August Lösch on Population and Business Cycles

The German economist August Losch (1906–45) earned a permanent place in the history of economic ideas through his work on general equilibrium theory applied to a spatially distributed economy. His pathbreaking contribution in that field is synthesized in The Economics of Location (English translation 1954, first edition Die raumliche Ordnung der Wirtschaft , published in 1939). Lb'sch's early theoretical and empirical work, however, was focused on the interaction of demographic and economic change, in particular the effect of population on economic fluctuations—in traditional terminology, the business cycle. His statistical investigations of the preindustrial era, reaching back to the seventeenth century, indicated that the dominant causal relationship went from the economy to population, a connection that much subsequent work also confirms. But his research on the history of German economic development under capitalist conditions showed primarily a reverse set of influences at work: from population, in particular from fluctuations in the rate of population growth, to the business cycle. This theoretical and empirical contribution, first published in German in 1936, is most accessible to readers of English in a paper presented in December of the same year at the annual meeting of the Econometric Society in Chicago and published in the Quarterly Journal of Economics in August 1937 under the title “Population cycles as a cause of business cycles.” Excerpts from this article—the opening paragraphs and the closing section titled “Explanation”—are reproduced below. Losch sees the relationship as mediated by changes in labor supply and consequent responses in building activity, demand for consumer goods, and, in particular, stimulus or else depressing influence on the capital goods industries as the rate of population growth increases or falls. He cautions that his empirical work supporting his proposition was limited to Germany and may not apply everywhere. He suggests, however, that the effect of immigration on the United States economy is probably congruent with the thesis.