Impact of a Shrinking Population: Part 1
Impact of a Shrinking Population Part 1 - How the Birth Rate affects economic growth
At my families Thanksgiving dinner I was having a conversation about reading old books with my uncle, who recently received from an estate sale a book that was published in 1896. It was a school book about 50 of the greatest people of the United States starting from our founding fathers. It was an elementary school book with more than 700 pages with little to no pictures. This was a time when kids went to school 3 months in a year and your schooling ended at 8th grade unless you decided to go to college (don't get me started about our education system).
I mentioned to my uncle that a book I like to read was written in 1913 titled, The Fate of Empires by Arthur John Hubbard. I mentioned a couple quotes from the book in my article Alternative Solutions for Social Security. After mentioning the book at Thanksgiving I decided to pick it up and read through it again. I always learn something new every time I start reading it. I love it because it's based on truthful events, but digs really deep into the physique of the individual and the populous during the rise and fall of empires.
To quote Arthur from the preface of his book, "The turning-point in past civilizations has been marked, again and again, by the appearance of Socialism coincidently with a failure of the birth rate."(1) For these articles, I would like to go over why the birth rate is so important to our economic growth, which later corresponds to market appreciation.
Why the Birth Rate is so important?
Those who are invested in the stock market are heavily dependent on economic growth. Companies grow in value when the consumption of goods and services are increasing, which leads to the stock market over time going up. Those who want the stock market to go up should care heavily on the birth rate because it is a major force effecting economic growth.
Economic growth is a function of 2 variables; labor force increase and productivity improvements. The more workers there are and the more efficient those workers are at producing goods and services the faster a nation’s economy grows. If a nations labor force is decreasing but it's productivity is increasing, a country could be experiencing slow or negative economic growth depending on the severity of the labor force decrease.
Those who are employers or run small businesses can easily recognize this relationship. When hiring or adding staff, each member needs to be able to generate or allow the business to generate more cash flow then what they cost the business. When we are relating with each individual making up the labor force, they must create an increase of at least $1 more in the monetary value of the goods and services they consume in order for that individual to be increasing productivity for a nation.
Otherwise, that individuals lack of productivity has to be outweighed by someone else's over production of the wealth of goods and/or services.
From the standpoint of past empires, most people assume that one nation just simply took over another by military might. That is true to an extent, but there are many reasons why this was able to occur. How is a nation that once had the best military, best weaponry, and more wealth than all other nations get to a point where another nation takes over? It's not that one nation outgrew the other, the once dominant empire had to experience a decay in their economic atmosphere which allowed for another empire with a successful one to prevail.
Understanding that the birth rate isn't the only driver, it is always a consistent theme to the fall of every empire powerhouse of it's time. It is a huge driver in the ability for a nation to thrive. The birth rate drives men possible for war(defense), labor, and innovation which all lead to wealth and prosperity. If a nation is so large and wealthy but experiences a low birth rate environment, then you have less people for war, labor, and innovation which decreases the wealth and ability to defend itself. This gives a nation with a thriving economy and population increase to take over.
The "Method of Reason"
In The Fate of Empires, Arthur explains that the drive of an empire to last forever does not allow for a mathematical formula or scientific method to solve. He explains, "For we shall deal with the works of the human mind, and with human affairs, in a region wherein we shall see that the immediate decay or the endless growth of our civilization not subject to fixed law, but depends, from generation to generation, upon the course of action that is taken." (1)
He goes over several intellectual stages the individual goes through. One of which he calls, "The Method of Reason". Basically it is the stage where the individual tries to have an in depth explanation into every action instead of overlaying instincts or religious values. When Reason is untouched by instinct or disregards religious values, it can lead a society into dangerous outcomes. This is where the "rational" individual interest becomes more important than that of the race or society.
Arthur says, as an empire grows "..ever more and more instinct is held in the leash of Reason, and, in any rational society, a time inevitably comes when the relative increase in the power of Reason leads to the synchronous appearance of socialistic phenomena and a failure of the birthrate."
When an individual becomes more inclined to self interest, he or she sees less of an interest to serve it's race or society, but only themselves. One of the greatest stress's in any individuals life is the efforts to nurture, care, and educate the younger generation. With this assumption under pure Reason, individuals or couples who elect to go childless relieve a huge part of the stress they would occur in their lifetime compared to those who decide to parent the younger generation. As a parent of 3 boys I can relate to this statement. My wife and I are healthy 24 year olds and would travel anywhere we wanted, be apart of more sporting activities and could be much more selfish in what I purchase than I can now with 3 boys under the age of 7. To most individuals who act upon pure reason, what would be the point of marriage if it didn't selfishly increase your joy of life? In pure Reason the Individual is greater than the Race, and his or her interest prevails.
This way of thinking might sound crazy if you lived with the instinct of the human race to create future generations and/or feel a religious motive under the command of God to be fruitful and increase in number; filling the earth. We have to understand that the process of pure Reason taking over the minds of an empire is detrimental, and gives us the ability for the birth rate of an empire to decline. If you gave me enough time I would prove these thoughts were prevalent in every great empire. For the sake of time, lets look into the most known empire to rise and fall: The Roman Empire.
The Roman Empire is probably the most popular nation when we talk about past great civilizations. We are going to focus on the change of the mentality of the Romans sometime after Caesar was assassinated in 44 BC. This is the time period I feel the method of Reason took over for several hundred years. Several notable practices occurred which led to the decline of birth rate and population.
1. Marriage and having children became a joke. In the Roman Empire marriage was primarily practiced under usus law, which was a very informal ceremony. The wife had to absent herself from her husband for at least 3 nights in a year which the legal effect was she never passed into the power of her husband, her property never became his and their rights remained unimpaired. Basically you could "join" together with pleasure, and easily leave when it was pleasurable to do so with no ramifications. Divorce as you can imagine was rampant. Even with this marriage widely adopted, most men didn't even get married. Here is a quote from Petronius, a honorable family physician in Rome during the first century, "No one acknowledges children; for the man who has heirs is never invited to any festive gathering, but is left to associate with the dregs of society. On the other hand, childless man is covered with honors, and pass for a model of all the virtues."
2. The Death of children was abnormally high. Abortion was not discouraged by law, and was very extensively practiced. Babies born who did not meet the expectations of the parents, or simply not wanted were often killed. For parents who wouldn't kill the baby they would infanticide, back then called “baby exposure," would simply throw unwanted babies away. Even years after a child was born, some parents were giving their children up or selling them into sex/slave industry. Seneca, a Roman philosopher, said this about killing babies: “We drown even children who at birth are weakly and abnormal. Yet it is not anger, but reason that separates the harmful from the sound.” Notice how it seemed reasonable for a partner to kill their child.
Emperor Augustus, knowing these occurrences to be prevalent, passed some of the most egregious laws to influence the citizens of Rome to reverse this trend. He passed the Lex Julia and other measures to add severe limitations on the ability of unmarried and/or childless citizens to receive an inheritance or property. Even with these in place, it didn't work. In A.D. 9, 34 years after Lex Julia, Emperor Augustus summoned the Equestrian Order; where in the assembly, he told them to separate by unmarried and married persons. The amount of unmarried was much larger then married. Augustus publicly proclaimed for applause of the married persons. To the unmarried, he said,
"That their Lives and Actions has been so peculiar, that he knew not by what Name to Call 'em; not by that of Men, for they perform'd nothing that was Manly; nor by that of Citizens, for the City might perish notwithstanding their Care: nor by that of Romans, for they design'd to extirpate the Roman name. Their Course of Life was of such pernicious consequence to the Glory and Grandeur of the Roman Nation, that he cou'd not equalize theirs: For they were guilty of Murder, in not suffering those to be born, which should proceed from 'em; Of Impiety, in causing the Names and Honors of their Ancestors to cease; and of Sacrilege, in destroying their kind, which proceed from the Immortal Gods, and Human Nature, the principal thing consecrated to 'em. Therefore, in that respect they dissolved the Government, in disobeying its Laws, betray'd their Country by making it Barren and Waste; nay and demolish'd their City, in depriving it from Inhabitants. And he was sensible that all this proceeded not from any kind of Vertue or Abstinence, but from a Looseness and Wantonness which ought never to be encourage'd in any Civil Government." (1)
After this emotional speech, he immediately increased the rewards of those who had children. For those not married he imposed considerable fines, and allowed the them to be free of the penalty if they got married within a year of that decree.
Roman historian Tacitus also attested 50 years after Augustus died, "nearly all the Equities and the greater number of the Senators betrayed a servile origin... and at a later period even some emperors ceased to be Roman blood." (1) Not only were rulers and senators foreigners, but in order to keep the workforce of the empire in tact a constant influx of slaves and immigration was brought in.
Let's look at some estimated population size of the city of Rome showing a dramatic decline after the split of the Roman Empire.
Peak Rome (1st to 2nd century): 500,000 to 1.5 million
Late Rome (4th to early 6th century): 200,000 to 500,000
Post-Gothic War Rome (mid 6th century): 20,000 to 50,000
Early Medieval Rome (7th century to 10th century): 20,000 to 30,000
Renaissance Rome (15th century): 50,000
Yes, those numbers are accurate and not over exaggerated, an estimated 500,000 -1.5million decreased to around 50,000 in 400 years. (Even with a 20,000 population, it was still one of the largest cities in the world. Only behind Constantinople and Cordoba, still bigger than London or Paris at the time.)
The key takeaway in these articles is the positive relationship between the growth in a country’s working age population and its economic growth, which should lead into stock market appreciation. I understand the concept that if there are no negative forces applied to the working population (ex: less men die from war, positive immigration or lifespans increase) then a nation does not need as high of a birth rate to grow its working population. However, the birth rate is still the major driver of any kind of working population increase.
Rome is such a great example of the impact of a shrinking population. A low birth rate environment was supported by a negative view on families, children, and lack of morality. This was a major driving force for the economic spiral and end of the Roman empire.
Some of you are thinking, "how does this pertain to me?" In part 2 I will go over examples of today such as Japan, America, and other countries and direct impact of stock market returns.
(1) Arthur J. Hubbard, The Fate of Empires, - Book
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