5: The Law of Diminishing Returns
A basic principle of biology is that the amount of food available in a region determines the population of animals it can sustain: when there is less food than required, populations decrease (starvation and death are inevitable), and when there is more than required, they tend to increase.
However, the human animal is significantly different to other species in one regard: he is not dependent on nature to provide what he needs in ready-to-consume form. Savage tribes may be governed by the environment, as they merely gather what they chance upon, but since the agricultural revolution, man produces what he needs.
By extension of that logic, it would seem to suggest that the human population can expand almost infinitely - because each new consumer is also a new producer, capable of fashioning what he needs. Granted, the natural environment does has limits, as Malthus indicated when he calculated the maximum product of food if every inch of arable land was utilized for agriculture - but progress seems to curtail long before that point is reached.
The explanation of this phenomenon is the "law of diminishing returns," which observes that up to a certain point the addition of labor produces more goods - but after a certain point the marginal increase is diminished until the point that additional laborers do not increase the output, but diminish it.
As an example: two men working a parcel of land may produce three times as much as one, but adding a fourth adds only a third more, and the fifth adds a quarter more, and the sixth adds a tenth, and the seventh nothing at all. The eight and subsequent will actually make the farm less productive. There are various reasons, which largely come down to the inability for the additional man to find something to do without getting in the way of the others.
(EN: It's been suggested, in more recent times, that the problem is even worse for knowledge workers. A single architect designing a building can do so efficiently and effectively, guided by a single vision. Add even one more architect and the time they spend in negotiating and debating will exceed the amount of time they spend designing. Adding a third or a fourth exacerbates the problem even further, and hours will be spent in discussion over the simplest of decisions.)
The same may be said of the application of capital. Upgrading tools from wooden spades and hoes to steel ones will make farmers more productive, and upgrading from hand-tools to a plow will further increase productivity. But upgrading from a horse-drawn plow to a steam-powered one will be only a marginal increase, and buying a second, third, and fourth plow will eventually result in the same issue: how to find use for additional equipment without getting in the way.
Walker continues to explore this phenomenon, exploring various scenarios that experiment with different blends of labor and capital - which involves a great deal of imagination and speculation, but nonetheless makes a plausible case that, given a fixed amount of space, there is a specific level of labor and capital that are optimal - beyond which the addition of more of either makes the operation less economically efficient (given that the cost of labor and capital drive up the cost of goods) and, in time, less functionally efficient (e.g., eight men produce less than seven would).
He mentions that technology can make men more productive - per the earlier example of wooden tools, steel tools, and various mechanical tools. It can also make the land more productive, such as fertilizing unproductive soil to make it more fecund. But the progress of technology tends to be very slow. A firm that is using "the latest" technology can do nothing to increase its productivity until better technology is invented.
He does finally acknowledge that all of these calculations are based on a fixed resource: one parcel of land of a fixed size. If additional land is available, such as by draining an adjoining swamp or clearing a forest, additional labor and capital can be applied to produce additional product. This could be continued to the extent that additional land can be acquired.
This is where Malthusianism might be considered, though likely not for quite some time. He cites a professor (whom he calls "Senior" but who is likely to have been forgotten by history) who estimated that of 37 million acres of land in England and Wales, less than 85,000 was currently being used in agriculture, which means that only a tiny portion of the land is presently in use (EN: around two-tenths of one percent ) - such that the population would have to grow to 50,000 times its current size before it reaches the limit of food production.
Even that large number may be an understatement, because not all land is being used for food crops, not all food crops are the most efficient, the latest technology is not being used on all farms, the optimum blend of labor and capital are not being used on all farms, and technology will continue to progress to make the land far more productive.
This principle has not been widely applied to the mechanical professions, but it is likely that the concerns are similar: labor and capital will have a diminishing effect given a workshop of a fixed size, using fixed technology, with a scaling supply of raw materials, etc. As such there is a limit to the productive capacity of a factory, but one which is extended by increasing the size of the factory or building a second one.
A greater limitation, very seldom considered, is the want of people for specific goods. It is true that additional goods can be produced with the addition of labor, land, and capital. It does not, however, mean that the additional goods will be wanted, or that customers will pay the cost of their production. It is this factor, more than any functional obstacle, that limits the amount of food, clothing, and luxuries that can be profitably produced in any market.
Production can only grow until it satisfies the wants of consumers in a market at a price that they are willing to pay - a level that is far less than is functionally possible - which is a fact that is conveniently ignored by many of the alarmists of economics.