John Maynard Keynes: The General Theory of Employment, Interest and Money: "The doctrine did not reappear in respectable circles for another century, until in the later phase of Malthus the notion of the insufficiency of effective demand takes a definite place as a scientific explanation of unemployment. Since I have already dealt with this somewhat fully in my essay on Malthus, it will be sufficient if I repeat here one or two characteristic passages...
...We see in almost every part of the world vast powers of production which are not put into action, and I explain this phenomenon by saying that from the want of a proper distribution of the actual produce adequate motives are not furnished to continued production. ... I distinctly maintain that an attempt to accumulate very rapidly, which necessarily implies a considerable diminution of unproductive consumption, by greatly impairing the usual motives to production must prematurely check the progress of wealth.... But if it be true that an attempt to accumulate very rapidly will occasion such a division between labour and profits as almost to destroy both the motive and the power of future accumulation and consequently the power of maintaining and employing an increasing population, must it not be acknowledged that such an attempt to accumulate, or that saving too much, may be really prejudicial to a country?
The question is whether this stagnation of capital, and subsequent stagnation in the demand for labour arising from increased production without an adequate proportion of unproductive consumption on the part of the landlords and capitalists, could take place without prejudice to the country, without occasioning a less degree both of happiness and wealth than would have occurred if the unproductive consumption of the landlords and capitalists had been so proportioned to the natural surplus of the society as to have continued uninterrupted the motives to production, and prevented first an unnatural demand for labour and then a necessary and sudden diminution of such demand. But if this be so, how can it be said with truth that parsimony, though it may be prejudicial to the producers, cannot be prejudicial to the state; or that an increase of unproductive consumption among landlords and capitalists may not sometimes be the proper remedy for a state of things in which the motives to production fails?
Adam Smith has stated that capitals are increased by parsimony, that every frugal man is a public benefactor, and that the increase of wealth depends upon the balance of produce above consumption. That these propositions are true to a great extent is perfectly unquestionable.... But it is quite obvious that they are not true to an indefinite extent, and that the principles of saving, pushed to excess, would destroy the motive to production. If every person were satisfied with the simplest food, the poorest clothing and the meanest houses, it is certain that no other sort of food, clothing, and lodging would be in existence.... The two extremes are obvious; and it follows that there must be some intermediate point, though the resources of political economy may not be able to ascertain it, where, taking into consideration both the power to produce and the will to consume, the encouragement to the increase of wealth is the greatest.
Of all the opinions advanced by able and ingenious men, which I have ever met with, the opinion of M. Say, which states that: un product consommé ou détruit est un débouché fermé (I. i. ch. 15), appears to me to be the most directly opposed to just theory, and the most uniformly contradicted by experience. Yet it directly follows from the new doctrine, that commodities are to be considered only in their relation to each other—not to the consumers. What, I would ask, would become of the demand for commodities, if all consumption except bread and water were suspended for the next half-year? What an accumulation of commodities! Quels débouchés! What a prodigious market would this event occasion!
Ricardo, however, was stone-deaf to what Malthus was saying. The last echo of the controversy is to be found in John Stuart Mill’s discussion of his Wages-Fund Theory, which in his own mind played a vital part in his rejection of the later phase of Malthus, amidst the discussions of which he had, of course, been brought up. Mill’s successors rejected his Wages-Fund Theory but overlooked the fact that Mill’s refutation of Malthus depended on it. Their method was to dismiss the problem from the corpus of Economics not by solving it but by not mentioning it. It altogether disappeared from controversy. Mr. Cairncross, searching recently for traces of it amongst the minor Victorians, has found even less, perhaps, than might have been expected. Theories of under-consumption hibernated until the appearance in 1889 of The Physiology of Industry, by J. A. Hobson and A. F. Mummery...
#shouldread #historyofeconomicthought #keynes #malthus #aggregatedemand