Malthus made several policy implications to promote economic development:
1. Balanced Growth:
Malthus conceived of an economy consisting of two sectors i.e. industrial and agricultural.
It is the technological progress which can lead to economic development in both sectors. The agricultural output is subject to diminishing returns. In such a economy, economic development starts with its capital investment in agriculture. Soon all arable (cultivate) lands are improved and brought under cultivation.
After this more opportunities for profitable investment exist only in industrial sector. Thus, to avoid the operation of the law of diminishing returns in agriculture, further population growth should be absorbed in industrial sector. But this requires heavy capital investment and rapid technological progress in the industrial sector. Thus, in a dualistic economy comprising agricultural and industrial sectors, economic development means the balanced growth of both the sectors.
2. Raising Effective Demand:
Technological progress alone cannot lead to economic development unless the effective demand increases.
Malthus suggested a number of measures to increase effective demand:
(i) By Equal Distribution of Wealth & Landed Property:
“Thirty or forty proprietors with income averaging between one thousand would create a much more effective demand for wheat, bread, good meat and manufactured product, than a single proprietor possessing a hundred thousand a year”. Thus, Malthus believed that moderately rich people can raise effective demand more than one millionaire among the poor masses. He favored a more equitable distribution of landed property for that would increase effective demand as well as production.
(ii) By expansion of Internal and External Trade:
It is the internal as well as external trade that increases wants and desire to consume which are absolutely necessary to keep up market prices of commodities and prevent the fall of profits. Internal and external trade also increase the value of products exchanging what is wanted less and what is wanted more.
(iii) Maintenance of Unproductive Consumers:
Unproductive consumers are those persons who do not produce material objects. It is under-consumption which leads to gluts and economic stagnation. Hence, the production can be increased by increasing consumption. Since capitalists are parsimonious and productive, workers live upon subsistence wages, unproductive consumption upon the part of unproductive labourers and landlords will increase effective demand.
(iv) Public Works Schemes:
Lastly Malthus suggested public work schemes to remove unemployment and increase the effective demand. Malthus pointed out, “The employment of people on poor roads and public works and a tendency among landlords and persons of property to build, to improve and beautify their grounds, and to employ workmen and menial servants, are the means to remedy the evils arising from the disturbance in the balance of produce and consumption”. But he himself noted two weaknesses of this measure.
Firstly, it might prevent labour from gradually accommodating itself to a reduced demand. He thought it can be removed by giving low wages to workers and secondly, it would lead to increase in taxes to finance public works which would reduce private investment. But this weakness was in fact the advantage of public works because it would have tendency to diminish the capital employed by productive labour.