Bryan Caplan  

Was Having Kids Ever a Paying Venture?

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One popular story about the decline in family size over the last two centuries goes like this: Back in the old days, having kids paid.  Children started working when they were quite young, and provided for their parents in their old age.  Then industrialization and/or the welfare state came along and changed everything.  Young children ceased to contribute much economically to their families, and once Social Security, Medicare, and so on were in place, people stopped supporting their aging parents.

It turns out that this story is only half true.  Yes, in the modern era, people give little financial assistance to their elders; even in late adulthood, old-to-young transfers remain larger than young-to-old transfers.  The flaw in the story is the assumption that things used to be different.  In an eye-opening 1996 JEL piece, Ted Bergstrom summarizes evidence showing that even in pre-modern societies, kids did not pay.

Kids did not pay in hunter-gatherer societies:
[A]mong hunter- gatherers, resources flow from older to younger generations and not the other way around. These tribes all had very high average fertility (about eight births per woman), but in each case, children consumed more food than they caught, at all ages from birth until age 18.  Grandparents continued to work hard to support their grandchildren and produced more than they ate. At almost no time in their adult lives, did adults produce less than they consumed. When people became too old and frail to work, death followed quickly. Suicide and euthanasia of the enfeebled were frequently reported.
Kids did not pay in agricultural societies:
Calculations by Mueller and by Goran Ohlin (1969) indicate that a parent who gave birth at age 20 and supported a child from age one to age 15 would receive a monetary rate of return of less than one percent on her investment if she retired at age 60 and was supported by the child until age 85 at the level of living that is normal for old people in peasant societies. When one accounts for the probability that either parent or child may die before the parent reaches 85 years of age, the expected rate of return becomes negative. In a peasant society, where land ownership is possible and where there are markets for borrowing and lending, such low rates of return are not likely to be acceptable on purely financial grounds.
An anti-natalist might take this as further proof that breeding is sheer idiocy.  To me, though, it confirms that an intrinsic or "consumption" demand for kids is deeply rooted in human nature.  It also shows that explaining the long-run decline in family size is harder than it looks.  If parents in 1850 were willing to support five or six kids with a negative financial return, why aren't we?


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COMMENTS (45 to date)
Matt writes:

easy access to cheap contraception, and women have a stronger tendency to want to do something with their lives. This tends to conflict with having kids given the relative speed of their ticking biological clock. This just pushes the question back, though. Why the cultural change?

Felix writes:

Maybe enough people have figured out that they can let other peoples' kids support 'em in old age, what with social security insurance and all.

Or maybe enough people have convinced themselves that more people are bad things to have around. Co-incidentally, leaving more cash to party with.

lukas writes:

Surely the monetary rate of return on kids is lower now than in 1850 (whether or not it was negative even back then.) So the intrinsic demand for kids is elastic, big deal...

botogol writes:

"If parents in 1850 were willing to support five or six kids with a negative financial return, why aren't we?"

another strange thnig is that even though people nowadays have fewer kids - it seems to me we lead much more child-centric lives, and we profess to get much more pleasure from them than anyone did in the 1850s.

So we enjoy children more... but have fewer of them.

Perhaps having fewer is nore fun than having many.

C writes:

"If parents in 1850 were willing to support five or six kids with a negative financial return, why aren't we?"

Explanation 1: It takes more resources to make a competitive replicator than it did in the past. Unlike most of human history, upside earnings and reproductive potential is nearly limitless today. Perhaps producing fewer but better-prepared children pays better genetic returns.

Explanation 2: Animals seek sex and deal with the consequences. They don't necessarily seek offspring. The notion that parents were "willing" to support five or six kids may be meaningless.

James Oswald writes:

In 1850, the types and quality of entertainment were much less than they are today. Women have gained substantial amounts of freedom to decide how to live. It's not that the absolute cost of kids has gone up, it's the opportunity cost!

redacted writes:


what i don't understand is why all the very smart people who assume that everything can be explained by the imperative for males to transmit their individual genes are so concerned with their children's economic status when low economic status children would generally yield many, many more grandchildren than high economic status children.

bbb writes:

Bryan wrote: > To me, though, it confirms that an intrinsic or "consumption" demand for kids is deeply rooted in human nature.

Has it also occured to you, that it might be a demand for sexual intercourse (and not a demand for kids) which is deeply rooted in human nature?

Gary writes:

redacted, females' imperative to transmit their genes is just as strong as males'. And it's a popular misconception that low income, low status folks outbread high income, high status folks in any culture (see Nettle and Pollet, Natural Selection on Male Wealth in Humans, 2008).

bbb, I agree.

Gary writes:

"outbread" should be in present tense too. Things haven't changed, even though it seems like they have on movie set trailer parks.

Lance writes:

I think you might enjoy Fuchs' "How we Live: An Economic Perspective on Americans from Birth to Death".

http://www.amazon.com/How-We-Live-Perspective-Americans/dp/0674412257/ref=ed_oe_h

He addresses a lot of questions you're interested in.

Michael writes:

Wow, good comments.

"If parents in 1850 were willing to support five or six kids with a negative financial return, why aren't we?"

Going off other comments, 1) , maybe there is an invariant demand for sex, but we have less kids because contraception prevents most of that sex from resulting in kids.

2) Women have more to do nowadays.

3) Reproducing a suitable replacement takes a lot more resources today; food and shelter alone won't cut it--in addition there's health insurance, SAT tutoring, band practice, college, etc.,

To which I would propose also, 4) Kids in the past were insurance policies that wealth would remain in the family. Before wealth became easily fungible, you had to have a kid to pass down your small lot, or foreman privileges, etc. We today ideally will consume all that we earn. But you can't really consume a plot or a privilege. You can only hand it down.

Les writes:

For some unknown reason, no-one seems to have mentioned the dramatic drop in child mortality. In the old days it was necessary to have many children in order to end up with a few surviving children.

Today it is only necessary to have a few children in order to end up with a few surviving children.

I'm sure this is by no means the whole story, but I suspect that it is a relevant factor.

ajb writes:

As lukas suggests, whatever the intrinsic consumption value of having kids, if the opportunity cost of raising them has gone up, you should see a decline in childbearing. So if you had an expected return of neg 1 percent before but were willing to have kids, a neg 2 percent return might deter more people at the margin. This is especially true if the potential consumption of adults without kids is greater than before. E.g. mobility is greater today than 500 years ago and the returns to a young person in a career who is not tied down by family and kids may be higher (relative to the alternatives) than before. Very easy to come up with models and plausible figures that generate lower demand for kids today.

jakeruss writes:

People used to think the Earth was flat. Just because the return on having kids turned out to be negative, doesn't mean that the parents understood this at the margin.

I still believe in agriculture societies kids represented a form of investment. More mouths to feed in the short run but that they would eventually grow the long run output of the farm. People make bad investment decisions all the time.

Daublin writes:

The finding for agricultural groups is surprising. When I picture harvest time, my admittedly naive view is that having more hands gives you linearly more expected throughput. Additionally, with fewer people, there is an high risk of a fatally low harvest due to a key person being injured. With more people, an injury would seem to merely cause a leaner winter, not a deadly one.

I'm having a hard time picturing how running a farm by yourself would come out more profitable. Even if the expected throughput per person is higher, it seems so risky that such a farm is likely to implode after just a few years.

I skimmed the Bergstrom article, and perhaps I went too fast, but I didn't see an analysis of risk and of catastrophic failure. On the direct evidence, it mostly defers to others, so I'm not sure what the real results are. What the article does focus on is an evolutionary argument that somehow resource-hungry children will out-compete children that contribute back. That's also a surprise to me, but I haven't fully groked it and will have to think about it.

As an aside, nowhere in the article or in the comments here is a comment about security. Whether or not children pay off economically, they surely pay off in increased physical security.

Philo writes:

Michael rightly points to cheap, effective contraception: long ago people just wanted *sex*, and large families were a by-product that we now have learned to avoid. Perhaps also, as jakeruss suggests, we now are wiser than the old-timers, and have a clearer perception that children do not pay.

Another factor: childless people's lives are much more interesting now than formerly. The opportunity cost of rearing children has gone up, because the foregone alternatives are more attractive.

Foobarista writes:

One thing a Chinese friend from the countryside mentioned to me when I asked about big families: a family as a sort of gang or private army. If you have more sons, you can fight for resources against others, and fighting often means fisticuffs or at least physical threatening. A family with few sons (or strong daughters) doesn't have this option and may be out-competed.

Maybe better organized government and law enforcement has weakened this element?

OneEyedMan writes:

I think Jakeruss and Michael mostly have the explanation.

In a world filled with physical danger and lacking an effective savings mechanism, the inter-temporal shifting of wealth is quite difficult. In such a world it could well be optimal for an family to make investments with negative expected returns as long as they provide insurance and time shifting of resources.

This is similar to the way in which fire insurance can be a good investment even though in expectation the price is above the actuarially fair price of the risk.

Combine that with ignorance of the true probabilities of various risks that people faced in a world lit only by fire and you get a great deal of precautionary savings at a negative rate of return.

Bob Montgomery writes:
Calculations by Mueller and by Goran Ohlin (1969) indicate that a parent who gave birth at age 20 and supported a child from age one to age 15 would receive a monetary rate of return of less than one percent on her investment if she retired at age 60 and was supported by the child until age 85 at the level of living that is normal for old people in peasant societies.
Do you have a link for the 1969 paper? I don't buy this, at least not without seeing the numbers. The retirement and death ages sound too high, and were multiple generations accounted for? How was support modelled?

And besides, what were the alternative investment options for peasants?

agnostic writes:

The decline in family size doesn't have to do with contraception. Realized fertility is correlated almost perfectly with desired fertility. So, if a woman wants lots of kids, it doesn't matter if contraception is free -- she'll have lots of kids. Ditto a woman who wants few kids.

Contraception just reduces costs for those females who have an underlying preference for small family size. Contraception isn't a force whose effects people are helpless to avoid, like gravity. The real source of differences is these preferences or desired fertility.

Good review, including of the experimental evidence (rare in policy studies):

Pritchett, "Desired fertility and the impact of population policies."

On kids never paying, Hawkes' "Grandmother Hypothesis" puts together a good case that menopause is an adaptation that causes older women to withdraw from the mating arena in order to provide for their children and grandchildren. It wouldn't have made grandmothers materially wealthier, but it did raise their Darwinian fitness.

blink writes:

Part of the consumption value of children involves seeing them attain high status. This requires significant investment in education, etc. Having additional kids reduces the investment per child and, hense, the expected future status of each child. Parents are better off investing heavily in one or two children; only the truly rich can afford more.

Granite26 writes:

I'll jump on the delayed returns and insurance bandwagon. In a society without sophisticated financial networks, investing is hard or even impossible.

You can't produce wheat when you're young to eat when you're old, but you can raise a child using today's excess wheat and expect a return later.

George writes:

The mistake is in looking only at production and consumption, and neglecting redistribution.

Foobarista's pretty much got it: If I have eight kids, each of whom has eight kids, by the time I'm sixty, I have four strong sons and thirty-two strong grandsons. If you have four, each of whom has four, you have two strong sons and eight strong grandsons.

Since thirty-seven is much larger than eleven, my family will be helping ourselves to some of your family's earnings (whether hunted/gathered or farmed).

So maybe it's actually state monopoly on force and strong protections of property that have reduced family sizes.

Charley Hooper writes:

We have to also consider the evolutionary view. Assume that there are two types of people, ones who have children, for whatever reason, and others who don't. Over time, the type without offspring will die off and the type with offspring will take over the population.

The reasons for having children--and I have two myself--could be some form of inherited insanity. Yet it will be the insane who inherit the Earth.

From an evolutionary standpoint, the successful individuals are those who have children who live long enough to have their own children.

Charley Hooper writes:

While we don't see it this way in our society, having children is like buying an option. Every day parents pay for the option with food and care, hoping the value is large at some future date (for protection, food production, etc.). If things go badly, such as if there is a crop failure, war, or epidemic, then the child dies naturally or is killed, as the Chinese regularly did not too long ago.

So the prospective parents see the long-term value of offspring and realize that they only have to pay for the development of the children if things go well. If things don't go well, they no longer have to pay for the option. Because the option is only paid during good times, and the good things about the good time can't be saved in other ways, the cost is effectively lower to the prospective parents.

Dr. T writes:

Economics has no direct bearing on family size. Family size is related to the innate desire to reproduce and the likely success of reproduction (where success is defined as your children living long enough to have children of their own).

Primitive societies and pre-industrialization rural societies: Lots of kids because a huge percentage don't live to adulthood, and some of those cannot have children (mumps, STDs, and other causes of infertility).

Modern societies with good medical care: Few children because almost all live to adulthood, and almost all of them can have children.

There are some other variables such as religious and cultural dictates, but the situations above explain most of the differences in average numbers of births per woman. Family income never explains family size, and poor families in primitive societies rarely refrain from having more children. It takes famine-induced infertility before birth rates drop.

Gary writes:

Dr. T, do you have some evidence to show that "Family income never explains family size"?

Maximum Liberty writes:

How about this: Parents want their kids to have status comparable to theirs. Status is relative. Status in modern society correlates strongly with education. Education is expensive. Hence, making a child of status comparable to your own is expensive, so you have fewer of them.

There should be a testable corrollary to this, though: people with low status should have lots of kids. I have no idea if that is true. The movie Idiocracy says it is, but I don't think that stands up as a academically acceptable citation.

Max

Eric Johnson writes:

There's a fundemental error here. It doesn't particularly matter if kids were financially profitable on net for farmers. The point is that their labor made them financially cheaper on net then they are now. To get an increased demand for kids, they don't have to be free or better-than-free - just cheaper.

Gene Callahan writes:

"The finding for agricultural groups is surprising. When I picture harvest time, my admittedly naive view is that having more hands gives you linearly more expected throughput."

But the study doesn't seem to have looked at their labour while growing up -- it looked only (so it seems from what was cited here) at the support they gave to mom and pop when they got old!

jean writes:

Two points you should mention:

_Even if the return on investment is negative, people still need to save if they want a not too bad end of life. It is perfectly possible that the other available investments had an even worse yield.

_Maybe people wanted as much children than they now, but that due to higher infant mortality, they had to have many children if they wanted an adult surviving descendant for sure.
Large families were then an accident.

Eric Johnson writes:

> due to higher infant mortality

Well yes - but you really mean every other kind of mortality, not infant mortality. If a baby or a five-year-old dies, you could typically have another right then. The problem came from mortality at age 10, 15, 20, 30. Mortality of people under fifteen or so was particularly high in the past, but mortality at ages 15-30 or 30-45 was also quite substantial. This is true for both the agricultural past and the far longer pre-ag past, though in the ag period it was probably even worse.

improbable writes:

Perhaps it would help to clarify where & when we're comparing to. I have in mind England, for which the data is better than most places.

(1) In pre-industrial times, the population growth rate was pretty close to nil, so on average couples had close to 2 surviving children. They might have had more births, but they didn't have big families. (4 children per family produces an enormous population explosion.)

(2) The huge growth in population was essentially a 19th-C thing. So the kids weren't useful for harvest time, if anything they were useful in factories, but that ended before the boom ended.

Perhaps the question to be answered is what went wrong in the 19th C, with the 18th and 20th (or certainly 17th and 21st) on the norm of close to 2 children. Perhaps people hadn't yet got used to a society in which they got married that young, and such a high proportion of their kids survived.

This would line up with for instance Africa, where relatively stable populations have suddenly multiplied enormously, perhaps partly from using norms adjusted to the old times in a world which now has penicillin, and food aid, etc.

Eric Johnson writes:

> The huge growth in population was essentially a 19th-C thing. So the kids weren't useful for harvest time, if anything they were useful in factories

Russ Roberts says on Econtalk that 40% of people farmed in the USA in 1900. And even just 15 or 20 years before that it was way more, I bet, since the industrial revolution was of course an exponential phenomenon.

I think in the old old days it was generally about 95%, but I'm not sure.

phineas writes:

'agnostic', above, asserts: "The decline in family size doesn't have to do with contraception. Realized fertility is correlated almost perfectly with desired fertility." He gives a link to survey data to support that at http://ideas.repec.org/p/wbk/wbrwps/1273.html

But that article says: "By the time of these surveys, contraceptive knowledge was generally so widespread and available that cross-country differences are unlikely to be a major factor affecting reported fertility desires, even in high fertility countries." And also "the cost of contraception is too small relative to the importance of the decision to play a major role [in the fertility decision]", even in poor countries like Kenya.

That's a very different world from the 19th century where sexual abstinence was pretty much the only contraceptive available.

We all know that fertility rates in most of the world's poorer countries are now in decline. They'll continue to move towards the rich world's rates for certain -- the behavior of the better-educated people in the poorer countries is one indicator of that. The continuing high fertility in some countries, despite the ready availability of contraceptives, is due to cultural inertia in the women, a slowness to change. Having children is or was the main thing that women did with their lives. You couldn't expect them all to change away from that in one generation, now that contraceptives have made it possible. But the change is coming, for certain, I think.


The decline in family size is due to contraception.

I totally agree with this from earlier:
Bryan wrote: To me, though, it confirms that an intrinsic or "consumption" demand for kids is deeply rooted in human nature. bbb replied: Has it also occured to you that it might be a demand for sexual intercourse (and not a demand for kids) which is deeply rooted in human nature?

Lorenzo from Oz writes:

Changes in infant mortality are central to understanding behaviour. (Including lags in expected mortality rates.) Also, the operative issue is, as comments have pointed out, is whether children have become more expensive relative to income and alternatives, not whether their strict financial return was ever positive.

There is also the simple fact that farming clearly lead to dramatic increases in population, that is why farming wins out over hunter-gathering.

I liked the points about children-as-protection. In the Middle East, cousin marriage is a way of keeping offspring within the lineage, a lineage which clearly works as a substitute for states. Phillip Carl Salzman is the best read on those dynamics (which make the Middle East, then and now, make much more sense, including the Old Testament).

Jane writes:

Contraception!

I don't think anyone *ever* wanted to support 5 or 6 kids. What they wanted was to have sex! And the children followed.

Dr. T writes:

Gary writes: "Dr. T, do you have some evidence to show that "Family income never explains family size"?"


How about dirt poor people in almost every third world country (and in some parts of first world countries) having >5 children? By straight economic analysis, they shouldn't have any children.

How about the wealthiest couples in the world having fewer children that average? By straight economic analysis, they should have dozens of children.

The correlation is inverse: greater poverty roughly equates to greater births per family and greater wealth results in fewer births per family. Just look at a CIA World Fact Book and correlate per capita incomes with birth rates.

Oh, and Jane's comment on lack on contraception is wrong. I grew up in a poor and rural region, and I knew parents who wanted as many kids as possible. Condoms and birth control pills were readily available but rarely used. I had six siblings, a neighboring family also had seven kids, and there were numerous families in my school district with five or more kids. Again, some of those with the most kids were among the poorest families.

improbable writes:

" Russ Roberts says on Econtalk that 40% of people farmed in the USA in 1900. And even just 15 or 20 years before that it was way more, I bet, since the industrial revolution was of course an exponential phenomenon."

OK, but certainly by 1900 they were farming with much better tools given to them by the industrial revolution -- they were not pre-industrial. I guess their kids were working the land, and there were lots of them, but there weren't many generations like that. They weren't part of some long-term pre-industrial large-family trend. Large families (for average people, not the rich) were a short-term phenomenon.

I suppose I said England not the US in part because the population growth there was in no sense about spreading out to cover more land.

jean writes:

@Jane: Natality had lowered dramatically before the 1960s.
Contraception access does not seem to be a key factor in natality reduction.
On the contrary, education seems to make a big difference.

Another explanation: growth offer goods that substitute quite well to children as a consumption.

Doc Merlin writes:

This also illustrates a difference between conservatives and leftists in society.

Poor leftists in the US have more kids than rich leftists, and rich conservatives more than poor conservatives. This suggests to me that for conservatives kids are a normal good and for leftists an inferior good.

For many rich conservatives I know, the purpose of having a high paying job, etc is to be able to afford kids.
For many rich leftists I know, the reason they don't have more kids is because they want to have time to enjoy life and spend time on their high paying job.

Gary writes:

Dr. T,

I wish people would stop using the term "third world countries". It's lost its literal and descriptive usefulness.

Your anecdotes aren't convincing. Your proposed test ("Just look at a CIA World Fact Book and correlate per capita incomes with birth rates") won't actually test the hypothesis that "family income never explains family size".

I commented earlier on a paper by Nettle and Pollet that tests something similar to your hypothesis. What do you think of it?

phineas writes:

jean says: "Natality had lowered dramatically before the 1960s." Au contraire, 1961 is the all-time peak year for number of births in the USA. Everyone knows there was a "baby boom" between the end of WWII and the early 1960s.

Peter A writes:

If we assume that there is a consumption demand for sex, children, contraception and "other stuff", it stands to reason that when there's "more stuff", more sex and more contraception to choose from, less of the good "children" will be chosen.
In ye olde days, it was really limited what you could spend accumulated capital on. Today, that is not the case.
Who wants children when you can have another big-screen TV, a blender and 5 kilos of cocaine to entertain you instead and for less money?

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