Malthus and capital
Plagues move the economy “northwest” along the isoclines, as more marginal lands are abandoned leaving the fewer people to work and share the more productive lands. Births beyond replacement by contrast move the economy “southeast” towards higher population, the use of more marginal lands, and thus a lower standard of living. Here, for example, is a graph using actual statistics for English real farm labor wage income from 1260 to 1849. Even though England during this period was slowly escaping from the Malthusian trap -- note that each 80 years has advanced farther "northeast" than the previous 80 -- it still followed the basic Malthusian pattern of births and deaths. Observe how the real wage greatly increased after the Black Plague in the mid-14th century, then slowly declines thereafter:
Much less well appreciated than the effects of births and plagues with respect to the Malthusian isocline are creation and destruction of productive capital. Every act of plowing, sowing, weeding, and so on was a seasonal capital investment, and the resulting harvest (and thus the short-term isocline) depended on the qualities and quantities of these short-term investments, as well as on vagaries of pests, weather, etc. Longer-term capital investment could include conditioning, fertilizing, and draining soil, buying livestock, breeding crops and livestock, watering meadows, and so on. Long term progress towards the "northeast" depended on long-term accumulation of capital. It was exceedingly rare to maintain such progress over long periods of time, and the British capital accumulation over such a long period, leading to the breakout from the Malthusian trap, was unprecedented.
Good harvests caused progress that was temporary unless the food was stored and long-term capital investment was substituted for investment in next year’s harvest as well as other pursuits such as luxury and military buildup. Productive innovation, whether institutional or technological, also led to moving the isoclines “northeast”, as they made capital more secure or productive.
Poor harvests (from pests, poor weather, etc.) caused a setback that was temporary as long as it didn’t lead to the destruction of capital. If it resulted in starvation, the deaths boosted the economy up the isocline, so that the standard of living of the remaining population in subsequent years of better harvests was higher than with prior better harvests at higher populations.
Destruction of productive capital was for most of agricultural history as common as creation of capital. Causes included high rents and taxes that forced a choice between going hungry and consuming capital. War (quartering and foraging of troops, destruction of enemy crops and livestock, etc.) was a frequent cause of capital destruction. Some kinds of capital, e.g. livestock and the fertility of the soil, could be destroyed simply by being neglected.
Mancur Olson distinguished between societies of “roving bandits”, where nomadic rulers stole the surpluses of foragers or farmers wherever they went, and “stationary bandits”, who controlled a specific area and simply taxed that area. Rational stationary bandits taxed only to the Laffer maximum, because any further taxation actually reduced their revenues. Indeed, because over-taxation resulted in the destruction of capital, a secure rational stationary bandit reduced taxes below the short-term Laffer maximum to prevent lower tax revenues in future years. Roving bandits, on the other hand, stole nearly all, resulting in destruction of nearly all capital, because anything insecure that one roving bandit didsn't steal was stolen by another.
Stationary bandits did not always confine themselves to taxation that resulted in no destruction of capital. Uncertainty over future power could cause a leader to get greedy and tax at capital-destroying levels while they were still in power. Threats of assasination, coup, or conquest could move stationary bandits closer to roving bandits, since the bandits lost their future revenues if they lost power or territory: in such cases they rationally taxed far higher than the Laffer maximum, usually destroying much capital in the process.
As a result, we can characterize societies and locate their isoclines based on their mode of banditry. This often gets confused with the mobility of production, and the two usually coincided, but they could and often were distinct. Thus most pastoral societies, based on moving livestock from pasture to pasture, also featured roving banditry. And societies based on fixed arable agriculture were generally controlled by stationary bandits. But early modern Britain was a semi-pastoral society but with stationary bandits. And Dark Ages Europe featured roving bandits from pastoral societies frequently conquering arable societies, and being conquered in turn, resulting in a move to a lower-capital society with a mix of roving and stationary banditry.
The Problem of Edible Capital
Of all the ways in which capital can be destroyed, the hardest to avoid, in a hard year, was eating it. Eating your milk cow or your draft animal was like eating your seed corn: very unwise but very likely if your alternative was imminent starvation.
The temptation to eat your capital created vicious cycles of capital destruction. Capital destruction lowered labor productivity, which meant that people produced less calories per calories consumed. This moved the Malthusian isoclines “southwest”, which meant even more people starved during the next equally bad year. War and excessive taxation could trigger or extend the vicious cycle by killing livestock, poisoning farmland, etc.– and rendering future returns insecure, rendering further destruction of capital more probable. The vicious cycle of capital consumption during times of famine may be the main factor that kept ancient agricultural civilizations mired in the Malthusian trap.
Who owned the capital mattered. Edible capital was much more likely to survive (and in the short term the starving people less likely to) if the capital was owned by people who were not themselves starving. Thus, societies living under the feudal hierarchy of long-term tenancy, where livestock was often owned by the local lord rather than a peasant, many have maintained themselves farther above subsistence levels than societies where peasants completely controlled their own livestock.
Culture was filled with warnings against “eating your seed corn.” Thus, as one example of many, Aesop’s stories of “The Goose That Laid the Golden Egg.” It was also filled with warnings about the importance of saving up for bad times, e.g. “The Ant and the Grasshopper.”
Conversely, capital creation that increased labor productivity increased the calories produced per calories consumed, moving the Malthusian isocline up and right. With storage of food it also freed labor for further capital creation, which in future equally good years in turn freed further labor for ancillary or non-agricultural capital investment (transportation, manufacturing, financial services, etc.). However, for nearly all of agricultural history the vast majority of this surplus went to population growth, military expenditure, and luxury display rather than capital investment.
Thus, until the British breakout, agricultural societies remained in the Malthusian trap. Prior agricultural socieities lacked an institutional ratchet that could incentivize capital creation in good harvests, but prevent too much capital destruction in bad harvests. And they generally lacked low-cost protection from foreign wars, so that stationary bandits often started to act more like roving bandits when faced with threats of conquest. To escape the trap, capital creation must exceed capital destruction to such an extent that farm labor productivity grows faster than population. How Britain did this I hope to explore in future posts.