INSIGHTS

Why Entrepreneurship?

 
Robert Thomas Malthus’s Essay on the Principle of Population contained two basic “laws of nature”: "Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio. An acquaintance with numbers will show the immensity of the first power in comparison with the second. The result Malthus predicted: an inevitable crisis of “misery and vice” whereby the earth’s resources would not satisfy the demands of a growing population.
 

As shown, the supply of resources is growing under diminishing returns, while the demands of a growing population are increasing more rapidly at a geometric rate. Point C represents the subsistence level, at which the vast majority of human beings barely survive. If the world exceeds point C, starvation, death, and vice will bring the world’s population back to the subsistence level.

 

 
Actual and empirical facts, however, have not borne out Malthus’s thesis. Studies showed that people did not become poorer as the population expanded; rather, as their numbers multiplied, they produced what they needed to support themselves, and prospered. In fact, there has been a booming and flourishing populace, one that was better fed, taller, healthier, and more disease-free, with far less infant mortality and longer life expectancy than ever before in human history. Why so?
 
 

Essentially, Malthus misunderstood the dynamics of a growing entrepreneurial economy - how a larger population creates its own seeds of prosperity through the creation of new ideas and new technology. He failed to see the role of prices as an incentive to ration scarce resources and how private property rights ownership and security of these things impinge on the behaviour of entrepreneurs. In short, Malthus did not recognise the vital role of the entrepreneur in a capitalist system and of human ingenuity in technological innovation to save mankind from starvation, misery and vice.
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