Classical Political Economy. Part II. J. B. Say & T. Malthus

Transcription

1 Classical Political Economy Part II J. B. Say & T. Malthus Sandelin et al. (2014, Chapter 3) [S] + Others from the Internet 2018 (Comp. by M.İ.)

2 Classical Political Economy * *

3 Jean-Baptiste Say ( ) The Frenchman Say read Smith s Wealth of Nations when he was about twenty, and fifteen years later he published his Traité d économie politique (1803), a treatise on political economy This work was instrumental in the dissemination of Smith s ideas on the European continent, and, in an English translation, even in the USA. At least two things may be said about Say. First, he has sometimes been regarded as a pioneer of the subjective theory of value that later on came into full bloom with the neoclassical economists. Price measures value, and value measures utility, according to Say. Consequently, utility is the foundation of price. In emphasizing the subjective utility that individuals experience, Say differs from most other classical authors, especially Ricardo, who accentuated the labour spent in production as the factor creating value.

4 Say is mostly remembered for Say s law; as soon as a good has been produced, it offers a market for other goods corresponding to its whole value. The underlying argument is that all production provides income for the production factors that will be spent in the markets. As a simple slogan, Say s law is often formulated as supply creates its own demand.

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6 This expression must not be interpreted to mean that the supply of a certain good creates an equal demand for the same good. An excess supply of some types of goods may arise, but it would be balanced by excess demand for other goods, such that total demand in the economy could never fall short of supply. Say s law rejects the argument that economic crises can be explained as results of a lack in the aggregate demand for goods.

7 Also, NC Growth Modern Interpretation According to Say; economic development is determined by aggregate supply only Supply-side economics takes its foundation from Say's Law

8 Criticisms There has been much scholarly debate about the interpretation of Say s law spelt out in the five editions of the Treatise. The strongest objections to Say s law are based on the argument that the hoarding of money and contraction of credit at times when real and financial investors turn pessimistic can indeed lead to situations in which aggregate demand falls short of the aggregate supply of goods. Barter vs. Monetary Economy

9 HOWEVER Before Keynes Malthus pointed out that output could be restricted by a lack of demand. There is a link between this idea and those of Keynes some hundred years later

10 Thomas Robert MALTHUS ( ) The Englishman Malthus had studied philosophy, mathematics and theology... In 1805 he became professor of history and political economy at East India College near London. He is famous for his population studies, but he also made important contributions to other areas of political economy.

11 As noted before, Malthus elaborated on the concepts of supply and demand, rejecting Say s law and the idea that the economy spontaneously gives full employment. The pessimistic theory of population [PTP]that Malthus presented in his classical Essay on the Principle of Population (1798) was principally supported by Ricardo and John Stuart Mill, and later became the foundation of neo-malthusianism.

12 His main point in PTP is apparent in the following quotation: I think I may fairly make two postulata. First, That food is necessary to the existence of man. Secondly, That the passion between the sexes is necessary and will remain nearly in its present state. These two laws, ever since we have had any knowledge of mankind, appear to have been fixed laws of our nature, and as we have not hitherto seen any alteration in them, we have no right to conclude that they will ever cease to be what they now are... Assuming then my postulata as granted, I say, that the power of population is indefinitely greater than the power in the earth to produce subsistence for men. Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio. By that law of our nature which makes food necessary to the life of man, the effects of these two unequal powers must be kept equal. This implies a strong and constantly operating check on population from the difficulty of subsistence. This difficulty must fall somewhere and must necessarily be severely felt by a large portion of mankind. (pp. 70 1)

13 What will be the consequence? Misery and vice. -The wage rate will be forced down to the subsistence level, an idea that later on is found also in the work of his friend David Ricardo. -Malthus [also suggested] postponed marriages among those factors that can bring the growth of population into line with the growth of subsistence.

14 What will happen? t

15 Malthus Catastrophe [Crisis] t

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18 Acording to P. Krugman: Malthus was right! The fact is that Malthus was right about the whole of human history up until his own era. Sumerian peasants in the 30th century BC lived on the edge of subsistence; so did French peasants in the 18th century AD. Throughout history population growth had always managed to cancel out any sustained gains in the standard of living, just as Malthus said. It was only with the industrial revolution that we finally escaped from the trap

19 Neo-Malthusian theory During the 20 th century, environmentalists like Paul Ralph Ehrlich, influenced from Malthus s Population Theory, emphasized that the Earth could not sustain a large human population. THUS, there is need for population growth to be brought under control In contrast to Malthus, Boserup [OPTIMIST] believed that an increase in population would stimulate technologists to increase food production.

20 Malthusian Trap

21 DATA

22 Today [ ]

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