Synthesis of Wealth Flows and Capital Investment Models of the Demographic Transition

The demographic transition, where more developed countries and wealthier folks in any country have relatively lower fertility than less developed and poorer counterparts, has been explained on the one hand on the basis of flows of wealth and on the other hand by differential capital investment. The models based on flows of wealth predict decreased fertility when more wealth flows to younger generations than from them to older generations. Accordingly, farmers who get lots of work out of their children may be expected to be more fecund than accountants who get little, if any, work from their offspring. Movement from an agricultural to an industrial economy changes the dynamic of flows of wealth. Capital investment models predict that more affluent countries and classes within countries invest more in each individual child and, therefore, will have fewer higher quality children while poor folks, who expect to invest little in their children, will have relatively more low quality kids. I have simplified these models egregiously, but the foregoing is enough for our present purposes.

These models are problematic because it appears that, taking everything monetary into account, children almost never pay their own freight. Farmers don't actually profit from their children's labor since they have to support them and usually have to set them up in life on their own at some point. The capital investment model does not predict fertilty differences all that well and seems to depend on positing an inherent difference between rich and poor in the value of children and the calculus that goes into childbearing decisions.

I think both models could be fit into a larger consumption model that sees fertility decisions as involving cost benefit analyses that include the intangible value of children to potential parents as consumer goods (albeit of a special type) and, most significantly, opportunity costs. This eliminates the need to posit an across the board class-based difference in the subjective value of children.

In the model I am proposing, children are valuable to parents primarily for their entertainment value. Parents derive enjoyment and satisfaction from their children in ways analogous to pet ownership or other hobbies. The value placed on this will differ among individuals, but this difference is not dependent on class status. It is not necessary to say that folks with more children value them more than folks with fewer or that folks with more value each child less than folks with fewer children. The difference is entirely subjective and individualistic and, in modeling large groups, can be plugged in as a hypothetical average value.

I submit that the most significant difference between rich and poor countries and people will be in opportunity costs and that this will prove to be the best predictor of fertility. Assuming that two families find children equally amusing, the family with the greater costs, including opportunity costs, will be less likely to reproduce than the other family. A potential mother with an MBA and earning potential in six figures will have significantly greater potential costs than a potential mother with no advanced education or work skills. Staying home with an infant will cost the former many times more than it will cost the latter. Moreover, the MBA may derive significant satisfaction from her career in contrast the satisfaction enjoyed by a fry cook at BK (notwithstanding the fabulous new breakfast sandwiches). If the MBA outsources her childrearing to a nanny or day care, this will both increase costs and reduce the net entertainment value of the child to her.

In addition, the more educated and affluent family may consider that childbearing means that they will have to forego alternative amusements, such as a social life or cultural life or travel. The poorer family doesn't do those things anyway and mostly stays home. Child raising is one of the few amusements available to them.

Finally, in a nod to the capital investment model, the richer family will have to throw more money into their kids for status reasons. Just as they might drive a luxury car when an economy car would be just as serviceable, they will feel the desire to provide their children with costly educations and accoutrements in keeping with their station in society. The poorer family can raise children on the cheap, relatively speaking.

In sum, opportunity costs, in the form of lost earning power and foregone alternative consumption, dampen fertility and drive the demographic transition. Ultimately, folks on either side of the transition have as many children as they can afford.