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Thomas Malthus (1766-1834)
his father was a friend of Hume, admirer of Condorcet, and disciple of William
-> Godwin believed in utopia based on reasons and blamed want on social
institutions such as marriage and property
-> Malthus’s work dispute’s his father’s view
- mathematically trained at Cambridge
- a cleric and the first professor of Political Economy in Britain
- enormous influence
-> lead to the description of economics as the ‘dismal science’
Major Publications
1798 Essay on the Principle of Population (published anonymously)
1803 2cd edition of the Essay
- added the three postulates of the principle and the check of moral restraint
1814 Observations on the Effect of the Corn Laws
1830 Principles of Political Economy
1830 A Summary View of the Principles of Population
Essay on the Principle of Population ((2cd edition, 1803)
Malthus begins with two “fixed laws of nature”
1) “food is necessary to the existence of men”
2) “the passion between the sexes is necessary and will remain nearly in its present
=> “the power of population is indefinitely greater than the power in the earth to
produce subsistence for man
1) “population, when unchecked, increases in a geometric ratio” (1, 2, 4, 8, 16, …)
– “as a result of actual experience, we will take as our rule” “that population,
when unchecked, goes on doubling itself every twenty five years”
- the actual experience is the United States where “the means of subsistence
have been more ample, the manner of the people more pure, and consequently
the checks to early marriage fewer, than in the modern states of Europe”–
2) “Subsistence increases in an arithmetic ratio” (1, 2, 3, 4, 5, ..)
– the most that one can allow is “that by the best possible policy, by breaking up
more land and by great encouragement to agriculture, the produce of this
Island may be doubled in the first twenty-five years …The very utmost that we
can conceive is, that the increase in the second twenty-five years might equal the
present produce”. The quantity of subsistence can only increase by the present
amount every twenty-five years.
=> increase in population is limited by increase in food
=> subsistence existence (eventually) for the mass of the population
- population “oscillates” moving in “retrograde and progressive movements”
- excessive population relative to subsistence lowers the wage rate (since
population is large relative to demand), causing labourers to work harder, and
increases the cost of provisions. This causes many ‘severe distress’ which
discourages marriage and population growth. The low wage rate, harder work
of the labourers, and excessive population then “encourages cultivators to
employ more labour on their land” to increase subsistence. “The situation of the
labourer being then again tolerably comfortable, the restraints to population
are in some degree loosened”
- the principle of population may be summed up by
1) “population cannot increase without the means of subsistence”
2) “population does invariably increase where there are means of subsistence”
3) “the superior power of population cannot be checked without producing misery
or vice”
The only means of keeping the population within the limits of subsistence are:
1) Positive checks (“confined chiefly … to the lowest orders of society”)
a) Misery
– famine, wars, pestilence
b) Vice
– birth control, i.e., sexual activity without procreation
2) Preventive check – moral restraint
“abstention from marriage not followed by irregular gratification”
- opposed the Poor Laws (provisions and shelter for the poor)
– “first obvious tendency is to increase population without increasing the food
for its support”
– “Secondly, the quantity of provisions consumed in the workhouses …
diminishes the shares that would otherwise belong to more industrious and
more worthy members” of society
- the labouring poor rarely save “but all that is beyond their present necessities goes,
generally speaking, to the ale-house”. “It is a general complaint among master
manufacturers that high wages ruin their workmen”.
- scarcity is the cause of institutions such as property and marriage
(as against Godwin who argued that these institutions created vice and misery)
-> self-love, not benevolence, is the “moving principle of society”
The Theory of Gluts
“Law of Markets” (Smith, etc.)
- Supply creates its own demand => no possibility of general overproduction
Classical Monetary Theory
- money is merely a means of exchange (transactions function only)
=> quantity theory of money (Locke, Hume)
-> price level determined by proportion of money and goods
-> dichotomy of money and goods
-> money is neutral
-> change in money supply => change in absolute prices but no change in
relative prices
Say’s Identity
James Mill (1808)
– all goods are sold through reallocation of existing output
- “there never can be a superabundant supply in particular instances, and hence a
fall in exchangeable value below cost of production without a corresponding
deficiency of supply, and hence a rise in exchangeable value beyond cost of
production in other instances.” (2cd edition, 1824)
a) constant money supply
– glut in one sector
=> fall in price in this sector
=> unspent money available to spend elsewhere
=> increase in prices of desired good
-> reallocation through relative prices
b) change in money supply
–same reallocation through change in relative prices but at a different absolute
price level
=> market clearing relative prices compatible with different absolute price
- Mill’s approach essentially assumes that money from a sale is immediately spent so
than demand and supply are identical
Say’s Equality
J.B. Say (1803)
- glut rectified by producing more output
-> an increase in output => income to buy the glut and output to for unspent income
- Say essentially allows for temporary holding of money
-> demand and supply are equal in equilibrium but not identical
Hence the classical position was that gluts (overproduction, unsold commodities)
ended by:
a) change in relative prices (James Mill)
b) an increase in output (J. B. Say)
- denied overproduction
– re. the producer: “By producing, then, he necessarily becomes either the
consumer of his own goods, or the purchaser and consumer of the goods of some
other person”
- distinguished between
- productive labour, which produces surplus beyond wages expended, and
unproductive labour, which produces only the value of wages
– productive consumption, which was spending that produced a surplus, and
unproductive consumption
- capital as productive consumption increased the demand for labour
-> capital accumulation could not cause overproduction because high capital
accumulation increased the wage rate, reducing the profit rate to curb
- borrowed Smith’s concept of labour commanded. “when the value of an object is
estimated by the quantity of labour of a given description which it can
command, it will appear to be the best of any one commodity, and to unite,
more nearly than any other, the qualities of a real and nominal measure of
- developed a cost of production theory of value – value is the amount of stored and
current labour plus profits – which equals the amount of labour it can
- defined effective demand as demand that is high enough to ensure continual supply
– effective demand equalled labour commanded
Simple Reproduction
- continuing production => sale at value, i.e., a price covering outlay plus profits
- labourers can not buy the product since wages are less than total value
(labour commanded > wages)
- exchange between capitalists can not realize the profit because one’s gain in
exchange is at the expense of the other
- there is no net profit in exchange among capitalists [similar to Mercantilists]
- unproductive consumption provides the solution, i.e., those who spend without
“It is absolutely necessary that a country with great powers of production
should possess a body of unproductive consumers”
– capitalist are unlikely to be unproductive consumers since this is not
“consistent with the general habits of the generality of capitalists”
- unproductive consumers include landlords, menial servants, statesmen, soldiers,
lawyers, judges, physicians, and clergymen.
- Malthus recognizes that unproductive consumers must purchase the goods
-> effectual demand must be sufficient for the purchase of all goods
“Effectual demand consists of two elements, the power and the will to purchase
… A country may certainly have the power of purchasing all that it produces,
but I can easily conceive that it not have the will” [letter to Ricardo]
“If consumption exceed production, the capital of a country must be
diminished, and its wealth must be gradually destroyed for its want of power to
produce it; if production be in great excess above consumption, the motive to
accumulate and produce must cease from want of an effectual demand …The
two extremes are obvious; and it follows that there must be some intermediate
– Keynes praised Malthus for this insight that the issue is not whether income
and output are equal (Say’s Law) but whether income is spent on output, i.e.,
whether or not expenditure equals income/output
- Malthus pointed to saving as the critical equilibrating factor (again impressing
“National saving … considered as the means of increased production is
confined within much narrower limits than individual saving. While some
individuals continue to spend, other individuals may continue to save to a very
great extent … but the national saving … must necessarily be limited by the
amount which can be advantageously employed in supplying the demand for
– Malthus saw money “as absolutely necessary to any considerable saving” and
thus differs from the merely transactions approach of most classical economists
1) capital accumulation with unchanged technology
-> new capital employs the same proportion of workers as old capital
-> labour must grow at the same rate as the old capital
-> but “a sudden increase of capital and produce cannot affect a proportionate
supply of labour in less than sixteen or eighteen years”
=> a) some capital would lack labour and thus be idle
b) a temporary shortage of labour
-> an increase in wages
-> a fall in investment since profits would fall
2) capital accumulation with technological change
-> capital would substitute for labour
-> decrease in demand for labour (at least relatively)
-> decrease in demand for goods
In cases 1 or 2, excessive profits => unsustainable rate of capital accumulation
-> solution is the unproductive class