetball 
court. And I have heard people argue against increasing the number of students for that 
reason.
   The racquetball court situation exemplifies the country's situation with respect to 
population growth and the supply of capital. If there come to be more people, there will 
immediately be an increased demand for the courts. It will also be harder to find parking 
space, and perhaps a job. That is, the immediate effect of an increase in population is 
an increase in congestion. The individual suffers because of the greater competition for 
the good things that are available and because of the greater out-of-pocket costs of 
providing more of these good things to take care of the added population. This increase 
in costs is inevitable and undeniable.

   But now let us take a slightly longer view. Why are players so lucky as to have 
twenty-three wonderful racquetball courts and seven squash courts at the University of 
Illinois?  Years ago there were sixteen dingy wrong-size courts to be used for both 
sports together. But then came a rapid population growth at the university. The superb 
new facilities were built in response to that population growth - though at a 
considerable cost to the taxpayers and students at that time.
   So players are now reaping the benefits of the rapid population growth in the past and 
at the same time talking against further population growth so that they do not have to 
share this stock of capital - the benefits of past population growth - with more people, 
and so that the taxpayers do not have to cough up the investment necessary for additional 
population growth.  There is nothing illogical about this point of view.  As the sage 
Hillel put it, "If I am not for myself, who will be for me?" But if we see ourselves as 
part of a longer historical process than this instant of our own consciousness, and if we 
take into account the welfare of ourselves and our children in the years to come - as 
people before us took our welfare into account - then we will see that we ought to 
cooperate and put back as well as take from the pot.  As Hillel added, "But if I am for 
myself alone, what am I?"
   Our children may well have more racquetball courts in the future - and better ones - 
if more children are born year after year than if fewer are born. That is, if the 
population does grow at the university, more courts and better courts will be built, 
whereas if the population stabilizes at its present size, no more facilities will be 
built.
   More generally, if farmers had not come to Illinois and developed the land and built 
up the state so that it could support a university, there would certainly be no courts at 
all to enjoy now. Central Illinois, with its remarkably productive cornfields, would 
still be a malarial and unproductive swamp.

   Let's consider the squash courts too. One can get into a squash court at any time of 
the day, except very occasionally at 5:00 in the afternoon, when there are one or two 
courts too few for all those who would like to play. Most of the day the squash courts 
are used hardly at all. From one point of view, this is paradise for squash players like 
me.  On the other hand, there are often too few people to play with.  Furthermore, there 
is a slightly depressing air about the squash courts. It seems a bit like a home for the 
aged, because most of the players are thirty-five and up except for those who have come 
from England or South Africa. Few young students or faculty members have taken up the 
game, which is why there is no problem in getting a court. In contrast, there is a 
vitality around the racquetball courts. There are always people watching and giving 
advice and jostling a bit and checking out the challenge court to see the newest rising 
star. The racquetball courts have produced some national-level competitors in a short 
time.  Around the squash courts (but not on them!) it is all very dignified and peaceful.  
But as I said, it is also a bit depressing.
   What about the future? If the population of the university grows, there is a good 
chance that there will still be plenty of squash courts fifteen years from now - except 
that the players will be doddering incompetents. And by that time the squash courts will 
be in rundown condition, whereas chances are that there will be a whole new battery of 
racquetball courts. The rundown squash courts (and players) will be the cost of having no 
growth in the population of squash players.

   So which do you want?  Will you choose the genteel, run-down, peaceful, and slightly 
depressing no-growth policy, as with the squash courts? Or do you prefer the less-
peaceful, slightly jostling population growth that costs you capital for awhile, as with 
the racquetball courts?
   Now, in 1993, at the University of Maryland, I play racquetball, partly because it had 
gotten too hard to find squash partners. 
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