Subsidies Coffee Mkt. In 1798 the Reverend Thomas Malthus examined the impact of population growth and reached the somewhat gloomy conclusion that population growth would naturally check itself in the form of famine, wars and disease. 2,4,6,8,10,12 The inevitable conclusion for him was that the population growth rate outstripped the capacity of land to provide food for the people, ergo starvation and famine. The theory was based upon what has become known as the law of diminishing returns. The laws states that as increasing amounts of a factor input such as labour or fertiliser are added to a fixed factor such as land then the marginal product of the input would eventually diminish i.e. the increase in the output of land, the crop yields, would progressively decrease.
All factors of production have a capacity determined by their physical and technological capability.
Simply adding more inputs of labour to an area of land will not continually increase the output of land proportionately. There comes a time when the capacity of the land is reached and diminishing returns sets in. No extra fertiliser or extra labourers can change the physical composition of the soil to increase its fertility. Indeed the diminishing returns suggest additional factor inputs would reduce productivity of the land. As with all theories and models, their strength can be tested according to the extent to which they enable predictions to be made about the real world.