The Macroeconomics of Malthus 9780367752255, 9780367752279, 9781003161561

Citation preview

The Macroeconomics of Malthus

The views of Thomas Robert Malthus (1766–​ 1834) on population, first published in his Essay on the Principle of Population, 1798, continue to be hotly debated, either acclaimed or opposed, as do his views on macroeconomics. There is a widely held view that his macroeconomics lacks coherence and is merely a collection of isolated jottings. This book challenges this view; it presents textual evidence that Malthus’s macroeconomics constitutes a significant system of thought with considerable academic merit. It reawakens debate about the relative merits of Malthus and Ricardo as macroeconomists and contends that Malthus offers important macroeconomic ideas and policy proposals relevant to modern economic problems. It presents and analyses Malthus’s ideas on topics such as the determinants of aggregate economic growth; the causes of general depression; the remedies for mass unemployment; the balance between laissez-​faire and government intervention; the optimum division of expenditure between consumption, saving, and investment; the distribution of income between wages, profits, and rents; and the degree of economic inequality. Particular emphasis is given to his view that the pattern of distribution of wealth between the upper, lower, and middle classes is a major determinant or factor in the production of wealth, and that continued economic development depends on the growth of a large and affluent middle class. The radical nature of some of his ideas and policy proposals on the ownership and distribution of land is highlighted. An extensive treatment of Say’s Law, incorporating aspects of the correspondence between Say and Malthus, addresses the question of whether Malthus showed that Say’s Law is merely a truism and lacks any scientific relevance. The book also sheds new light on the nature of the influence of Malthus on Keynes. This combination of a search for textual authenticity and a critical assessment of the views of commentators on Malthus will be of significant interest to students and scholars of economic theory and the history of economics. John Pullen is Adjunct Associate Professor at the University of New England, Armidale, New South Wales, Australia.

Routledge Studies in the History of Economics

English Economic Thought in the Seventeenth Century Rejecting the Dutch Model Seiichiro Ito Poverty in the History of Economic Thought From Mercantilism to Neoclassical Economics Edited by Mats Lundahl, Daniel Rauhut and Neelambar Hatti Macroeconomic Analysis in the Classical Tradition The Impediments of Keynes’s Influence James C.W. Ahiakpor Foundations of Organisational Economics Histories and Theories of the Firm and Production Paul Walker John Locke and the Bank of England Claude Roche Poverty in Contemporary Economic Thought Edited by Mats Lundahl, Daniel Rauhut and Neelambar Hatti Thomas Aquinas and the Civil Economy Tradition The Mediterranean Spirit of Capitalism Paolo Santori The Macroeconomics of Malthus John Pullen For more information about this series, please visit www.routledge.com/​series/​ SE0341

The Macroeconomics of Malthus John Pullen

First published 2022 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2022 John Pullen The right of John Pullen to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-​in-​Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-​in-​Publication Data Names: Pullen, John, 1933– author. Title: The macroeconomics of Malthus /​John Pullen. Description: Milton Park, Abingdon, Oxon; New York, NY: Routledge, 2022. | Series: Routledge studies in the history of economics | Includes bibliographical references and index. Identifiers: LCCN 2020057516 (print) | LCCN 2020057517 (ebook) | ISBN 9780367752255 (hardback) | ISBN 9780367752279 (paperback) | ISBN 9781003161561 (ebook) Subjects: LCSH: Macroeconomics. | Malthus, T. R. (Thomas Robert), 1766–1834. Classification: LCC HB172.5.P85 2021 (print) | LCC HB172.5 (ebook) | DDC 339–dc23 LC record available at https://​lccn.loc.gov/​2020057516 LC ebook record available at https://​lccn.loc.gov/​2020057517 ISBN: 978-​0-​367-​75225-​5 (hbk) ISBN: 978-​0-​367-​75227-​9 (pbk) ISBN: 978-​1-​003-​16156-​1 (ebk) Typeset in Bembo by Newgen Publishing UK

This book is written in commemoration of the 200th year of Malthus’s Principles of Political Economy (1820).

Contents

Acknowledgements 

xi

Introduction 

1

1 Malthus’s methodology 

6

A fundamental methodological principle: “the doctrine of proportions”  6 Time perspective: short run or long run  7 Macroeconomics or microeconomics  12

2 Saving, investment, and consumption 

14

3 Effective demand and effective supply 

29

Importance of saving and the danger of oversaving  14 Are all savings invested?  16 Redundant savings and redundant capital  19 Malthus on Adam Smith on savings  20 Capital accumulation, investment, and effective demand  21 Investment  21 Expectations  24 Malthus’s concept of consumption  25 Consumption, production, and investment  27 The power to purchase and the will to purchase  29 Desires, velleities, and the intensity of demand  30 Purchasing power and actual purchases  31 Purchasing power and effective demand  31 Definition of supply  35 The concept “brought to market”  36 Supply: a quantity, or a price–​quantity relation?  37

viii Contents

4 Manufacturing, machinery, and inventions 

40

5 Population growth and per capita economic growth 

64

6 Land, landlords, rent, and diminishing returns 

74

7 Labour and wages 

87

Anti-​manufacturing interpretations  41 Pro-​manufacturing interpretations  43 Division of labour  48 Machinery and inventions  50 Establishment and survival of manufacturing  53 Balance between manufacturing and agriculture  55 Superiority of agriculture over manufacturing  57 Manufacturing and economic growth  59 Conclusion on manufacturing  61 Economic benefits of population growth  65 The desire of bettering our condition  72 Differential rent and absolute rent  76 Diminishing returns  80

Malthus as a low-​wage advocate  87 Malthus as a high-​wage advocate: humanitarian arguments and economic arguments  90 Savings by labourers  96 The future of wages  98 The labouring classes  99 Cause of wages  105 Combinations of masters and combinations of labourers  108 Capital accumulation and high wages  109 Wages as quantities or proportions  111

8 Capital, profits, interest, investment, and the wages–​profits relation 

114

9 Say’s Law 

136

Profits and capital  114 Interest, loanable funds, and liquidity preference  121 Investment  123 The wages–​profits relation: direct or inverse?  125

Say’s statements on Say’s Law  137 Correspondence between Malthus and Say on Say’s Law  138 Say’s definition of production and his implicit recognition of demand  144 Possibility of redundant capital  146 A truism  148

Contents  ix Origin and meaning of the expression “supply creates its own demand”  151 Say’s Law as a grammatical construct, and Malthus’s deconstruction  154 The revenue-​generating basis of Say’s Law  155 Exogenous and endogenous causes of depression  156 Policy implications of Say’s Law: an argument for wage reductions?  160 Malthus, Say, and Keynes  163 An extended Say’s Law  164 The fundamental issue  166 Conclusion on Malthus on Say’s Law  168

10 Laissez-​faire and government intervention: private sector and public sector 

171

11 Unproductive labour and unproductive consumption 

207

12 Causes of growth and depression: Malthus’s theory and alternatives 

226

13 Distribution, redistribution, and the balance between economic equality and economic inequality 

233

Malthus’s arguments for laissez-​faire and against government intervention  172 Malthus’s arguments for government intervention, and against laissez-​faire: limitations and exceptions to laissez-​faire  178 Restrictions on trade: customs duties  185 Trade-​induced structural change  186 Fluctuations in trade  188 Combined system of agriculture, manufacturing, and trade  190 Public works  195 Malthus and Keynes on public works  200 Conclusion on laissez-​faire and government intervention  204 Productive and unproductive labour  207 Unproductive consumption  222

Overproduction or underproduction  226 Saving and oversaving  227 Investment as a cause of growth  228 Overinvestment as a cause of depression  228 Satiation of wants  228 Wage reductions  230 Deficiency of aggregate effective demand and investment opportunities  230 The path to recovery: supply-​side or demand-​side  231

Distribution, as a factor of production  236 The middle classes  237 Inequality, growth, and depression  241

x Contents

14 Malthus and recent debates on economic inequality 

243

15 Conclusion 

248

Notes  References  Index 

252 253 262

newgenprepdf

Acknowledgements

The initiative of Kanto Gakuen University in acquiring and preserving Malthus’s manuscripts, and the University’s generosity in granting to Trevor Hughes Parry and myself permission to study and edit the manuscripts, are gratefully acknowledged.The Malthus manuscripts at Kanto Gakuen University have been and will ever remain an essential resource for the study of the ideas of Thomas Robert Malthus. This work has received financial support from the University of New England, and has been greatly assisted by the efforts of the staff of the Dixson Library in obtaining research material. The contributions from anonymous referees were very much appreciated. The completion of this work would not have been possible without the support of Professor Donald Winch in promoting publication, by the Royal Economic Society and Cambridge University Press, of the variorum edition of Malthus’s Principles of Political Economy, and the variorum edition of Malthus’s An Essay on the Principle of Population, edited by Patricia James.

Introduction

This work attempts to assess the intellectual status of the ideas of Thomas Robert Malthus (1766–​1834) on issues such as economic growth, depressions, inflation, trade cycles, unemployment, foreign trade, wages, profits, interest, distribution, and economic inequality –​issues now generally classified as macroeconomics. It challenges a commonly held view that on these issues his ideas are either misguided or incoherent or illogical or of little relevance and usefulness to current economics. Unfortunately, and unfairly, the adjective “Malthusian” is now commonly used as a shorthand expression for matters relating to overpopulation and birth control measures, a usage which is particularly anomalous given that, although Malthus warned of the dangers of overpopulation, he was opposed to the practices now known as birth control. The macroeconomic issues under discussion in this work will include Malthus’s views on the advantages and disadvantages of population as a determinant of economic growth, but only as one of many determinants. When confronted by the expression “Malthus’s Macroeconomics” many readers would be inclined to regard it as a self-​contradiction or a joke, and would assert that no significant system of macroeconomics can be found in the writings of Malthus.They might accept John Maynard Keynes’s eulogistic view that Malthus’s comments on effective demand are an important contribution to macroeconomics, but would regard the rest of Malthus’s macroeconomics as a series of ad hoc isolated jottings, not worthy of being designated as a distinctive school of macroeconomics. It is not uncommon for opinions on Malthus’s macroeconomics to be expressed in disparaging or derogatory terms. Malthus did not originally intend to write a formal and complete treatise of political economy. At one stage, he considered the title “Tracts or An Essay”, but later rejected it in favour of “Principles of Political Economy” (Malthus 1989b, I, xxxi; letter of 21 October 1818, to Ricardo). But an analysis of the Principles, together with his pamphlets, articles, and correspondence, does in fact reveal, contrary to his original intention, a substantive body of thought on macroeconomics which when reconstructed thematically amounts to a logical, coherent, and distinctive system and one sufficiently distinct from the published thoughts of his peers and predecessors to warrant the title “Malthus’s

2 Introduction Macroeconomics”. It presents a challenge to the dominance of the economics of David Ricardo, which appears to have become generally accepted as the orthodox version of classical economics, in opposition to the view expressed in 1933 by Keynes that “the almost total domination of Malthus’s line of approach and the complete domination of Ricardo’s for a period of hundred years has been a disaster to the progress of economics”, and “If only Malthus, instead of Ricardo, had been the parent stem from which nineteenth-​century economics proceeded, what a much wiser and richer place the world would be today!” (Keynes 1961, 117, 120). Attempts in recent years to define a so-​called canonical model of classical economics have amounted to a canonisation of Ricardian economics. It has been argued that in the last ten years of his life Malthus lost interest in the problem of the adequacy of aggregate demand: From 1824 until his death Malthus wrote hardly a line on aggregate demand, and the posthumous second edition of his Principles that came out in 1826 reveals no evidence that Malthus in the last ten years of his life was much concerned, one way or the other, about the problem. (Fetter 1969, 71) But the events of Malthus’s life in those ten years do not support the view that, in matters of aggregate demand, this was a fallow or quiescent period. From Malthus’s colleague at the East India College, William Empson, we read that Malthus was continually making adjustments to the first edition of the Principles in preparation for the second edition, and incorporating new material. These adjustments, varying in size and significance, were spread throughout the work. The chapter which was principally directed to macroeconomic problems, such as aggregate demand, namely Chapter VII, “On the Immediate Causes of the Progress of Wealth”, received 550 alterations spread over its 178 pages. With only a few exceptions, it is not possible to date the alterations and to distinguish those made before 1824 and those made after, but even if there had been no alterations to Chapter VII, the fact that he undertook a second edition indicates that his concern for these macroeconomic issues had persisted. Many alterations relevant to aggregate demand also occurred in other c­ hapters –​for example, in Chapter III on rents, Chapter IV on wages, and Chapter V on profits. His preparation of the second edition of the Principles involved 2413 alterations to the 606 pages of the first edition. We should also remember that in his two appearances before Select Committees, –​Select Committee on Artizans and Machinery, 1824, and Select Committee on Emigration, 1827 –​he responded to 66 questions in 1824 and 243 questions in 1827, dealing with issues of national significance. Macroeconomic matters were also raised in some of the 70 letters he wrote or received in the post-​1824 period (see Pullen 2016c). The expression “Malthus’s Macroeconomics” is of course deliberately anachronistic, given that the term “macroeconomics” was not invented during his lifetime. An objection to the use of the expression might be raised if

Introduction  3 “macroeconomics” is restricted to the study of economics by means of mathematical or econometric models–​methods not employed by classical economists in general or by Malthus, even though he recognised the similarity between his fundamental methodological principle, the “doctrine of proportions”, and the use of calculus to calculate maximum and minimum values. That objection would not be relevant if “macroeconomics” is understood in a broader sense, now commonly adopted in economics literature, as the study of the economy as a whole, as distinct from the study of the economics of the individual or firm or industry. Malthus did not construct a mathematical model of his macroeconomics, and it is not the intention of this present work to construct such a model, or even to suggest that Malthus could be seen as a precursor of mathematical models as understood today. Such a construction is left to those who hope that it might reveal an understanding of the content, merits, and demerits of Malthus’s ideas that is superior to the understanding that non-​mathematical analysis can provide. Although many erudite works have been published on particular aspects of Malthus’s macroeconomics, they have not always been presented in a combined and systematic manner showing their interrelated and logical sequence. As a consequence, Malthus’s credentials as a macroeconomist seem to have been underrated. An underlying theme of this work is that Malthus’s writings on macroeconomics in general are at least as important as his writings on population, and although sometimes said to be deficient in certain respects, would stand as worthwhile contributions in their own right, even if he had written nothing on population. In academic discourses and in public consciousness the prominence given to his writings on population has tended to overshadow and distract attention from his macroeconomics. His writings on population are of course a major and essential component of his macroeconomics, and have generated a voluminous secondary literature, but as this is readily accessible, its comprehensive repetition was deemed neither necessary nor practical in this work, except for one chapter devoted to the specific issue of Malthus’s views on the relation between population growth and economic growth. Malthus’s status as a macroeconomist has been challenged for various reasons over many years, and his macroeconomics has been said to embody a wide variety of misconceptions and deficiencies, which include the following: • • • • • •

Malthus did not have an adequate theory of the rate of interest. He assumed that savings will always be invested, and will never be idle or redundant. He gave much less emphasis than Keynes to public works as a solution to the problem of depression. He did not recognise the importance of the law of diminishing returns. He did not fully appreciate the importance of the division of labour, and did not integrate it into his theory of growth. He was only interested in the short run.

4 Introduction •

He was mainly concerned with agriculture, and was either opposed to the growth of manufacturing or did not actively encourage manufacturing. • He did not appreciate the benefits of technological inventions and innovations. • He understated the benefits of foreign trade. • His main aim was to foster the interests of the landlords and of the upper classes. • He believed that the rate of growth of population would always exceed the rate of growth of food supply, and that widespread vice and misery were inevitable. • His attempt to provide a theory of recessions and gluts was neither logical nor coherent. He did not have a plausible remedy for recessions. • His attempt to refute Say’s Law was unsuccessful. • His advocacy of unproductive consumption and unproductive labour was intended to justify the existence of an idle and parasitic class. • His argument in favour of the Corn Laws was another example of his attempts to support the landed aristocracy. • He did not give sufficient attention to investment as a cause of growth. • He was unable to formulate a coherent and comprehensive theory of economic growth. • He commended the existing inequality of income and wealth. Malthus’s body is buried under the weight of Bath Abbey, and some of his important macroeconomic ideas also remain effectively entombed, under the weight of these alleged deficiencies. John Ramsay McCulloch urged Ricardo to treat Malthus’s economics roughly, which they both did, although some would say they mistreated it: “I am anxious to see Mr. Malthus work. He deserves to be very roughly handled … The task of exposing his errors [is] indispensably necessary” (McCulloch, Letter to Ricardo, 19 March 1820, in Ricardo 1973, VIII, 167).They effectively left Malthus’s macroeconomics dead and buried, and a new generation of critics and detractors tries to ensure the grave containing his macroeconomics remains undisturbed. It is the aim of this work to investigate the validity of these allegations, to exhume and resuscitate Malthus’s macroeconomics, and thereby to reassess his status as a macroeconomist. It proceeds by means of close textual exegesis and analysis of his writings, by responding to some of the criticisms made by contemporary and modern commentators, and by offering a deconstructed and reconstructed interpretation. On each of these 18 allegations, if substantiated, there would be some commentators who would raise doubts about his competence and significance as a serious contributor to macroeconomics. However, the ensuing chapters aim to show that these allegations have not been satisfactorily substantiated, and appear to be based largely on misrepresentations of his position. Analysing these alleged deficiencies and comparing them with the textual evidence has led to the conclusion that they lack conviction, and that Malthus’s status as a macroeconomist is substantially justified. The study

Introduction  5 establishes that Malthus’s macroeconomics has a logical structure and is not merely a loose collection of random observations. Claiming it to be totally coherent would be as unwarranted as claiming it to be totally incoherent, but there are strong grounds for asserting that it possesses a greater degree of coherence than is generally recognised, and a greater degree of coherence than some of the criticisms that judge it to be incoherent. It is ironical that Malthus railed against the tendency of his contemporaries to engage in simplifications and premature generalisations, but his own ideas have been frequently treated in a similar manner. Although the primary aim of this work is to present the historical evidence for Malthus’s status as a macroeconomist, a secondary aim is to ask whether the policies he recommended in the context of the economic problems of his time and place might be relevant to the economic problems of today, particularly with respect to measures for the promotion of economic growth and the prevention of economic depression. It also asks whether his writings on macroeconomics can make any useful contribution in the context of current debates on the rising levels of economic inequality.

1  Malthus’s methodology

A fundamental methodological principle: “the doctrine of proportions” A major principle throughout Malthus’s economics was his belief that economic phenomena and events are usually the result of multiple and conflicting causes and in order to understand the outcomes and to devise policies to influence them, it is necessary to achieve a balance or proportion between them. He called this principle the “doctrine of proportions”. He applied it consistently and it became a feature that distinguished him from many of his contemporaries. He sought to delineate a happy medium or just mean or middle ground between counteracting tendencies.The epithet “Malthus the moderate” devised by Donald Winch (1987, 76) provides an apt description. In the Principles he said that “the main doctrine inculcated in the latter part of this work” was that “the progress of wealth depends upon proportions” (Malthus 1989b, I, 515). He also said that the “tendency to extremes is exactly what I consider as the great source of error in political economy” (Malthus 1989b, I, 352. In the second edition of the Principles, “where so much depends upon proportions” was added after “political economy”). He pleaded for moderation in the formulation of principles and the application of policies: “there is no argument so frequently and obviously fallacious as that which infers that what is good to a certain extent is good to any extent” (Malthus 1989a, II, 70). He stated that his aim was to show “how frequently the doctrine of proportions meets us at every turn, and how much the wealth of nations depends upon the relation of parts” (Malthus 1989b, II, 278). “It is not, however, in political economy alone that so much depends upon proportions, but throughout the whole range of nature and art” (Malthus 1989b, II, 269). It will be found, I believe, true that all the great results in political economy, respecting wealth, depend upon proportions; and it is from overlooking this most important truth, that so many errors have prevailed in the prediction of consequences; that nations have sometimes been enriched when it was expected that they would be impoverished, and impoverished when it was expected that they would be enriched; and that such contradictory opinions

Malthus’s methodology  7 have occasionally prevailed respecting the most effective encouragements to the increase of wealth. (Malthus 1989b, I, 432–​433; original italics) There was nothing new or novel in Malthus’s doctrine of proportions as such. It was simply the traditional ethical notion of the just mean or middle way, and the concept, if not the term, is not uncommon in everyday conversation and literature –​for example, “How sour sweet music is when time is broke and no proportion kept” (Shakespeare, Richard II, v, 42), which could be described as the guiding principle of Malthus’s life and of his political economy. Its extension from ethics to political economy was a logical step for Malthus, but it was not a step that had been taken with the same firmness by earlier or contemporary writers on political economy. He regarded political economy as a subject closely related to morals and politics, and for Malthus, the doctrine of proportions was as important to political economy as to morals and politics. Malthus’s contribution consisted of extending its application to economic problems, and of giving it an essential role in that area He compared the doctrine of proportions to the problem of maximum and minimum values in calculus: Many of the questions, both in morals and politics, seem to be of the nature of the problems de maximis and minimis in Fluxions; in which there is always a point where a certain effect is the greatest, while on either side of this point it gradually diminishes. (Malthus 1815a, 32i) Because of the interplay of many conflicting causes, Malthus argued that the principles of political economy would always be associated with limitations and exceptions: “there is no truth of which I feel a stronger conviction than that there are many important propositions in political economy which absolutely require limitations and exceptions” (Malthus 1989b, I, 8). He recognised that it would not always be easy to delineate and attain the just mean, and that the task might sometimes be beyond the capabilities of political economy, but he believed that the best policies will often lie between two extremes, and in emphasising the doctrine of proportions he has served to encourage debate away from confrontations over extremes. He acknowledged that his principle of moderation might also be subject to moderation.

Time perspective: short run or long run The idea that Malthus was mainly or only concerned with the short run, and Ricardo with the long run, has been a common feature of many commentaries. The question is of some importance in assessing Malthus’s status as a i Malthus’s doctrine of proportions is presented in more detail in Pullen 1982.

8  Malthus’s methodology macroeconomist. Anyone who is concerned only with short-​run or day-​to-​day matters, and who ignores or downplays long-​term trends, cannot expect to be esteemed as a serious macroeconomic theorist. The following are some examples of commentators who have emphasised the short-​run perspective of Malthus’s writings. Marion Bowley argued that Malthus’s differences with Ricardo were due at least in part to his interest in short-​run problems: “Malthus wanted an explanation of short period problems; Ricardo’s analysis being devoted to the long period did not supply it” (Bowley 1937, 32, 87). In Srinivasa Ambirijan’s view: “Malthus was not concerned with the long run implications of the progress of a country economically”; his concern was rather with “a short run or immediate context” (Ambirijan 1959, 149). Thomas Sowell believed that the general systems of Malthus and Ricardo “were oriented toward different questions; Ricardo tracing the changing functional distribution of income over time and its implications (the stationary state, for example), and Malthus concerning himself with the short-​run behavior of aggregate output and employment” (Sowell 1974, 103). Phyllis Deane argued (1978, 81–​82) that Malthus was preoccupied with “day-​to-​day changes” and Ricardo with “long-​term trends”. George N.Tunzelmann referred to Malthus’s “preoccupation with the short run”; to his “primary focus upon the short run”; to his stress on the “relative importance of short run disturbances”, and said that short-​run fluctuations dominated Malthus’s economic interest (Tunzelman 1986, 68, 70, 71, 90). Other commentators have argued that Malthus was either equally concerned with the long run and the short run, or did not clearly distinguish between them. Terence Hutchison (1978, 150) noted: “Like most economists, until comparatively recently, Malthus often did not sharply or regularly distinguish between the long-​run growth of capacity and shorter-​run variations in the employment of resources”. Martin Bronfenbrenner (1983, 122–​123, 126) considered that there are “two faces of Malthus –​the ‘long-​run’ Malthus and the ‘short-​run’ Malthus; in his Essay on Population his concern was the long run, and in his Principles of Political Economy it was the short run”. Donald Winch thought that Malthus “was interested in short-​term remedies for the effects of cycles and in long-​term methods of raising minimum standards” (in Malthus 1992, xiii). And John Toye (2000, 192) states that Malthus was “not very precise about the time period that his analysis is meant to cover”. The following correspondence between Ricardo and Malthus has been used to support the view that Malthus was concerned only or mainly with the short run. On 24 January 1817, Ricardo wrote to Malthus: one great cause of our difference of opinion … is that you have always in your mind the immediate and temporary effects of particular changes –​ whereas I put these immediate and temporary effects quite aside, and fix my whole attention on the permanent state of things which will result from them. (Ricardo 1973,VII, 120)

Malthus’s methodology  9 In his reply of 26 January 1817, Malthus wrote:“I agree with you that one cause of our difference in opinion is that which you mention” (in Ricardo 1973,VII, 121). This reply by Malthus has been interpreted to mean that he accepted this statement by Ricardo (Hollander 1997, 160). However, it is difficult to understand what Malthus’s reply really meant. As we will see, there are frequent references in Malthus’s writings to long-​run considerations. Later in the same letter Malthus added:“a still more specific and fundamental cause of our difference” was that Ricardo did not give enough attention to the difficulty of inspiring people with new tastes and wants, whereas his own opinion was that “practically the actual check to produce and population arises more from want of stimulus than want of power of produce” (in Ricardo 1973, VII, 123; original emphasis). This suggests that in Malthus’s view their “more specific and fundamental” difference lay not in their different time perspectives, but in Malthus’s concern with practical applications, and that if there was in fact some difference between them in their time perspectives it was not of fundamental importance. It should also be noted that this correspondence took place in 1817, before Malthus had published his Principles (1820). We can only wonder whether both Ricardo and Malthus would have adjusted these comments from 1817 on the short run and the long run in the light of the Principles. Neither Ricardo nor Malthus provided precise definitions of the short run and the long run.The short run in Malthus’s concept seems to have been longer than the short run as understood in modern economics. In his letter of 26 January 1817 he referred to a temporary or short-​run period as a period of 8–​10 years, as Tunzelmann (1986, 66) has noted. In his Observations on the Effects of the Corn Laws, Malthus’s discussion of the effects of the price of corn on the price of labour was concerned with the effects, not merely on the short term, but also “on an average of a considerable number of years” (Malthus 1815a, 5), and his discussion of the effects of free importation of grain on population, wages, and the condition of the lower classes, was not restricted to the short term, but was extended to “the course of twenty or twenty-​five years” (Malthus 1815a, 33). Also, in the final paragraph of the Principles, Malthus said: “Theoretical writers are too apt, in their calculations” to overlook that economic fluctuations of “eight or ten years, recurring not unfrequently, are serious spaces in human life. They amount to a serious sum of happiness or misery” (Malthus 1989b, I, 521–​522; as noted in Spiegel 1991, 209). Malthus’s concern with the long run The following quotations provide further textual evidence that Malthus was not unconcerned with the long run, and was no less concerned than Ricardo with the long run. He said that continued improvements in agriculture might admit of “the employment of a vast mass of capital for hundreds of years, with little or no fall of profits” (Malthus 1989b, I, 332). This occurred in a group of several

10  Malthus’s methodology paragraphs omitted from the second edition of the Principles. A number of other statements showing concern for the long run also appeared in the first edition, but were part of extended omissions from the second.This means that some significant examples of Malthus’s concern for the long run would not have been available to readers who had access only to the second edition –​for example: There is no other cause of permanently high profits than a deficiency in the supply of capital; and under such a deficiency … the profits of a particular country might for hundreds of years together continue very high, compared with others. (Malthus 1989b, I, 311; omitted from the second edition) These omissions from the second edition could have contributed to the perception that Malthus paid little attention to the long run, but important references to the long run remain; for example: the varying rate of profits … depends upon the excess of its value when sold above the known value of the advances … This is a universal proposition, equally applicable whether profits are affected by temporary or by more permanent causes. (Malthus 1989b, II, 222ii) In the first edition of the Principles he stated that the value of bullion undoubtedly sometimes alters. In the second edition this was altered to “undoubtedly … in reference to periods of some length” (Malthus 1989b, I, 416; II, 264), where “some length” presumably refers to periods longer than the short run. In criticising Ricardo’s views on foreign trade, Malthus argued that an extension of the foreign markets “may, and often does last a sufficient time to produce the most important results” (Malthus 1989b, I, 449–​450; slightly altered in II, 272), once again suggesting more than short-​run concerns. His interest in long-​ run developments is obvious in his statement that in countries with great landed resources and a prosperous combination of commerce and manufactures, “there is no reason to say that they might not go on increasing in riches and population for hundreds, nay, almost thousands of years” (Malthus 1989a, II, 43). Malthus’s concern with the long run was clearly expressed in a letter to Nassau William Senior on 31 March 1829, where he stated that “the only source of an essential and permanent improvement” in the condition of the labouring classes is “the improvement and right direction of their moral and religious habits”, and that “the pressure of poverty cannot be permanently lessened” unless they develop “a taste for such a mode of living as will tend to increase their prudential habits”. He added that in the latter part of his Essay the “principal question” concerns the “permanent condition of the great mass of the ii In an extensive addition of 27 paragraphs in the second edition of the Principles.

Malthus’s methodology  11 labouring classes” (in Senior 1829, 86).This concern with the long run was also evident in his comment that he did not share Robert Owen’s apprehensions about the “permanent effects” of machinery (Malthus 1989b, I, 365). In his letter of 24 January 1817, Ricardo said that immediate effects and permanent effects “should be carefully distinguished and mentioned, and the due effects ascribed to each” (Ricardo 1973, VII, 120). There is no reason to think Malthus would not have agreed with this, but on most of the issues discussed by Malthus the distinction between short-​r un and long-​r un considerations would have been obvious from the very nature of the issues, without having to nominate those of a short-​term nature and those of a long-​term nature. For example, his comments on the Corn Laws and on the abolition of the slave trade were of immediate relevance to current legislation; but in some of the matters he discussed, especially in the final chapter of the Principles –​for example, the wider distribution of wealth, the growth of the middle classes, and primogeniture –​the time frame was obviously long term. In a reply to Ricardo on 26 January 1817, Malthus explicitly expressed his concern with practical applications for current issues: “I certainly am disposed to refer frequently to things as they are, as the only way of making one’s writings practically useful to society” (in Ricardo 1973, VII, 121–​122), but would it be justifiable to conclude from this that he was interested only in immediate and temporary effects, and was not interested in the long-​run permanent state of things? Given his many references to “permanent” effects, it seems unlikely that, when he used the word “frequently” in this letter, he intended “only” or “merely”. The fact that he considered both short-​run and long-​run consequences can be seen in his remarks on saving. If saving (“parsimonious habits”) is adopted “in too great degree”, it “may be accompanied by the most distressing effects at first, and by a marked depression of wealth and population permanently” (Malthus 1989b, I, 369; emphasis added). In the second edition –​1989b, II, 257–​258, 440 –​“too great a degree” was replaced by “beyond a certain point”, and “permanently” was replaced by “afterwards”. A good example of the running together of short-​run and long-​run considerations can be seen in the final chapter of Malthus’s Principles. In the first edition it was entitled “On the Immediate Causes of the Progress of Wealth”, where the word “immediate” suggests that it would deal with the short run. He stated that in this final chapter he would confine himself “chiefly to the more immediate and proximate causes of increasing wealth” (Malthus 1989b, I, 346). But, in fact, the topics covered in its ten sections are largely of a long-​run nature –​for example, population growth, saving and capital growth, distribution of property. Significantly, in the second edition, the title of the chapter was altered to “Book II. Chapter I. On the Progress of Wealth”, with the word “Immediate” omitted –​which seems to indicate that he realised that its theme was not restricted to the short run. An exception would be “Section X. Application of some of the preceding principles to the Distresses of the Labouring Classes

12  Malthus’s methodology since 1815, with General Observations”, thus providing a good example of how he ran the short run and the long run together. As discussed below, the most radical, most original, and most important theme in Malthus’s macroeconomics was his emphasis on the distribution of wealth as a means of increasing the production of wealth, and hence his argument for the expansion of the size and affluence of the middle classes. In a new paragraph added to the second edition of the Principles, he recognised that such proposals would make “a gradual improvement in the structure of the society”, but would be “of slow and difficult accomplishment” (Malthus 1989b, II, 267, 452) –​which seems to imply that his major contribution to macroeconomics was a long-​run policy proposal. Malthus’s concern with the long run, as well as the short run, is particularly evident in his comments on profits in the Principles, Chapter V (Malthus 1989b, I, 293–​336). As discussed below, these comments made frequent references to long-​run events, such as, “for almost any length of time”, “its final destination”, “prevent any fall of profits for a great length of time”, “for twenty or thirty, or even 100 years”, “any period of some length in the last or following hundred years”, “for a considerable time”, “during these twenty years”, “for twenty years together”, “the employment of a vast mass of capital for hundreds of years”, “might for hundreds of years still keep up its rate of profits”, “for some centuries to come”, and “for a great length of time”. It is difficult to understand therefore how anyone could have reached the conclusion that Malthus was not concerned with the long run.The textual evidence clearly shows that he was as much concerned with the long run as with the short run.

Macroeconomics or microeconomics Michael Bleaney (1976) thought that Malthus’s theory was limited to microeconomics, and that he made no significant contribution to macro­ economics: “Malthus’s fundamental mistake throughout his exchange [with Ricardo] is that he can conceive the general movement of the whole economy only by a simple analogy with the production of one single quantity” (Bleaney 1976, 44–​45, 48). Bleaney interpreted Malthus to say that any disproportion between demand and supply in the economy as a whole would be corrected in the same way as for a single commodity –​namely, by “the forces of competition”; and that Ricardo rightly shifted the debate “from one branch of production (corn) to the increase of real incomes of consumers”. However, that interpretation seems to have overlooked statements in which Malthus was clearly concerned with the economy as a whole, and with consumers and producers as a whole, not merely with the microeconomic situation of the individual. This seems to be clearly evident in his statement: “the greatest stimulus to continued production of commodities, taken all together, is an increase in the exchangeable value of the whole mass, before a greater value of capital has been employed upon them” (Malthus 1989b, I, 414; emphasis added). Malthus said that this stimulus to the production of “the whole mass of

Malthus’s methodology  13 commodities” was similar to the stimulus to the production of individual commodities, but he did not restrict his analysis to individual commodities. Bleaney quoted that statement by Malthus from the second edition of the Principles (Malthus [1836] 1968, 361), and added the critical comment: Of course one wonders where this increase in the exchangeable value of the whole mass is to come from: it appears as if effective demand has come from somewhere outside the system. It is the great merit of Ricardo and Mill that they recognised that it cannot, and their objections are quite adequate as reply to this argument of Malthus’s. (Bleaney 1976, 52) However, at this point there is a significant difference between the second edition of the Principles and the first edition. The second edition does not include the following statement from the first edition in which Malthus provides an explanation of where this increase in the exchangeable value of the whole mass is to come from; namely: “And this increase of value is effected by such a distribution of the actual produce as is best adapted to gratify the existing wants of society, and to inspire new ones” (Malthus 1989b, I, 414). The fact that this explanation by Malthus was omitted from the second edition of the Principles could possibly mean that Malthus had changed his view on this question. However, omissions are not necessarily recantations, and the most likely reason for the omission of this explanation from the second edition is that the same idea is adequately expressed in the ensuing paragraph in both editions (Malthus 1989b, I, 414; II, 264, 448). The explanation given by Malthus shows the importance he gave to the role of distribution in the progress of wealth, not merely in the sense of the physical distribution or transport of goods, but more importantly in the wider distribution of income and wealth between social classes, and its effect as a stimulus to effective demand and production, as further discussed in Chapter 13. It shows that in Malthus’s theory of growth, the increase in effective demand was not assumed to have come “from somewhere outside the system”; rather, he proposed that it should come from a reform of the existing distribution of income and wealth within the system, even though he acknowledged that the implementation of the policies he proposed would be politically difficult. Bleaney noted that there are differences between the two editions of the Principles, but was of the opinion that “no important changes were made on the subject with which we are concerned, and no significance should be attached to which edition is referred to” (Bleaney 1976, 60, 39n).

2  Saving, investment, and consumption

Importance of saving and the danger of oversaving In several places Malthus argued that, up to a point, saving is a necessary cause of economic growth, but that beyond that point further saving would be harmful. He believed that it was Adam Smith’s view that “every frugal man is a public benefactor, and that the increase of wealth depends upon the balance of produce over consumption”. Contradicting Smith, Malthus argued that “these propositions are true to a great extent … but it is quite obvious that they are not true to an indefinite extent” (Malthus 1989b, I, 8). He reasoned that some saving is necessary for the progress of wealth, but that if people save too much and consume too little, producers will have no motive to produce: the principle 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. (Malthus 1989b, I, 8–​9) If saving is increased by a permanent diminution of consumption, any extra production that comes from the extra saving, will exceed the effective demand by consumers for the produce. The value of the produce will fall and it will cease to be wealth. (Malthus 1989a, I, 370) He also contrasted his views on saving with those of Lord Lauderdale, whom he interpreted as holding that saving is always harmful:“Lord Lauderdale appears to have gone as much too far in deprecating accumulation, as some other writers in recommending it” (Malthus 1989b, I, 352). In criticising Adam Smith for giving too much emphasis to saving and Lauderdale for not giving enough, Malthus saw this as an example of the unfortunate tendency of political economists to adopt extreme views. As noted above, he stressed the need to find a middle position between the extremes of too little saving and too much saving:

Saving, investment, and consumption  15 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. (Malthus 1989b, I, 9) The following statement in a letter to Ricardo expresses very clearly Malthus’s belief that saving which is excessive or too rapid may be prejudicial to production and wealth: “an attempt to accumulate very rapidly which necessarily implies a considerable diminution of unproductive consumption … must prematurely check the progress of wealth … by greatly impairing the usual motives to production”, and “may be really prejudicial to a country” (letter of 7 July 1821, in Ricardo 1973, IX, 10). Malthus’s recognition of the possibility of redundant savings could be contrasted with the view of James Mill: “no man saves any part of his income which he has not a prospect of employing with advantage” (Mill 1804, 13; quoted in Thweatt 1980, 467). Mill was here not taking account of the difference between intentional saving undertaken with a view to investment and profit, and unintentional or unwanted or residual saving, which occurs as a consequence of the inability to find suitable investment opportunities. Although Malthus warned of the dangers of excessive saving, he was not opposed in principle to saving, but on the contrary regarded a moderate level of saving as essential for economic growth, and his repeated emphasis on the importance of consumption and effective demand did not mitigate his insistence on the importance of saving, growth of capital, and investment. The concept of cumulative and circular causation –​another favourite methodological theme (see Pullen 2016b) –​was at the basis of his views on the relationships between saving, investment, consumption, employment, and production. If agricultural landlords reduced their consumption expenditure –​on “conveniences, luxuries and unproductive consumers” –​and used their savings to employ more labourers, unemployment would occur among those not engaged in agriculture. Unable to procure means of subsistence, their numbers would gradually decrease, resulting in even less effective demand for agricultural produce: “the failure of effective demand for the produce of the soil would necessarily diminish cultivation, and throw a still greater number of persons out of employment”. A country with such “parsimonious habits” would “infallibly become poor, and comparatively unpeopled”. The situation would persist until new tastes and habits were established, encouraging more expenditure on “commerce, manufactures and unproductive consumers”, and creating greater production and wealth by a circular or oscillating process. “This action and reaction would thus go on till the balance of produce and consumption was restored” (Malthus 1989b, I, 361–​362). The possible harmful consequence of an excess of frugality was stressed in a draft letter to an unnamed correspondent. Malthus argued that in the early

16  Saving, investment, and consumption period of the new country “the principle of frugality cannot very easily be carried too far”, but in a developed country where all or nearly all the land has been divided and cultivated, the demand for labour will depend mainly on the demand for manufactures and the products of foreign commerce, and consequently the principle of frugality carried so far as essentially to diminish the demand for these articles of convenience and luxury, would bring the produce population and capital of the country to a stand. He concluded: it is a mean between the two extremes of frugality and expence, varying according to the state and natural resources of the country that tends to produce the greatest quantity of wealth in proportion to a given extent of territory. (Malthus 2004, 279–​280) Malthus and Adam Smith differed crucially on saving. As Andrew Skinner (1967, 156) noted, Malthus in his first edition of the Principles quoted Adam Smith’s statement “What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time too but by a different set of people”. From this it would follow that the removal of money from consumption into saving would not, per se, reduce overall expenditure, but would continue to create effective demand. In the first edition of his Principles, Malthus said that Smith’s statement had been “stated justly”, apparently agreeing with Smith and Say on this point, but in the second edition Malthus excised Smith’s words “stated justly”, and argued that savings might not be able to find investment outlets, and could remain redundant, thus reducing effective demand.

Are all savings invested? Any macroeconomist who wished to be taken seriously would be expected to provide a logically coherent explanation of the causes of general gluts and depressions, and how they might be prevented or cured. It has been alleged that Malthus failed this test of macroeconomic competence, principally because he believed that savings are always invested, and that therefore there could be no shortage of effective demand; revenue generated by production would be either spent on consumer goods, or saved from consumption and spent on investments, so that the available purchasing power would always be sufficient to purchase the goods and services supplied in the market. If all savings become investments, it is not logically possible to deduce that oversaving is the cause of depression. The claim that Malthus identified or equated saving and investment is therefore of considerable significance for any assessment of Malthus’s

Saving, investment, and consumption  17 macroeconomics. If the claim is correct, it would nullify his theory of gluts and weaken his case for the possibility of their existence; it would undermine his arguments against Say’s Law; it would establish a clear demarcation between the economics of Malthus and the economics of Keynes, and in so doing raise doubts about Keynes’s estimates of the quality of Malthus’s macroeconomics. It would also weaken the case for economic policies directed towards consumer-​ led growth, rather than policies directed towards promoting savings and investment, and would weaken the economic arguments for an interventionist redistribution of income from the wealthy towards those with a higher propensity to consume. Attempts to decipher Malthus’s views on the relation between savings and investment are confronted with a serious obstacle, namely, Malthus rarely used the term “investment” –​two rare examples are his reference to the “investment of capital” (Malthus 1989a, I, 421), and to “the investment of an accumulating capital” (Malthus 1989a, II, 35) –​he preferred the more cumbersome expressions “employment of capital” or “employed with a view to profit” (Malthus 1827a, 237). Prior to its use in an economic sense, “investment” was used commonly to refer to the putting on of clothes or vestments, or to the reception of an honour, or an appointment to a position. An early use in its economic sense was made by Francis Horner in the Edinburgh Review, January 1803, 442, in a review of a work by Canard, where Horner argued, for example, that “the motive to invest capital increases with the increase of capital” (Horner 1803, reproduced in Fetter, F.W. 1957, 68).The rarity of Malthus’s use of “investment” has possibly led commentators to conclude that he undervalued the role of investment as compared to the role of effective demand in his theory of growth. The idea that Malthus thought all savings are invested has become an idée fixe in the history of economics, and a fixture in the mythology of Malthusian macroeconomics, so fixed in fact as to be well-​nigh impossible to dislodge. It is equivalent in absurdity to the idea that, for example, he was opposed to population growth, that he favoured agriculture over manufacturing, that he was a lackey of the landlords, and that he denied the importance of machinery and inventions. The “saving equals investment” interpretation of Malthus is commonly based on his statement “No political economist of the present day can by saving mean mere hoarding” (Malthus 1989b, I, 32), which has been taken to mean that in Malthus’s view savings are always invested. However, that statement by Malthus is ambiguous, and could be interpreted in ways that do not lead to that conclusion. It states that savings are not usually hoarded, and therefore are available for investment, but it does not state that savings will always find suitable investment opportunities. It does not deny the possibility that, although savers might possibly wish or intend the savings to be invested, some savings might be forced to remain idle or redundant or unintentionally hoarded. This possibility was frequently recognised by Malthus. He was in effect saying that no political economist of the present day can mean that savings are necessarily invested.

18  Saving, investment, and consumption This “saving equals investment” interpretation of Malthus, or variations of it, can be seen in the writings of commentators, such as Lionel Robbins, Joseph Schumpeter, Mark Blaug, Bernard Corry, Samuel Hollander, Thomas Sowell, and Murray Milgate –​as discussed in Pullen 2016a. Robbins stated:“Malthusian theory of under-​consumption … proceeded on the assumption that savings were in fact invested” (Robbins 1968, 59), and “the idea of savings running to waste in the modern sense does not figure in [Malthus’s] central argument” (Robbins 1967, 260), and Schumpeter argued that, according to the classics and to Malthus, “what was saved was ipso facto made available for investment either in the saver’s business or someone else’s, except in times of deep depression” (Schumpeter 1954, 641n). According to Blaug, Malthus “assumed, as did all his contemporaries that saving means ‘the conversion of revenue into capital’; saving is a synonym for accumulation” (Blaug 1968, 164); “Malthus regarded the process of saving and the making of investment as strictly inter-​dependent activities; individuals save to invest”; Malthus “identified the act of saving with the act of investment”; and “Only once did Malthus refer explicitly to the existence of idle savings”, namely, where returned property taxes were saved, resulting in a diminished demand for commodities (Blaug [1958] 1973, 86). Corry (1958, 39) stated that “Malthus assumed the rough equality of saving and investment”, and “throughout his analysis Malthus assumed that an act of saving was always translated into an act of investment, that is to say, he assumed the equality of ex-​ante saving and ex-​ante investment” (Corry 1959, 719). Hollander (1962, 355) argues that “for the most part, Malthus did not repudiate the classical savings-​investment position”, namely, “that savings are always invested”. Sowell (1972, 59) asserted that for Malthus “savings always equal investment”. Milgate (1982, 51) believes that for Malthus “saving is investment”. However, the “saving equals investment” interpretation of Malthus has been opposed by commentators who argue that Malthus did not identify or equate savings and investments, and who maintain that Malthus insisted that redundant savings and redundant capital have an essential and determining influence in Malthus’s theory of depression. For example, James O’Leary stated: “Malthus’ theory assumed that excessive savings lead to a damning up of idle purchasing power … Somewhere in the circular income flow, funds become stagnant” (O’Leary 1942, 195–​196). According to Morton Paglin (1961, 27), Malthus did not say that savings automatically take the form of investments. It is strange that Paglin supported Malthus against Ricardo on this issue, as well as on some other major issues –​such as Say’s Law, the importance of effective demand, and the wider distribution of income as a stimulus to growth –​but nevertheless regarded Ricardo as intellectually superior to Malthus. According to Jean Ferricelli (1966, 41), it was Malthus’s view that savers normally intend to invest their savings, but when suitable investment opportunities are insufficient, the intended equality between saving and investment does not become an actual or realised equality. Likewise, Walter Eltis (1980, 180) argued that Malthus agreed that savers usually save with the intention of investing, but that decisions to invest will depend on whether profits are sufficiently high. And

Saving, investment, and consumption  19 Lilia Costabile and Bob Rowthorn (1985, 423) argue that Malthus recognised the possibility that saving may stagnate idle. For further details and discussions of the views of these commentators who contend that Malthus equated savings and investment, and for examples of commentators who support the contrary interpretation, see Pullen (2016a, 28–​35). Malthus argued that Ricardo, Mill, and Say were guilty of a “very serious error” in supposing that “accumulation ensures demand” (Malthus 1989b, I, 359). Ricardo had argued that if a man receives extra income, he would not hoard it –​“he would not lock it up in a chest” –​but would either increase his expenditure on some enjoyment, or employ it productively, or “lend it to some other person for that purpose”, but “in either case demand would be increased, although it would be for different objects”. The money might be used for consumption or production, but “still it would be demand” (Ricardo 1973, I, 291; quoted in Malthus 1989b I, 360, where “demand” is in italics). Ricardo accused Malthus of not remembering that to save is to spend. Malthus agreed that saving would normally be undertaken, not with the intention of hoarding –​or, in modern terminology, he believed that intended or ex ante saving would normally be equal to intended or ex ante investment –​but with the intention of accumulating capital for investment. However, he also argued that the intention to invest will not necessarily result in investment, because of the absence of suitable investment opportunities –​or, in modern terminology, because he believed that actual or ex post saving would not necessarily result in actual or ex post investment. Intended investments do not always become actual investments, and, therefore, to save is not necessarily to spend. Malthus warned that if extra money for production were obtained by extra saving through a reduction in consumption, there could be a decline in effectual demand, leading to a decline in production and wealth. He concluded: while it is quite certain an adequate passion for consumption may fully keep up the proper proportion between supply and demand, whatever may be the powers of production, it appears to be quite as certain that a passion for accumulation must inevitably lead to a supply of commodities beyond what the structure and habits of such a society will permit to be consumed. (Malthus 1989b, I, 365) Malthus here appears to have been arguing that an increase in savings will tend to lead to an increase in production or supply, but that this tendency will not always ensure, or be accompanied by, an adequate increase in consumption or demand.

Redundant savings and redundant capital Malthus recognised that saving and capital could become, and often do become, redundant, because of a lack of suitable investment opportunities. For example, he stated: “capital and population may be at the same time, and for a period

20  Saving, investment, and consumption of great length, redundant, compared with the effective demand for produce” (Malthus 1989b, I, 469), but he did not provide a definition of “redundant”. When he used the terms “redundant capital” or “redundant savings”, it seems that he was usually referring not to redundant physical capital but to redundant financial capital, which could be described as capital unable to find employment, underemployed capital, capital not receiving adequate profit, idle savings, dormant savings, savings in abeyance, savings in waiting, savings in limbo, unwanted savings, unintentional hoardings, unoccupied savings, unapplied savings, unutilised capital, unactuated savings, superfluous savings, hoarding by default, wasted savings, savings seeking investment, stagnant savings, floating capital, or potentially invested savings, as distinct from actually offered savings or actually invested savings, etc. But it is possible that he intended to extend the term to redundant physical capital, as well as redundant financial capital, and to include items such as abandoned warehouses, obsolete machinery, and unsold goods. But the contexts suggest that it is unlikely that he intended to restrict the term to physical capital. When he spoke of “floating” capital as a form of redundant capital, he was probably not referring to ships that had passed their use-​by date, and when he referred to “the redundant capital which is confessedly glutting the markets of Europe in so many different branches of trade” (Malthus 1989b, I, 499), he was probably not suggesting that the markets were being inundated with useless machinery. Malthus used the recession following the Napoleonic Wars as an example of the existence of redundant capital: “the owners of floating capital” are searching for “under-​stocked employments capable of absorbing the redundant capital”, but “none such are now to be found” (Malthus 1989b, I, 499). He also noted the existence of redundant savings and capital in Ireland: “Demand has generally produced capital, though capital has sometimes failed to produce demand” (Malthus 1989b, I, 576), and in New Spain where capital is said to be “rather redundant than deficient” (Malthus 1989b, I, 393). His arguments for the existence of redundant capital were not restricted to agricultural land, or to land in other places and times, but featured prominently in his analysis of contemporary economic conditions in Britain. His views on redundant savings and redundant capital are discussed further in Pullen (2016a). For Malthus, prevention of depression, or remedy for depression, cannot be achieved without a solution to the problem of redundant savings and capital, and an essential part of the solution would involve an adequate level of effective demand. As discussed in Chapter 13, he believed that this would not occur in Britain at the time without the inauguration of a wider distribution of income and wealth.

Malthus on Adam Smith on savings It has been suggested that Malthus “strongly endorsed … the unqualified Smithian benefits, social and individual, of parsimony” (Hutchison 1978, 150–​ 151). In the first edition of the Essay Malthus said: “Dr. Adam Smith has very

Saving, investment, and consumption  21 justly observed, that nations, as well as individuals, grow rich by parsimony and poor by profusion; and that, therefore, every frugal man was a friend and every spendthrift an enemy to his country” (Malthus [1798]1926, 282). Malthus’s endorsement of this view of Adam Smith could be seen as support for the idea that all saving is beneficial, but Malthus later deleted “very justly”, and argued that excessive saving is undesirable. This alteration has been cited as an example of Malthus’s habit of changing his mind without giving due notice: “For on this point, as on others, over his long career, Malthus changed his ideas without explicitly recognising or recording his changes” (Hutchison 1978, 150). However, it is not clear that there was in fact a change of mind on this point. Malthus stressed the importance of spending and of effective demand, but the statement by Adam Smith on which Malthus commented in the 1798 Essay involved a criticism of “profusion” and of the “spendthrift”, and was not a criticism of spending as such. If a “spendthrift” is defined as an “extravagant person” or a “prodigal”, there was no contradiction or change of view in criticising the spendthrift and praising the spender, provided the spending is kept in proportion to saving. In keeping with his doctrine of proportions, it was an attempt to articulate a moderate position between two extremes,

Capital accumulation, investment, and effective demand Ricardo argued that “consumption and accumulation equally promote demand”, and that “the desire of accumulation will occasion demand just as effectually as a desire to consume, it will only change the objects on which demand will exercise itself ” (Ricardo 1973,VI, 133). Malthus disagreed, arguing that this will not necessarily occur. For Malthus, saving can establish a sum of capital potentially available for investment, but this alone will not guarantee investment; saving is a cause of growth, but saving alone is not a sufficient cause. There must also be an effective demand for the products of the proposed investment. If savings are increased through a reduction in consumption, the potential growth benefits of the extra savings could be offset by the negative effects of the reduced consumption. Saving will tend to encourage investment, production, and employment, but this encouragement could be counteracted by an insufficiency of consumption demand.

Investment The importance given by Malthus to effective demand as a stimulus to growth, and the importance he gave to the danger of excessive saving, seem to have led some commentators to the belief that he ignored or understated the importance of investment, but that was not the case. Abundant textual evidence shows the essential role he attributed to investment, as well as to consumption and effective demand, as determinants of aggregate expenditure and causes of growth. The importance Malthus attached to investment, as well as consumption, has not always been appreciated, perhaps partly because, as noted above, he rarely

22  Saving, investment, and consumption used the term “investment”. His emphasis on the importance of investment can be inferred from his emphasis on capital, for example: it will readily be granted that as capital, in whatever way it may be defined, is absolutely necessary to the division of labour and the use of machinery, its powerful influence on the progress of national wealth must be considered as incontrovertibly established. This statement was altered in the second edition of the Principles, but its essential argument on the importance of capital and investment was retained, with the words following “machinery” being replaced by “which so wonderfully increases the productive powers of human industry” (Malthus 1989b, I, 31; II, 27). Referring to the destruction of capital during the Napoleonic Wars, Malthus said “there is no other possible way of recovering our lost capital than by accumulation”, which he described as “this most desirable object” (Malthus 1989b, I, 504). A similar endorsement was made in referring to “the accumulation of capital, and its efficiency in the increase of wealth and population” (Malthus 1989b, I, 120; omitted from the second edition of the Principles). His emphasis on investment is also apparent in the following statements: if the capital of the country is diminished, “its wealth must be gradually destroyed from its want of power to produce” (Malthus 1989b, I, 9); “It is certainly true that no permanent and continued increase of wealth can take place without a continued increase of capital” (Malthus 1989b, I, 351); “the natural and regular progress of a country towards the accumulation of stock and the increase of population” (Malthus 1989b, I, 162; in the second edition of the Principles “towards the accumulation of stock and the increase of population” was replaced by “towards the full complement of capital and population”). Reciprocity exists between capital and wealth: “the increase of capital … is both the cause and effect of increasing riches” (Malthus 1989a, II, 84). The notion of “the full complement” of capital and population is similar to the notion of an optimum level, which as we have seen was frequently deployed by Malthus in applying his doctrine of proportions, notably in his population theory; it is interestingly applied here to his capital theory. A similar notion is implicit in his reference to “a wholesome and effective capital”, which seems to be implying that capital which is idle because it cannot find suitable investment opportunities is unwholesome and ineffective (Malthus 1989b, I, 372). Malthus’s concept of investment can be clarified by referring to the distinctions he made between stock and capital: stock –​“Accumulated wealth, either reserved by the consumer for his consumption, or kept, or employed with a view to profit”: capital –​“That portion of the stock of a country which has kept or employed with a view to profit in the production and distribution of wealth” (Malthus 1827a, 237). The phrase “kept or employed” shows that Malthus saw the significance of the difference between potential investment and actual investment. He recognised that, although savings would be

Saving, investment, and consumption  23 generally intended for investment, there could be situations where savings that were being kept for investment remained idle, or floating, or redundant, so that, while those situations prevailed, actual or realised or ex post savings would exceed actual or realised or ex post investments. Does investment create its own demand? Malthus is sometimes said to have asserted that there is a necessary equality between saving and investment, and that all savings become investments, but a close study of the textual evidence shows that in fact he believed that savings will not necessarily be identical with or equal to investments, and might not be automatically invested. Savings will sometimes not be able to find suitable investment outlets, and will sometimes remain in an idle or redundant state. It was Malthus’s view that, even though savers prefer and intend their savings to be invested, a supply of savings by savers will not necessarily create an effective demand from potential investors for savings. Although, in the process of investment, purchasing power will accrue due to the factors of production engaged in the investment process, Malthus did not claim that investment would “create its own demand”, if that expression is meant to include an effective demand for the products of the investment process equal to the cost of the investment process.The objections raised above against the possibility of self-​creating demand in the case of production of consumption goods would also be applicable against the possibility of a self-​creating demand in the case of production of investment goods. Malthus’s insistence on the importance of investment opportunities is in direct contrast with the view of Say for whom expenditure on investment generates adequate demand for the product of investment, so there will never be a shortage of investment opportunities. According to Say’s Law, as discussed in Chapter 9, general depressions are not caused by lack of investment opportunities; the purchasing power generated in the production process and distributed to the factors of production will be spent either on consumption or investment and will provide an amount of effective demand sufficient to provide a market for all that has been produced. However, in Malthus’s theory, the purchasing power that has been generated in the production process will not stimulate further growth until it is transformed into effective demand for either consumer goods or investment goods. This transformation occurs readily in the case of consumer goods, but less readily in the case of investment goods, where other considerations are involved. Say and the supporters of Say’s Law assure us with great confidence and certainty that all available purchasing power will be expended either on consumer goods and services or on investments, and a deficiency of investment funds will be theoretically impossible, because the revenue generated in the investment process would generate sufficient demand to make the process profitable, just as it does in the production of consumer goods. But that argument seems to underestimate the degree of complexity and uncertainty involved in investment, by comparison with consumption.Will

24  Saving, investment, and consumption the investment yield an acceptable rate of profit? Will there be an acceptable degree of risk for the invested capital? Aggregate investment is therefore likely to be more volatile than aggregate consumption, and deficiencies of aggregate effective demand are therefore more likely to be found in investment than in consumption, although in Malthus’s view there is a reciprocal causal relation between investment and consumption.

Expectations Malthus did not devote a particular chapter or section or subsection to expectations, and his views on the role of expectations in economic growth can only be gleaned from a limited number of scattered references. It is not surprising therefore that commentators have reached different interpretations. It has been argued, for example, that expectations played a minimal role in his thinking: Malthus “considered investment as a function of past profitability, rather than expected profitability and/​or the rate of interest” (Costabile 1983, 157n). On the other hand, several instances can be found where he clearly recognised the role of expected profits in investment decisions, and that for investment to proceed there must be an acceptably firm expectation of profit; for example, the immediate motive for the cultivation of fresh land can only be the prospect of employing an increasing capital to greater advantage than on the land.A rise in the market-​price of corn could not alone furnish such a motive. (Malthus 1989b, I, 153ni) The term “prospect” must surely be a synonym for “expectation”. The concept of expectation is also implicit in his statement that an increase of capital is employed in agriculture “in consequence of the opportunity of making great temporary profits” (Malthus 1989b, I, 172), and can be seen when referring to landlords who in letting their lands are induced to choose tenants who offer “the immediate prospect” of an exorbitant rent (Malthus 1989b, I, 200). The following statement in a footnote added to the second edition of the Principles shows that Malthus was aware of how an expectation of an increase in the supply of a commodity could cause its price to fall: there may be sometimes a comparatively small quantity of certain commodities ready for sale, but if a large supply is soon expected, the desire to sell will be great, and the prices low. On the other hand, there may be a comparatively large quantity of the commodities ready for sale, yet if a future scanty supply is looked forward to, dealers will not be anxious for an immediate sale, and the prices may be high. (Malthus 1989b, II, 45–​46; emphasis added) i In the second edition of the Principles the last sentence was omitted.

Saving, investment, and consumption  25 More importantly, the concept of expectation appears to be essential to Malthus’s definition of “capital” –​namely, as quoted above, stock “kept or employed with a view to profit in the production and distribution of wealth” –​ where the phrase “with a view to” could reasonably be interpreted to mean “in expectation of ”.

Malthus’s concept of consumption Malthus often used “consumption” in the way it is now currently used, namely, expenditure on or enjoyment of consumer goods, as distinct from expenditure on investment goods, but he did not limit “consumption” to that sense; he also used it in the broader sense of the use or using-​up of goods in general, whether consumption goods or investment goods. He defined consumption as “the destruction wholly or in part of any portions of wealth” (Malthus 1827a, 247), and when he used the term “consumption”, he was not necessarily restricting it to the consumption of consumer goods. The use of “consumption” in this wider sense was not restricted to Malthus. For ­example –​as discussed in Malthus (1989b, II, 300–​301) –​Adam Smith referred to the consumption of savings: “what is annually saved is as regularly consumed as what is annually spent” (Smith 1976, II.iii.18). The use of “consumption” in this wider sense was not restricted to Smith. James Mill referred to the “double meaning of an ambiguous term”, and implied that the wider sense was commonly used at the time: “We say, that a manufacturer consumes the wine which is laid up in the cellar, when he drinks it; we say too, that he has consumed the cotton, or the wool in his warehouse, when his workmen have brought it up”, and “That part [of the whole annual produce of the country] which is destined for future profit, is just as completely consumed, as that which is destined for immediate gratification”; and “the whole annual produce of the country will be always very completely consumed, whether his landholders choose to spend or to accumulate”. Although Mill here used “consumption” in its broader sense, he added that that the manufacturer “would most properly be said to employ, not to consume” his capital (in Winch 1996, 127–​129; original italics), from which it seems that Mill disapproved of this wider use of the term consumption, even though he was prepared to use it in the wider sense, and preferred that it should be used in what is now the modern narrower sense, restricting it to consumer goods. It is true that when Malthus spoke of “consumption”, he was often referring specifically to consumer goods, not investment goods, but there were other occasions on which he appears to have used the term “consumption” in a wider sense encompassing both consumer goods and investment goods. It would be a mistake therefore to assume that, when Malthus spoke of “consumption”, he was always restricting the term to consumer goods, or to assume that when he advocated an increase in consumption, he was ignoring or denying the importance of investment. His theory of economic growth and his answer to

26  Saving, investment, and consumption the problem of general recessions were based as much on investment as on consumption. The following statement shows how Malthus used “consumption” in both senses –​expenditure on consumer goods and expenditure on capital goods, with the latter referring to what we would now call investment: The consumption of wealth, as revenue with a view to support and enjoyment, is even more necessary and important than the consumption of wealth as capital; but their effects are essentially different in regard to the direct production of wealth, and they ought therefore to be distinguished. (Malthus 1827a, 259) Malthus’s use of the terms “productive consumption” and “unproductive consumption” is discussed in Chapter 11. Malthus also used the term “effective consumers”, but did not explain how it differed from “consumers” and “productive consumption” (Malthus 1989b, I, 471; II, 277). When James Mill asserted that the whole annual produce of a country would be “completely consumed”, either by being spent on consumer goods or by being accumulated, he did not address the possibility that some of the accumulated wealth might not be able to find profitable and secure investments, and might be forced to remain idle. He recognised, like Malthus, that deliberate hoarding would be a rare occurrence, but, unlike Malthus, he did not recognise the possibility that some savings could become involuntary or unintended hoardings. Malthus’s idea that investment can be seen as a form of consumption, could be complemented by the idea, argued for example by Cosimo Perrotta, that consumption can be seen as a form of investment. If the consumption and living standards of labourers are increased, by means of an investment in the form of adequate food, accommodation, and education, their productivity will be enhanced. Investment in the form of machinery and other capital is not the only source of increased productivity (Perrotta 2018). Indolence and leisure: effects on production and poverty Malthus recognised that expenditure on consumption and investment could be reduced because of a preference for indolence and leisure, and that this preference could be enhanced by an abundance of fertile land, leading to a situation where adequate food is readily available, and the motive for saving and production is weakened. He believed that this was the case in some parts of South America. Indolence in Malthus’s model has been described as “the curse of the fertile land” and “is for Malthus a concrete and present evil”. Malthus recognised that luxury is not always preferred to indolence (Fiaschi and Signorino 2003, 19). Although Malthus thought that indolence can be a cause of poverty, he also thought it can be an effect. Poverty “appears to be the great spur to industry”,

Saving, investment, and consumption  27 but “when it has once passed certain limits, almost ceases to operate”, and hopeless indigence “destroys all vigorous exertion, and confines the efforts to what is sufficient for bare existence” (Malthus 1989a, I, 439). Malthus was also aware that indolence and the desire for leisure can have a negative effect on production at upper income levels, as well as at lower income levels, as discussed in Pullen (2003). Indolence and leisure are often linked, but despite his warnings of the harmful effects of indolence, Malthus did not in principle disapprove of leisure. He believed that an increase of leisure could be very beneficial for both labourers and capitalists (see Pullen 2003). He said: “the great laws of nature have provided for the leisure of a certain portion of society”; and he regarded this as a “beneficent offer” and “a positive good” (Malthus 1989b, I, 463–​464, quoted more fully below; in the second edition “great laws” was changed to “laws”, and “leisure” was changed to “leisure or personal services”). His position with regard to leisure appears to have involved, once again, an application of his “doctrine of proportions” and a search for an optimum balance.

Consumption, production, and investment For Malthus, the relationship between consumption and production is not simplistically unidirectional; it provides an example of another distinctive feature of his methodology –​the concept of reciprocal causation (see Pullen 2016b). He insisted on the mutual dependence and reciprocity between consumption and production. He believed that an increase in consumption would generate an increase in effective demand, and this would stimulate production and investment.The dependence of production on consumption is clearly expressed in the statement: “great powers of production are neither likely to be called into action, or, when once in action, kept in activity without great consumption” (Malthus 1989b, I, 481; II, 279; in the second edition of the Principles “without great consumption” was altered to “without a great effective consumption”). The notion of a reciprocal causation between consumption and production can also be found in an anonymous article in the Edinburgh Review, 1808. The article has been attributed to Malthus, although his authorship has been disputed (see Malthus 1989b, I, xix, 2n). The article contained statements indicating that consumption and production are linked by reciprocal causation; for example, “production generates consumption, as well as consumption production”; and “consumption must exist somewhere, or there could be no production”. In discussing the prosperity of Holland and Venice the article referred to “the enriching effects that can arise from a great consumption”. Such words bear an uncanny resemblance to those of Malthus. Also, reciprocal causation, or even dialectical conflict, can be seen in the statement that foreign trade “contains within itself the seeds of its own decay” (Anon 1808, 434–​435, 446). This anonymous writer seems to have succinctly expressed Malthus’s view that saving will tend to encourage investment, production, and employment, but this

28  Saving, investment, and consumption encouragement could be counteracted if consumption is insufficient to generate enough effective demand for the products. Relative importance of consumption and investment On the question of which is the more important, consumption or investment, in promoting growth, Malthus said the ultimate purpose of investment is consumption, and “the final purpose of all production” is “subsistence and enjoyment” (Malthus 1827a, 248); and even more forcefully: “Consumption is the great purpose and end of all production.The consumption of wealth, as revenue, with a view to support and enjoyment, is even more necessary and important than the consumption of wealth as capital” (Malthus 1827a, 259). Although he regarded consumption as the goal of economic activity, he also said high levels of consumption cannot be achieved without high levels of investment, and high levels of investment cannot be achieved without high levels of consumption. His arguments in favour of investment in public works –​as discussed in Chapter 10 –​seem to indicate his awareness that in certain circumstances the ultimate goal of increased consumption could be achieved by increasing public investment. His theory of growth was as much an investment theory as a consumption theory.

3  Effective demand and effective supply

The power to purchase and the will to purchase The concept of effective demand –​an essential element in Malthus’s economics –​involves not merely a desire to purchase, but also the will to purchase, and the power to purchase. Basic textbooks in economics often define effective demand as “the desire to purchase backed by the power to purchase”, without any specific mention of the will to purchase. An important feature of Malthus’s theory of demand is the idea that the will to purchase is just as important as the power to purchase, and that it cannot be assumed that the will to purchase automatically accompanies the power to purchase, or that an increase the power of purchasing would necessarily mean an increase in effective demand. A desire to purchase that is not backed by the will to purchase and by the power to purchase could be described as an “ineffective demand”, although as far as I am aware Malthus did not use that term. The juxtaposition of “power” and “will” occurs frequently throughout his writings. Malthus argued that an increase in the facilities of production means an increase in the power to produce and the power to sell, and does not necessarily mean an increase in sales, which occurs only if there are prospects or expectations of sales at prices sufficient to cover costs and profits, and this in turn will not occur unless there is an adequate effective demand for the product, or, in other words, an adequate power to purchase and an adequate will to purchase. The distinction between the power to purchase and the will to purchase was therefore at the basis of Malthus’s theory of effective demand. It was clearly expressed in a letter to Ricardo on 11 September 1814: I by no means think that the power to purchase necessarily involves a proportionate will to purchase … A nation must certainly have the power of purchasing all that it produces, but I can easily conceive it not to have the will. (In Ricardo 1973,VI, 132) The importance given by Malthus to the distinction between power and will (“le pouvoir et le vouloir”) has been signalled by Jean-​Louis Billoret, who

30  Effective demand and effective supply has emphasised Malthus’s view that, although a movement of supply brings a tendency for demand to move in the same direction, it does not guarantee that the movement of demand will have the same extent as that of supply. An extension of production does not guarantee an equivalent demand, and in a state of depression the remedy can be blocked by an insufficiency of will (Billoret 1984, 262). By contrast, Ricardo in a letter to Malthus, 26 June 1814, appears to have identified effective demand with the power to purchase, and to have either ignored or given far less emphasis than Malthus to the will to purchase:“Demand has no other limits but the want of power of paying for the commodities demanded” (Ricardo 1973,VI, 108). Ricardo seems to have believed that, when the power to purchase exists, the will to purchase usually follows. Even if this is true with respect to purchase of consumer goods, it is less likely to be true with respect to investments of capital, where the will to invest must depend on circumstances some of which will lie outside the control of the potential investor, such as the availability of investment projects with adequate profit expectations, and the security of the invested capital. Malthus was more hesitant than Ricardo in asserting that the power must usually be followed by the will. The “will to purchase”, as Malthus understood it, seems to include the existence of a firm decision to seek and effect imminent entry into a market in order to participate in an exchange. This emphasis by Malthus on the notion of imminent entry to market in his concept of effective demand is similar to his emphasis on the notion of “brought to market” in his concept of effective supply, as discussed later in this chapter.

Desires, velleities, and the intensity of demand Malthus recognised that the will to purchase can exist with varying degrees of intensity. He distinguished between desires that lead to action, and desires that are merely wishful thinking or velleities. He believed New Spain and Ireland were particular examples of places where people were content with a low standard of living, preferred leisure and indolence, and were not prepared to undertake the toil and trouble to attain a higher standard. He also believed that although the “desire of bettering our condition” is a fundamental and powerful human instinct, it is sometimes conceived in a manner inconsistent with the true betterment of the individual person or of society (see Pullen 2019a). Malthus’s concept of desire reflected his belief in the complexity of human motivation. He criticised William Godwin for “considering man too much in the light of a being merely rational”. For Malthus, man is a “compound being” whose actions will be determined not only by his reason but also by his “corporal propensities” or “bodily cravings” –​such as “the cravings of hunger, the love of liquor, the desire of possessing a beautiful woman” –​with the result that “the decision of the compound being is different from the conviction of the rational being” (Malthus [1798] 1926, 254–​255). In a letter to Ricardo on 19

Effective demand and effective supply  31 August 1814 he wrote: “the natural desires of man … are after all the foundation of all demand” (in Ricardo 1973,VI, 123). He appears to have been saying that, in order for a desire to be translated into an effective demand, it must be of a level of intensity sufficient to transform it into action, and that slow or limited growth could be due to an inadequate level of intensity of desire.

Purchasing power and actual purchases As discussed in Chapter 9, “Say’s Law”, Malthus emphasised the distinction between the power of purchasing and the actual purchases. But this distinction has not always been recognised; for example: “the more you increase the annual produce, the more by that very act you extend the national market, the power of purchasing and the actual purchases of the nation” (Mill 1808, 556; quoted in Thweatt 1980, 468). Malthus, by contrast, argued that the power of purchasing will not automatically result in actual purchases, unless accompanied by the will to purchase, whereby it becomes an adequate effective demand. Mill also stated that production “never furnishes supply, without furnishing demand, both at the same time, and both to an equal extent” (Mill 1966, 332; quoted in Heertje 2004, 48). Malthus agreed that production furnishes purchasing power, but argued there is no guarantee that it will furnish effective demand. The hidden assumption in Mill’s statement is that the power of purchasing will always be accompanied by the will to purchase, and that there will never be any impediment, psychological, financial, or other, between the power to purchase and the actual purchase. A coincidence between power and will may be justified in the case of consumer goods, because the desire to acquire the consumer goods provides the motive to acquire the necessary purchasing power, and creates the will to purchase, but this does not necessarily occur in the case of investment goods, where the will to invest depends upon the expected profitability of the investment, which is usually determined by forces independent of, and beyond the control of, the potential investor; in the harsh economic conditions at that time, there was a “mass of moveable capitals at a loss for employment” (Malthus 1989b, I, 331; omitted from the second edition of the Principles).

Purchasing power and effective demand In defence of Say’s Law, it is said that the process of production generates revenue for the factors of production, and that this revenue will be sufficient to cover the costs and profit margin of the producer, and will create an effective demand for the product; but that argument overlooks the fact that when the revenue generated in the production process comes into the hands of the factors of production, it would be more appropriately described at that stage as “purchasing power” rather than “effective demand”, or as “potential demand” rather than “actual demand”. The expression “supply creates its own demand” would be more appropriately rephrased as “supply creates its own purchasing power”. Possible synonyms of “potential demand” could be: “prospective demand”,

32  Effective demand and effective supply “proposed demand”, “expected demand”, “possible demand”, “intended demand”, “future demand”, etc. It is interesting to note that, even in the early formative years of political economy, the meaning of the term “demand” was being questioned. At the meeting of the Political Economy Club on 5 April 1824, one of the questions under discussion was: “Might not the term Demand be excluded with advantage from the Science of Political Economy?” –​proposed by T. Tooke and C. R. Prinsep, conjointly (Political Economy Club [1882] 1980, 21). No details of the discussion were included in the Proceedings of the Club, but the question suggests that at least some members were concerned about the nuances and complexities of the term “demand”, and about the possible confusions and controversies it could create. It is a truism that the purchasing power distributed as incomes between the factors of production is identical with the costs of production. Malthus did not deny this; as Thomas Sowell (1972, 8) has noted, Malthus “repeatedly affirmed” that “purchasing power was necessarily equal to the value of output”. But in Malthus’s terminology purchasing power is not identical with effective demand, and is not automatically translated into effective demand; it does not become effective demand or actual demand until it has been brought to market and entered into a market transaction. This distinction between purchasing power and effective demand, can also be seen in his theory of interest, as discussed in Chapter 8. A distinction between the concept of the power of purchasing and the concept of effective demand was denied by James Mill: “The demand of a nation is exactly its power of purchasing” (Mill 1966, 136). This would be true if “demand” is interpreted as “potential demand”, but not if it is interpreted as “effective demand”. Mill argued that the power of purchasing is derived from, and equal to, the revenue generated in the production process, and that every particle of this revenue will be spent as demand for purchases, either of consumer goods or for the employment of capital: all that part [of the purchasing power] which is destined for mere consumption is evidently employed in purchases. That too which is employed as capital is not less so. It is either paid as wages to labourers, who immediately buy food and other necessaries with it, or it is employed in the purchase of raw materials. The whole of the annual produce of the country, therefore, is employed in making purchases. (Mill 1966, 136) But in saying that the purchasing power destined to be “employed as capital” –​that is, in modern terminology, destined to be invested –​Mill had clearly assumed that the revenue destined for investment will be able to find suitable investment opportunities. He did not attempt to substantiate that assumption, but if that assumption is not substantiated, there can be no justification for equating aggregate effective demand with aggregate purchasing power, and no justification for his assertion that “the demand of a nation is always equal to the

Effective demand and effective supply  33 produce of a nation”, or for the assertion that “The production of commodities creates, and is the one and universal cause which creates a market for commodities produced” (Mill 1966, 135). The distinction between purchasing power and effective demand is an essential feature of Malthus’s macroeconomics, and a fundamental area of disagreement between Malthus and Mill, as well as between Malthus and Say. The distinction has been overlooked in the following argument alleging a contrast or contradiction between Malthus’s population theory and his glut theory. In his population theory he said population presses against the means of subsistence. In his glut theory he said “a country is always liable to an increase of the funds for the maintenance of labour faster than the increase of population” (Malthus 1989b, I, 357; slightly altered in the second edition of the Principles). This has been interpreted as a “contrast” (Sowell 1972, 106). But the alleged contrast disappears if we recognise Malthus’s distinction between the funds for the maintenance of labour and the actual investment of the funds –​or in other words, between potentially invested capital and actually invested capital, or between the power of purchasing labour and the effective demand for labour. The distinction between purchasing power and effective demand has been clearly treated, and its importance convincingly emphasised, by Andrew Skinner, and I can do little more in this chapter than attempt to summarise, and endorse, his treatment. James Mill’s statement equating revenue and purchases is quoted: “every individual in the nation uniformly makes purchases … with every farthing’s worth which accrues to him. All that part which is destined for mere consumption is evidently employed in purchases. That too which is employed as capital, is not less so”, and “the self-​interest of men ever has impelled, and ever will impel them, with some very trifling exceptions, to use every particle of property which accrues to them, either for the purpose of immediate gratification, or of future profit” (in Skinner 1969, 181, 182), which suggests that effective demand will generally be equal to purchasing power. However, in this quotation Mill has avoided the possibility that, despite the strength of the impelling, there can be no guarantee that adequate investment opportunities will be available. Mill’s view could be contrasted with that of Malthus, who rejected the idea of an inevitable equality between purchasing power and effective demand –​as quoted above, “I by no means think that the power to purchase necessarily involves a proportionate will to purchase” (Malthus, in Ricardo 1973,VI, 131–​132; quoted in Skinner 1969, 185). Malthus, as well as suggesting that the equality between effective demand and purchasing power need not hold good, also argued that it probably would not hold good (Skinner 1969, 187). An inequality would arise if the level of effective demand were to fall because of a change in the distribution of income in favour of the rich, who have a lower propensity to consume than the poor, with the result that some of the purchasing power would remain redundant or sleeping. This connection between the distribution of income and level of aggregate effective demand is discussed more fully in Chapter 13.

34  Effective demand and effective supply As already mentioned, Malthus does not appear to have restricted the concept of effective demand to the demand for consumption goods, where “consumption” is understood in its modern sense, but because he extended the concept of consumption to include the consumption of capital, he appears to have understood effective demand to include also the demand for producer goods or investment goods. On the question of whether, in Malthus’s theory, economic growth depends more on expected or realised profits than on effective demand –​or in other words more on supply-​side factors than on demand-​side factors, a crucial point in deciding whether Malthus was a true precursor of Keynes –​it has been argued that “Malthus believed the impetus to accumulation came from the supply-​side through the motive provided by the rate of profits to saving and investment”, but that Malthus also believed that “unless effective demand is sufficiently accommodating this potential accumulation will not be realized”, and that Malthus saw effective demand not as “the determinant of the aggregate level of output” but as “a constraint to economic growth” (Smith 2020, 69). An alternative view, however, might be that if a deficiency of effective demand is a constraint to growth, then a sufficiency of effective demand must be a determinant of growth, and deserves to be accorded the same causative status as the savings and investments which encourage growth.To relegate demand to the status of a constraint, rather than a cause, appears to underemphasise the importance that Malthus attributed to demand, and to weaken the link between Malthus and Keynes. The importance given by Malthus to effective demand is generally recognised in the secondary literature, for example: “In Malthus’s theory, effective demand is decisive in determining the rate of profits and the rate of capital accumulation” (Smith 2020, 62), and “aggregate demand plays an instrumental role in Malthus’s theory not only in explaining ‘general gluts’ in the short run but also in explaining the rate of accumulation in the long run”, and Malthus had a number of insights that are “important to the modern Keynesian (or Kaleckian) demand-​led approach to explaining economic growth” (Smith 2020, 58). But the view that effective demand plays merely an “instrumental role” in Malthus’s theory of growth, and the view that Malthus’s contributions to the modern demand-​led theory of growth were merely “a number of insights”, seem to be understatements; effective demand was of the utmost importance in Malthus’s theory of growth. His emphasis on the role of effective demand as a cure for stagnation is expressed clearly in his analysis of the depression that followed the end of the Napoleonic War. In what appears to be an allusion to the version of Say’s Law which attributes depressions to a deficiency of production, rather than to a deficiency of demand, and which claims that production creates demand, and that depression can be cured by increasing production, Malthus said: the stagnation which has been so generally felt and complained of since the war, appears to me inexplicable upon the principles of those who think

Effective demand and effective supply  35 that the power of production is the only element of wealth, and who consequently infer that if the powers of production be increased, wealth will certainly increase in proportion. (Malthus 1989b, I, 498i) He stated that it is unquestionable that the powers of production were increased by the cessation of war, and that more people and more capital were ready to be employed in productive labour; but not withstanding this obvious increase in the powers of production, we hear every where of difficulties and distresses, instead of ease and plenty. He acknowledged that the “transfer of capital from the employments where it is redundant to those where it is deficient” would require some time. He thought that the “necessary changes in the channels of trade would be effected in a year or two”, but he added:“I cannot bring myself to believe that this transfer can require so much time as has now elapsed since the war”. He noted that redundant capital was still glutting the markets of Europe, and the owners of floating capital were not finding employment for it. He argued that the persistence of the current depression must be due to a cause other than the difficulty of moving capital, and he concluded that this cause was “the general diminution of consumption and demand”, and that this cause “may last for a very considerable time” (Malthus 1989b, I, 498–​499; “powers” in the earlier quotations was altered to “means” in the second edition of the Principles, and “consumption” was omitted). The importance of Malthus’s views on effective demand cannot be overestimated. He is famous for his warnings of the dangers that overpopulation creates for the well-​being of humanity, and should be equally famous for his insistence on the role of effective demand in promoting economic growth and preventing depressions.

Definition of supply Malthus defined supply as “The quantity offered, or ready to be immediately offered for sale” (Malthus 1827a, 244), thus emphasising that the commodity is not merely in existence and is available for sale, but has been brought to market and is actually being offered for sale in a current exchange negotiation. The phrase “ready to be immediately offered for sale” adds an extra dimension to a merely physical notion of supply, and is reinforced by Malthus’s use in other contexts of the concept “brought to market”. The term “offre”, used in French economics in situations where English economics would use “supply”, seems to capture this notion of supply in the sense of a commodity being currently brought into the market, and is currently engaged i In the second edition of the Principles “powers” was altered to “means”.

36  Effective demand and effective supply in an exchange situation. An example of the translation of “offre” by “supply” can be seen in Richter’s translation of Say’s Lettres à Malthus (see Chapter 9). The phrase “on offre les moyens productifs” (Say 1820, 61) was translated to “we offer (or supply) productive means” (Say 1821, 30; original italics), where Richter indicated that he regarded the English “supply” as a synonym or an adequate translation for the French “offre”. This concept of supply, incorporating the notion of “brought to market” with the intention to sell, could be described as “effective supply”. Capital or savings that are in existence, but are not actually being offered in the market, could be described as “ineffective supply”. As far as I am aware, Malthus did not use the terms “effective supply and “ineffective supply”, and they are not part of the standard vocabulary found generally in the history of economic thought or in economics generally, but they seem to be appropriate for expressing the demarcation he sought to emphasise between a potential supply and an actual supply. A commodity which is in existence but which is not actually being offered in a market is a supply in a physical or potential sense, but is not a supply in an effective sense. The concept of effective supply appears to have been an essential component of Malthus’s macroeconomics. It appears to be implicit in the definition he gave of “supply” in the Principles, namely, “the production of commodities combined with the intention to sell them”, slightly altered in the second edition of the Principles to “the quantity of the commodities for sale, combined with a desire to sell them” (Malthus 1989b, I, 64; II, 61). It is generally recognised that Malthus emphasised the distinction between desire and effective demand, but it is not generally recognised that, in explaining his notion of supply he was making a similar and equally important distinction, namely, between a physical or potential supply, and an actual or actuated or effective supply. The term “effective demand” is frequently met with in the literature of economics, especially since it became an integral part of Keynesian economics, and could be defined by expressions such as: “the power to purchase a commodity or service, together with the desire, intention and will to effect a purchase in exchange for a commodity or service or money by entering into an imminent market transaction”. By analogy with effective demand, effective supply could be defined as: “the power to supply a commodity or service together with the desire, intention and will to effect the supply by entering into an imminent market transaction”.

The concept “brought to market” Malthus’s use of “supply” in the sense of effective supply is similar to his use of the concept “brought to market”. For example, in his discussion in the Principles of how values can be affected by changes in the intensity of demand, he said that with a greater intensity of demand “the value brought to market to exchange for the commodity in question would have greatly increased”

Effective demand and effective supply  37 (Malthus 1989b, I, 68; II, 49). The concept “brought to market” was also evident in the statement that if the cost of production of a commodity is doubled, the quantity of the commodity which would be “brought to market” might be extremely different (Malthus 1989b, I, 68). A further instance of this emphasis on the concept “brought to market” occurred in his discussion of the precious metals as a medium of exchange. In the first edition of the Principles he argued that, before precious metals could be used as money, their supply must remain steady. In the second edition he qualified this by saying that their supply “in the market” had to be steady (Malthus 1989b, I, 57; II, 54). In discussing the possibility of a glut, he said the real question is, whether a demand will be found for all that the producers “could bring into the market” (Malthus 1989b, II, 256). In discussing how exchange values are affected by costs, he said that the prices of commodities would be affected by the costs necessary “to bring the articles … to market”, and in the second edition of the Principles he added the condition that the commodity be “brought to market immediately” (Malthus 1989b, I, 80; II, 57), thus providing a further illustration of his distinction between supply in the sense of an object that physically exists and might possibly be available for sale, and supply in the sense of an object actually being offered for sale in a market. This distinction is also implicit in the following statement, already quoted above as evidence of Malthus’s concern with expectations: “There may be sometimes a comparatively small quantity of certain commodities for sale, but if a large supply is soon expected, the desire to sell will be great, and the prices low. On the other hand, there may be a comparatively large quantity of the commodities ready for sale, yet if a future scanty supply is looked forward to, the dealers will not be anxious for an immediate sale, and the prices may be high” (Malthus 1989b, II, 45–​46); in the latter situation supply exists in a physical sense, but is not being offered for immediate sale. The reiteration of the phrase “brought to market”, and hence of the notion of effective supply, would seem to indicate that these notions were deliberate insertions in Malthus’s text and bore some significant theoretical implications; they were more than conventional figures of speech. The concepts of “brought to market” and “effective supply” occupy an important position in Malthus’s theory of interest, particularly in connection with Keynes’s criticism of Malthus’s theory of interest, and play a leading role in Malthus’s attack on Say’s Law, particularly with regard to the meaning of “supply” in the expression “supply creates its own demand”. The secondary literature has generally ignored the existence and importance of the notion of effective supply in Malthus’s macroeconomics. It is as important as his concept of effective demand, and deserves equal recognition.

Supply: a quantity, or a price–​quantity relation? Malthus’s failure to achieve recognition as a significant macroeconomist has been attributed to the inadequacy of his concept of supply. He has been accused

38  Effective demand and effective supply of interpreting supply as a quantity, rather than as a price–​quantity relation.This notion of supply as a quantity can be seen in a number of minor alterations between the two editions of the Principles (for example, Malthus 1989b, II, alterations I. 70i; I. 71d; I. 81d), and more explicitly when in the second edition of his Principles he stated that “demand is always determined by value, and supply by quantity” (Malthus 1989b, II, 253; original italics). On the basis of that statement by Malthus, Jacob Viner argued that, although Malthus had perceived that there was something wrong with Say’s Law, he failed to expose the fallacy underlying Say’s Law, because “he was himself insufficiently emancipated from the purely physical interpretation of ‘supply’ and ‘demand’ ”, and failed to conceive supply is a price–​quantity relation (Viner 1937, 197–​198, quoted in Hollander 1977a, 542, where it is affirmed that Malthus did not conceive supply as a price–​ quantity relation). However, although Malthus in some places described supply as a quantity, the concept of supply as a price–​quantity relation was used by Malthus in other places. For example, he referred to a situation where “the abilities and competition of the sellers induce them to bring the quantity to market at a low price” (Malthus 1989b, I, 66; in the second edition of the Principles “abilities” was altered to “means”, and “induce them” was altered to “continue”). This would seem to indicate, that, at least on this occasion, Malthus was thinking of supply as a relation between price and quantity. Also, Viner’s argument appears not to have taken into consideration Malthus’s statements on what he called “the conditions of the supply”. In his Definitions Malthus defined “conditions of the supply of commodities” as “The advance of the quantity of accumulated and immediate labour necessary to their production, with such a per centage [sic] upon the whole of the advances for the time they have been employed as is equivalent to ordinary profits”, adding that the effects of monopolies or taxes would have to be included in the necessary conditions. He stated that “the quantity of labour for which a commodity will exchange” will be “a measure either of the conditions of its supply or of its value” (Malthus 1827a, 242, 257). Malthus here appears to have measured the supply of a commodity by the quantity of labour necessary for production, but he also used quantity of labour as a measure of value. This means that when he referred to the quantity of labour he was in fact referring to value in exchange, as he interpreted it. This concept of exchange value may not coincide with modern concepts of exchange value, but it nevertheless indicates that Malthus was here thinking of the supply of a commodity as a price–​quantity relation. Malthus’s distinction between his definition of supply in the sense of a physical quantity, and his definition of the conditions of supply, would therefore seem to be significant in understanding his concept of supply. His attempted distinction is not as clear cut as one would have wished. A sympathetic interpretation is that he had conceived of “supply” in two different ways, firstly as a physical quantity, and secondly as it occurs in a market situation, in conjunction with

Effective demand and effective supply  39 demand, and carrying an exchange value. If this interpretation is correct, then Viner’s view that Malthus’s concept of supply was deficient, and Viner’s view that Malthus’s criticism of Say was unsuccessful would have to be questioned. The textual evidence used here in defence of Malthus’s view of supply as a price–​quantity relation is not prominently displayed in his publications, but it is there nevertheless, and Malthus cannot be blamed if commentators have missed it.

4  Manufacturing, machinery, and inventions

Malthus has been interpreted as being opposed to manufacturing, or having neglected the importance of machinery, or having ignored the benefits of technical progress, or regarding manufacturing as unproductive and making no significant contribution to prosperity. Such interpretations appear to have been based mainly on the first edition (1798) of his Essay on Population. However, the textual evidence of the later editions of the Essay, and his other writings, shows that, while deploring the hardships suffered by factory workers, he welcomed the development of manufacturing, machinery, inventions, industrialisation, and technology. He gave them a key role in his theory of economic growth, provided manufacturing was kept in proportion with agriculture. This chapter begins with a selection of such anti-​manufacturing views, and then proceeds to show that, although the first edition of Malthus’s Essay contains some passages which support an anti-​manufacturing interpretation, a closer analysis shows that these anti-​manufacturing interpretations of the first edition have been exaggerated. It also argues that anti-​manufacturing sentiments expressed in the first edition (1798) of the Essay evolved in later writings into a more positive, and even enthusiastic support for manufacturing. This transition has been noted in the secondary literature, but whereas previous commentaries have been mainly concerned to show that Malthus had left aside any previous physiocratic or agricultural bias, the purpose of this chapter is to present a more comprehensive account of his pro-​manufacturing vision. Malthus’s recognition of the difficulties and impediments associated with the establishment and survival of manufacturing are discussed, and it is argued that manufacturing was an essential element in his theory of economic growth. Malthus conducted his analysis of manufacturing in a dialectical manner, presenting the advantages and disadvantages, and juxtaposing thesis and antithesis. This method of analysis was adopted as his standard methodology, as will be obvious in the following chapters of this work, and reflects his theological perceptions; for example, “It is the wise plan of Providence, that in this life there shall be no good without its attendant inconvenience” (Malthus 1989a, II, 81–​82). However, this method of analysis appears not to have pleased some commentators, who interpret it as vacillation and self-​contradiction.

Manufacturing, machinery, and inventions  41

Anti-​manufacturing interpretations Observers who accuse Malthus of physiocratic bias, especially in the first edition of the Essay, cite, for example, Malthus’s admission: “I do not reckon myself a very determined friend to [trade and manufactures]”. He also said: “The French Œconomists consider all labour employed in manufactures as unproductive. Comparing it with the labour employed upon land, I should be perfectly disposed to agree with them”; and “I should call manufacturing labour unproductive, in comparison of that which is employed in agriculture” (Malthus [1798] 1926, 293, 329, 333). In addition, he referred to the “unhealthy occupations” of manufacturing industry, and feared that the employment of a greater proportion of the labouring poor in “large manufactories” would be “unfavourable to health and virtue”. Manufacturing labour would also be subject to “greater uncertainty, rising from the capricious taste of man, the accidents of war, and other causes” (Malthus 1798, 309, 310, 321, 325). This anti-​manufacturing attitude can also be seen in a footnote to a letter by Malthus on 20 August 1798 to William Godwin, written just after the publication of the 1798 Essay: “the greatest encouragements should be given to tillage in preference either to grazing or manufactures” (see Winch 1996, 267). However, it should be noted that when he said all labour employed in manufacturing is unproductive, he added “comparing it with the labour employed upon land” (Malthus [1798]1926, 329). In other words, he was here saying that manufacturing labour is relatively unproductive compared with agriculture, not that it is unproductive. He also argued that agriculture was more important and more useful than manufacturing; an increase in the revenue of the state from manufactures “cannot … be considered of the same importance, as an increase of food, which forms the principal revenue of the great mass of the people”; and the labour employed in producing “silks and laces … would have been more usefully employed” in producing additional food (Malthus [1798] 1926, 336, 333). Malthus seems here to have adopted a biological rather than an economic criterion for assessing productivity, and to have confused biological value with economic value. The warnings in the 1798 Essay of the unhealthiness of manufacturing were restated in later editions. In the 1803 Essay he said: “We know from constant experience that fevers are generated in our jails, our manufactories, our crowded workhouses, and in the narrow and close streets of our large towns”, resulting in “squalid poverty” and “great and wasting plagues” (Malthus 1989a, I, 298). He quoted reports from Swiss writers that districts in Switzerland where manufactures were established suffered in “health, morals and happiness” (Malthus 1989a, I, 225). In the 1817 Essay he warned of the possibility of “greater unhealthiness and immorality owing to a larger proportion of the population being employed in manufactories” (Malthus 1989a, II, 70). He predicted that great towns and manufactures “will always remain less healthy than country situations and country employments; and consequently, operating

42  Manufacturing, machinery, and inventions as positive checks, will diminish in some degree the necessity of the preventive check” (Malthus 1989a, II, 197). Although he said that it is our duty to make the manufacturing districts “as little injurious as possible to the duration of human life”, he added “we can scarcely hope, and certainly not expect, to see any very material change” (Malthus 1989a, II, 197). His concern about the social and moral ill-​effects of manufacturing industry is emphasised in the statement that the growth of manufacturing industry has “considerable disadvantages”, notably in employments less favourable than agriculture “to health and morals”, and in greater fluctuations in wages (Malthus 1989a, II, 84). The following extracts from the secondary literature reveal abundant evidence of the prevalence of anti-​manufacturing interpretations of Malthus; the validity of such interpretations is discussed later, together with extracts from the secondary literature presenting pro-​manufacturing interpretations. According to Simon Patten, “Malthus viewed the problem of prosperity from a rural point of view, and made national prosperity to be the same as agricultural prosperity” (Patten 1893, 327) –​a view which minimises or negates the importance of manufacturing prosperity. James Field said Malthus “fails to give sufficient attention to the possibilities of increased product through improved technology” and “did not allow sufficiently for the increase in production which might come about through improvements in agricultural processes”; Malthus’s “thinking is dominated by the problems of the country gentleman of 1750 rather than by the new industrial system” (Field 1931, 16–​17). Ronald Meek thought that Malthus’s theory of growth was based on the productivity of agriculture: “the theory of under-​consumption as Malthus and his followers developed it depends to an extent that is not generally realised upon an essentially Physiocratic view of the pattern of production and demand”, but this “is hardly the most useful way of looking at a modern society in which the dominating portion formerly assumed by land is now been usurped by capital” (Meek 1951, 259). Beryl Penrose was of the opinion that “Malthus recognised but underestimated the role and importance of technical progress, which at the end of the eighteenth century had not shown anything like its later achievements and promise” (Penrose 1956, 223–​224); and Ambirijan (1959, 196–​197) believed that Malthus maintained “the futility of manufactures”. A particularly trenchant critique of Malthus’s views on manufacturing was made by Mark Blaug. In Blaug’s view, Malthus suffered from an “agricultural bias” and from a “hostility to industrialisation”. Malthus “seemed to take the position of an apologist for the landed classes, voicing their apprehension at the rapid pace of industrialization … In several places he as much as declares his agricultural bias”; and “expressions of profound displeasure at the rapid spread of the factory system never entirely disappeared from Malthus’s writings” (Blaug [1958] 1973, 94–​96); “Malthus’s argument is rooted in the belief that further industrialization of the British economy is undesirable” (Blaug [1958] 1973, 239). According to Blaug, Malthus’s views on manufacturing and agriculture show that he had not provided a satisfactory theory of growth or of gluts: “they

Manufacturing, machinery, and inventions  43 made it impossible seriously to entertain Malthus’s doctrine of gluts” (Blaug [1958] 1973, 97). More recently it has been argued that “Malthus’s failure to recognize the possibility of technological developments that could solve the population problem also vitiated much of his theory”; and Malthus “failed to consider the possibility that developments in agricultural technology might permit sufficient increases in the supply of food to feed an increased population” (Landreth and Colander 2002, 110, 112).

Pro-​manufacturing interpretations However, there is also abundant textual evidence giving a different view of Malthus on manufacturing. It suggests that he did not seek to prevent an adequate growth in the manufacturing sector. A pro-​manufacturing attitude in the Essay (1798) can be seen in the fact that he dissociated himself from arguments used by the physiocrats in declaring manufactures to be unproductive. They declared manufactures unproductive of wealth because they chose to restrict the definition of wealth to agricultural products. But Malthus did not restrict wealth to agricultural products; he recognised that manufactured products –​including, for example, “silks, laces, trinkets, and expensive furniture” –​are “undoubtedly part of the revenue of the society”, which implies that, for Malthus and against the physiocrats, labour engaged in manufacturing can be productive of wealth. Malthus’s perception of the relatively lower level of productiveness of manufactures compared with agriculture did not prevent him from acknowledging that improvements in instruments of agriculture and improvements in manufacturing machinery added greatly to the produce of labour (Malthus [1798] 1926, 335, 308). Despite his concerns about the unhealthiness and poverty associated with manufacturing in towns, Malthus in the first edition of the Essay recognised that manufacturing had led to beneficial economic and political consequences: we probably should not now enjoy our present degree of civil liberty, if the poor, by the introduction of manufactures, had not been enabled to give something in exchange for the provisions of the great Lords, instead of being dependent upon their bounty. Even the greatest enemies of trade and manufactures, and I do not reckon myself a very determined friend to them, must allow, that when [trade and manufactures] were introduced into England, liberty came in their train. (Malthus [1798] 1926, 293–​294) He argued that people had been much more dependent 300 or 400 years ago. The recognition given in the 1798 Essay to the beneficial political and social consequences of manufacturing shows that Malthus’s attitude to manufactures in the 1798 Essay was not adamantly hostile; it presented mixed messages on

44  Manufacturing, machinery, and inventions manufacturing, with strong statements of its disadvantages, but also with significant statements of its advantages. In the 1798 Essay, and other early writings, his reasons for supporting manufactures were political, and social. As we will see, it was not until later editions of the Essay, and in other works, especially the Principles, that he began to state explicitly that manufactures are an important, and even a necessary, component of his theory of economic growth. As summarised by Donald Winch, Malthus held that the diffusion of commerce and manufacturing in Europe, a process that had gone furthest in Britain, had undermined the stagnation and servility of feudal society and created legal and political conditions favourable to economic growth, upward social mobility, and the diffusion of civil and political liberties. (in Malthus 1992, xviii) This transition has sometimes been noted in the secondary literature; for example, Malthus was “much more friendly to industry” in the second edition of the Essay, and attached greater importance to manufactures and commerce in his later writings (Spengler 1945, 101, 102). M. A. Akhtar (1973, 78) argued that technological progress is an essential component of Malthus’s model of progress, and that Malthus “presented one of the most significant treatments of technological change in the classical period”. Geoffrey Gilbert (1980, 84) has said that the Essay in later editions was “purged of its anti-​manufacturing overtones”. George N. von Tunzelmann (1986, 85) described Malthus’s attitude to manufacturing in the 1798 Essay as “blatant hostility”, but argued that in later editions Malthus shifted to “increasing if restrained support” for manufacturing. And Ingrid Rima has observed that in later editions of his Principles Malthus “became increasingly cognizant of the fact that industrialization also contributed to maintaining and enhancing the effective demand for labor” (Rima 1991, 133). In the following statement in the Principles, Malthus provided a general summary of his views on the advantages of manufacturing. He argued that improvements in machinery had been instrumental in generating an astonishing increase in England’s wealth: I have already shewn [sic] that the saving of labour [from improved machinery], and the increase of skill, both in agriculture and manufacturing industry, by enabling a country to push its cultivation over poorer lands, without diminution of profits, and to extend far and wide the markets for its manufactures, must tend to increase the exchangeable value of the whole; and there cannot be a doubt that in this country they must have been the main sources of that rapid and astonishing increase in the value of the national wealth, which has taken place during the last thirty or forty years. (Malthus 1989b, I, 422)

Manufacturing, machinery, and inventions  45 He also argued that in New Spain “the general introduction of manufactures had opened channels for domestic industry” (Malthus 1989b, I, 390–​391). The strongest summary statement by Malthus on the advantages of manufacturing is probably the following in his Observations on the Effects of the Corn Laws, 1814: Yet though the condition of the individual employed in common manufacturing labour is not by any means desirable, most of the effects of manufactures and commerce on the general state of society are in the highest degree beneficial. They infuse fresh life and activity into all classes of the state, afford opportunities for the inferior orders to rise by personal merit and exertion, and stimulate the higher orders to depend for distinction upon other grounds than mere rank and riches. They excite invention, encourage science and the useful arts, spread intelligence and spirit, inspire a taste for conveniences and comforts among the labouring classes; and, above all, give a new and happier structure to society, by increasing the proportion of the middle classes, that body on which the liberty, public spirit, and good government of every country must mainly depend. (Malthus 1815a, 31) By encouraging the middle classes and adjusting the relative positions of the social classes, manufacturing would become an antidote to a dominating upper class; he referred to “the superior riches of those countries where merchants and manufacturers abound, compared with those in which the retainers of a court and an overgrown aristocracy predominate” (Malthus 1989b, I, 34; “overgrown” was changed to “feudal” in the second edition). It would also promote a desirable growth of the middle class: “the existence of manufacturers or merchants, wholesale dealers and retail dealers” encourages “an increasing accumulation of capital” and a taste for material objects, creating a middle class with “wealth and consequence” (Malthus 1989b, I, 35; II, 31; in the second edition “the existence of ” was followed by “a much greater number of ”). With the progress of cultivation and wealth, the cost of producing corn and the price of corn will increase, and the corn wages of the labourer could fall, but the fall will be counterbalanced by the fact that the reduction in the price of manufactures and foreign commodities will enable the labourer to purchase more conveniences (Malthus 1989a, II, 85). The increased wealth of the lower classes “may fully counterbalance” the disadvantages experienced in the manufacturing process (Malthus 1989a, II, 85–​86), but this beneficial outcome would also depend on the existence of a strong agricultural sector: “in a large landed nation, the evils which belong to the manufacturing and commercial system are much more than counterbalanced by its advantages, as long as it is supported by agriculture” (Malthus 1989a, II, 70). Also in the 1803 edition of the Essay he envisioned and welcomed the possible benefits, even if they did not frequently occur, of “improved skill and

46  Manufacturing, machinery, and inventions machinery”, combined with “an increased taste for manufactures” and the employment of “a greater commercial labour” (Malthus 1989a, II, 77–​78). A further benefit of manufactures is that they help to motivate landholders to divide and cultivate their estates: “Without the excitements rising from the results of [trade and manufactures], no sufficient motives could be presented to [great landholders] either to divide their great estates by sale, or to take care that they were well cultivated”. Without this motivation from trade and manufactures, most of the states of Europe would be “comparatively unpeopled” (Malthus 1989b, I, 409; slightly altered in the second edition of the Principles; see 1989b, II, 26) Manufacturing was also commended because of its productiveness. A new footnote in the 1803 edition of the Essay (continued in later editions) firmly asserted the productiveness of manufactures: “there is one point of view in which manufactures appear greatly to add to the riches of the state”. If there is a “judicious employment of manufacturing capital”, manufactures will become considerably cheaper, and “the real revenue of the nation is virtually increased” (Malthus 1989a, I, 394–​395; slightly altered in the 1807 and later editions). The second edition (1803) of the Essay contained a statement that casts doubt on the productiveness of manufactures: manufactures, strictly speaking, are no new production, no new creation, but merely a modification of an old one, and when sold must be paid for out of a revenue already in existence, and consequently the gain of the seller is the loss of the buyer. A revenue is transferred, but not created. (Malthus 1989a, I, 391) However, that statement was omitted from the third (1806) and subsequent editions of the Essay. He did not explicitly countermand the argument, but its omission might indicate that he had become more pro-​manufacturing. The growth of manufacturing was also seen as a contributing factor in the solution of the population problem. The expansion of manufacturing would occasion “a more rapid increase of wealth than of population” (Malthus 1989a, II, 79). He also argued in the Principles that manufacturing would make a desirable reduction in the relative proportion of menial servants. If in one country a large proportion of the population are manufacturers and merchants, and if in another country a large proportion are menial servants and soldiers,“the former might have all the indications of wealth, and the latter all the symptoms of poverty” (Malthus 1989b, I, 36; II, 32). As noted above, he recognised and deplored the ill-​effects of the growth of manufacturing industry on the health and morality of workers, but he was by no means opposed to manufacturing as such. Once again employing a counterbalancing methodology, he argued that these disadvantages could be offset by its advantages, such as the increased wealth of the lower classes and the destruction of “the pernicious power of the landlords” (Malthus 1989a, II, 84),

Manufacturing, machinery, and inventions  47 a statement that belies the view that he was an apologist for the landed classes. The strength of his pro-​manufacturing statements is such that he could just as easily be described as a biased apologist for manufacturers –​although that also would be an unwarranted exaggeration. He stressed the civilising effects of manufacturing: I should be much misunderstood, if, from any thing I have said in the four last chapters, I should be considered as not sufficiently aware of the advantages derived from commerce and manufactures. I look upon them as the distinguishing characteristics of civilization, the most obvious and striking marks of the improvement of society, and calculated to enlarge our enjoyments, and add to the sum of human happiness. No great surplus produce of agriculture could exist without them, and if it did exist, it would be comparatively of very little value. However, he also added: “But still they are rather the ornaments and embellishments of the political structure than its foundations” (Malthus 1989a, I, 430). The growth of manufacturing was also encouraged for reasons of national security; it would develop military capability, promote exports of manufactures, and generate foreign currency to pay for foreign mercenaries. In a letter to Thomas Chalmers (18 January 1827. Manuscript held at New College Library, University of Edinburgh), Malthus stressed the military and strategic advantages of machinery: I feel strongly persuaded that without our manufacturing prosperity, we should not have had the same disposeable [sic] population, and certainly not the same power of commanding the labour, the provisions, and the armies of Europe.We might have driven Buonaparte [sic] from the country if he had invaded us, but we could not have driven him out of Spain. The strategic advantages of manufacturing are also emphasised in the Essay (1803 and later editions): “In carrying on the late war, we were powerfully assisted by our steam-​engines, which enabled us to command a prodigious quantity of foreign produce and foreign labour” (Malthus 1989b, I, 409, 577). It is interesting to see how the national security argument was used by Malthus to encourage both domestic agriculture (with assistance from the Corn Laws) and domestic manufacturing. For national security, and for other reasons, Malthus appears to have been as eager to encourage home manufacturing as to encourage home agriculture. He welcomed machinery, not only as a work-​creating force, but also as a force for the creation of leisure, and for encouraging the provision of personal services: In the fertility of the soil, in the powers of man to apply machinery as a substitute for labour, and in the motives to exertion under a system of

48  Manufacturing, machinery, and inventions private property, the great laws of nature have provided for the leisure of a certain portion of society; and if this beneficent offer be not accepted by an adequate number of individuals, not only will a positive good, which might have been so attained, be lost, but the rest of the society, so far from being benefited by such self-​denial, will be decidedly injured by it. (Malthus 1989b, I, 463–​464i) But in extolling the benefits of manufacturing, Malthus did not depart from his customary counsel of moderation. He rejected the view that manufactures and commerce are almost the sole cause of England’s wealth; he saw them more as consequences than as causes, adding “no error is more frequent than that of mistaking causes for effects” (Malthus 1989a, I, 395). He warned of the dangers of becoming excessively dependent on manufacturing. In his Observations on the … Corn Laws (1814) he said: “it does not follow that the manufacturing system may not be carried to excess, and that beyond a certain point the evils which accompany it may not increase further than its advantages”. This was followed by a statement of the fundamental methodological principle pervading his economics –​“the doctrine of proportions” (Malthus 1815a, 31–​32).

Division of labour Adam Smith started the Wealth of Nations with comments on the division of labour, and Malthus thought of himself as a follower of Adam Smith. It therefore seems appropriate to introduce into this study of the macroeconomics of Malthus his comments on the division of labour. Unlike Adam Smith, Malthus did not devote a particular chapter or section to the division of labour and did not treat the division of labour in a systematic manner. One possible reason for Malthus’s decision not to provide a formal treatment might have been that he thought that Adam Smith had said enough on the topic. In fact he thought Adam Smith had attached too much significance to the division of labour. In his lectures to students at the East India College, Malthus was reported to have said that, whereas Lauderdale underrated the division of labour, “Adam Smith seems to attribute too much to the division of labour” (in Pullen 1981, 804); and Malthus in his evidence before the Parliamentary Select Committee on Artizans and Machinery (Malthus 1824b, 599) expressed reservations about the principle of the division of labour. He agreed that the division of labour contributes “very essentially to diminish the cost of producing goods … as far as it can be carried with advantage”, but he also said “there are limits to the advantages derived from the division of labour, they could not continue to increase just in proportion to the extent of capital or to the extent of demand for the particular goods”. Referring to Adam Smith’s pin-​making example, Malthus said “there is a limit to the division of labour”, because “there cannot i In the second edition of the Principles “great laws” was changed to “laws”, and “leisure” was changed to “leisure or personal services”.

Manufacturing, machinery, and inventions  49 be above a certain number of operations to produce the article in the best possible manner”. When asked by the Select Committee whether capital is the principal cause of the division of labour, he replied “That and demand certainly” –​a reply that reflects his insistence on the causal importance of demand, as well as capital, in economic growth. Some commentators have noted that Malthus recognised the advantages of the division of labour, but have argued that it did not enter in any analytical manner into his theory of growth. For example, Joseph Spengler (1971, 5) thought that Malthus said little about the division of labour, and did not follow Adam Smith in treating the division of labour “as a productive force countervailing the adverse effects of population growth”; and Anthony Waterman (2012, 426) has said that although there are a few scattered references to the division of labour in Malthus’s Principles, Malthus “makes no analytical use of the concept”. Malthus warned of the dangers to national security from excessive division of labour in international trade; if a country were to concentrate on manufactures, and the export of manufactures, and to rely on foreign countries for food, it would suffer great distress if its source of food were to be curtailed; and if Europe could raise a population “greater than its lands could possibly support, the consequences ought justly to be dreaded” (Malthus 1989a, II, 64). However, despite these reservations, and despite the fact that by comparison with Adam Smith, the division of labour receives relatively little attention in Malthus’s writings, Malthus clearly agreed with Adam Smith on the benefits and importance of the division of labour. He spoke of “all the wonders described by Adam Smith, as resulting from the division of labour” and he used that argument to oppose an excessive division of land, which he said “would cause these wonders to cease” (Malthus 1989b, I, 432). In the second edition of the Principles, “all the wonders” was altered to “most of the wonders” (Malthus 1989b, II, 269); and “would cause these wonders to cease” was altered to “and would destroy all the benefits to be derived from the accumulation of capital and the division of labour” (Malthus 1989b, I, 9). He commended Smith for “all the pains he has taken in explaining the nature and effects of commercial capital, and the division of manufacturing labour” (Malthus 1989a, I, 395). He observed that in Sweden one of the causes that impede the progress of cultivation is the “very great distance of the markets in Sweden, and a very incomplete division of labour which is almost a necessary consequence of it” (Malthus 1989a, 1, 164). He noted that “a more judicious division of labour in manufactures”, together with “the introduction of new machinery”, would very greatly increase the quantity of manufactures, and lead to a reduction in their price, and to “the great extension of the demand for them both abroad and at home” (Malthus 1989b, I, 130, 170; in the second edition of the Principles, “new” was altered to “improved” (1989b, II, 165). He declared that “any change which is unfavourable to accumulation, enterprize, and the division of labour, will be unfavourable to the progress of wealth” (Malthus 1989b, I, 440).The connection between the division of labour and productivity was again stressed in an alteration in the

50  Manufacturing, machinery, and inventions second edition of the Principles which referred to “that division of labour, and extended use of machinery, which is so wonderfully increases the productive powers of human industry” (Malthus 1989b, II, 27). In these comments it is clear that Malthus regarded the division of labour as an integral analytical component of his theory of demand and his theory of the progress of wealth. They seem to establish a clear causal connection between the division of labour and the progress of agriculture and manufacturing. It is interesting to note that Malthus did not explicitly either agree or disagree with Adam Smith’s views on the possible stultifying effects of the division of labour; for example, he did not comment on Adam Smith’s statement that the division of labour makes the labourer as stupid and ignorant as it is possible for a human being to become. James Bonar said that Malthus “never wrote any description of the evils of division of labour at all so strong as Adam Smith’s” ([1885] 1924, 296).

Machinery and inventions Given that Malthus firmly favoured manufacturing, it would be no surprise to find that he spoke enthusiastically of the role and benefits of machinery, inventions, and technical change as causes of economic growth. He welcomed “the processes of abridging human labour” and looked forward to their future extension: “one might even venture to indulge a hope that at some future period … all the wants of the most wealthy society” might be supplied “with less personal labour than at present”, and might “diminish the number of those employed in severe toil” (Malthus 1989a, II, 194). In the 1817 Essay he spoke with particular fervour of “the admirable machinery” used in cotton spinning in Britain. It had permitted the cotton trade to extend “so wonderfully during the last twenty-​four years”. In terms verging on the rhapsodic he commended the “prodigious advantage derived from skill and machinery” in the cotton industry in Britain (Malthus 1989b, I, 422), the “prodigious” increase from improved machinery in the “whole value” of the cotton produce of England, and the very great increase in the demand for labour in the cotton business “during the last forty years” (Malthus 1989b, I, 262; slightly altered in the second edition, with “forty years” changed to “fifty years”). All the inhabitants of Britain have been enabled to obtain superior fabric or clothing at less expense; the high profits have enabled a greater accumulation of capital, and a great demand for labour; and extending markets abroad and at home had created a demand for the products of “every species of industry, agricultural and colonial, as well as, commercial and manufacturing” (Malthus 1989a, II, 33). The advantages of machinery were also implicit in his reference to “the powerful effects which must inevitably be produced by the proportion which capital bears to labour” (Malthus 1989b, I, 312; II, 234; in the second edition of the Principles “capital bears” was altered to “capital and labour bear”). He believed that “the saving of labour” by the development of machinery and “the

Manufacturing, machinery, and inventions  51 increase of skill, both in agriculture and manufacturing industry” had meant the profitable extension of cultivation to poorer lands, the extension of markets for manufactures, and an increase in the “exchangeable value of the whole”; they were “the main sources of that rapid and astonishing increase in the value of the national wealth, which has taken place during the last thirty or forty years [preceding 1820]” (Malthus 1989b, I, 422). He also believed that the introduction of “good” or “improved” machinery could have beneficial effects for the employment and wages of labour. If it resulted in cheaper products, an extension of the market for the products, and an increase in the value of the “whole mass”, then, “notwithstanding the saving of labour, more hands, instead of fewer, are required in the manufacture” (Malthus 1989b, I, 402); it would create more employment and would also provide the labourer with “a greater quantity than before of the produce obtained, though not necessarily a greater proportion of it” (Malthus 1989b, II, 57, 328; original italics). He did not explicitly state whether labour’s proportion would remain constant or whether it might fall. In a spirited exchange of letters with Ricardo in mid-​1815 on the question of the effects of improvements in the “facility of production” –​which presumably meant or included the introduction of inventions and improvements in machinery –​Malthus argued in a letter of 1 May 1815 that the effects “would go exclusively to wages, not profits”; they mainly affect “the real wages of labour, and not the rate of profits” (in Ricardo 1973,VI, 224–​225) –​a cryptic proposition, which could be interpreted as a denial of shared incidence of the benefits of machinery, and which would have benefited from elucidation. Did “real wages” refer to the per capita rate of wages, or to an increase in total wages because of increased employment? Did “profits” and “the rate of profits” refer to profits as a percentage of the capital invested in the improved machinery, or to profits as a proportion of total revenue, or to profits as an amount of money? It is unlikely that the statement that the rate of profits would not be affected by the improved machinery was intended by Malthus to mean there would be no benefits in the form of increased profits for the manufacturers. Such an interpretation would mean that they had acted without adequate financial motive. I suggest that a more likely interpretation of Malthus’s cryptic statement is that there would be a shared incidence of the benefits of machinery between labourers and employers, but that the “rate of profits”, understood as the percentage return on capital invested, would not be affected, because although there would be an increase in the amount of profits, it would not result in a percentage increase when measured against the increase in the capital invested in the new machinery. This interpretation would be consistent with Malthus’s views on the uniformity of profits, as discussed in Chapter 8. His optimism with regard to machinery is clearly evident in an addition to the second edition of the Principles: “In the actual state of things therefore, there are great advantages to be looked forward to, and little reason to apprehend any permanent evil from the increase of machinery” (Malthus 1989b, II, 263). Further evidence of his positive attitude to manufactures and machinery can be seen in his comments on Simonde de Sismondi, Robert Owen, and

52  Manufacturing, machinery, and inventions David Ricardo. Of Sismondi, he said “I can by no means go with him in the fears which he expresses about machinery” (Malthus 1989b, I, 420), and “it appears to be not a little extraordinary that I should sometimes have been classed with Mr. Sismondi as an enemy to machinery” (Malthus 1989b, II, 261, 445). Malthus was probably responding here to an article by J. R. McCulloch in the Edinburgh Review (1821, March, 104) alleging that Malthus and Sismondi were “the principal supporters of the new doctrines” which questioned the advantages of improvements in machinery. Of Owen, he said “I do not share in the apprehensions of Mr. Owen about the permanent effects of machinery” (Malthus 1989b, I, 365). He agreed with Ricardo “in approving all saving of labour and inventions in machinery”, but he disagreed with Ricardo’s view that the introduction of machinery would result in the unemployment of labour. His reason for disagreeing with Ricardo (on this point) was the tendency of machinery “to increase the gross produce and to make room for a larger population and a larger capital” –​a reason that would surprise those who think Malthus’s sole purpose in life was to curtail population (Malthus 1989b, I, 426). Malthus’s references to inventions have not always been accorded adequate attention by commentators. For example, it has been said that in Malthus’s Essay and Principles “there is some mention of inventions but they do not play any essential role in the argument”, and that he “mentions technical change without giving it a central role” (Brewer 1991, 9). It has also been said that in Malthus there is a “rejection of ‘fertility of the soil’ and ‘new inventions’ as potential stimuli” (Hollander 1997, 567). However, inventions appear to have been given significant recognition and to have played an essential role in the Principles, particularly in Chapter VII, Section V, “Of Inventions to Save Labour, Considered as a Stimulus to the Continued Increase of Wealth” (Malthus 1989b, I, 401–​413; renumbered Book II, Chapter I, Section 5, 351–​360, in the second edition of the Principles). The word “invention” appears not infrequently in Malthus’s writings –​for example, the “invention of improved machinery” (Malthus 1989a, II, 46); “Inventions, which substitute machinery for manual exertions” (Malthus 1989b, I, 402); and the “ingenuity … exercised in the invention of machinery” (Malthus 1989b, I, 408). In concluding Section V of the Principles, he stated “Like the fertility of land, the invention of good machinery confers a prodigious power of production” and the “three great causes most favourable to production are, accumulation of capital, the fertility of soil, and inventions to save labour” (Malthus 1989b, I, 412–​413). He specifically approved of “all saving of labour and inventions in machinery” (Malthus 1989b, I, 426n). And the concept of invention is implicit in numerous references, such as “improvements in machinery” (Malthus 1989a, II, 41), “improvements in manufactures”, and “the use of better instruments” in agriculture (Malthus 1989a, II, 46). Denis O’Brien has argued that Malthus (and Adam Smith and most of the classical economists) had a “comparative neglect” of inventions; and has commended McCulloch as a notable exception for his recognition of the importance of inventions: “McCulloch more than any other economist saw an

Manufacturing, machinery, and inventions  53 almost limitless prospect of invention implying an almost equally limitless prospect of growth” (O’Brien 1970, 277). McCulloch’s enthusiasm for the limitless prospects of invention was similar to the optimism expressed by Malthus for the development and application of new machinery. Malthus saw unending possibilities for growth through the application of new machinery, on the proviso that it was accompanied by improvements in agriculture and by adequate distribution of its demand-​ creating benefits. As the development of new machinery is synonymous with invention, it would be reasonable to conclude that, at least on this issue, Malthus and McCulloch were in unusual agreement. There is thus ample evidence that Malthus saw inventions and machinery as major causes of the growth of national wealth.

Establishment and survival of manufacturing Malthus was aware of the difficulties of establishing manufactures, and of the difficulties facing the survival of manufacturing enterprises in a competitive market, especially when faced with foreign competition. One of the arguments he used in support of the Corn Laws was the insecurity, instability, and uncertainty that British manufacturers would experience when other countries expanded their own manufacturing capabilities. He seems to have had no doubt that the strength of the desire of other countries to better their own condition would lead to their industrialisation. If the Corn Laws were to be abolished or altered so as to permit cheaper imports of corn, and if Britain relied on its manufacturing exports to obtain sufficient corn, Britain’s economic situation would become hazardous when other countries developed their manufacturing potential. If the revenue from British exports of manufactures declined when foreign countries produced their own manufactures, Britain’s power to purchase corn from foreign countries would also decline, leading to food shortages and higher food prices in Britain. Furthermore, if the growth of manufacturing in foreign countries led to an increase in their population, they would need more food for their own people, and less food would be available for export to Britain, thus exacerbating food shortages and food prices in Britain. Britain would be required to grow more of its own food. A serious deficiency and a questionable aspect of his case for the Corn Laws must surely be his view of the difference between the rate of increase of the price of manufactures, and the rate of increase of wages. In his view, when corn prices rise, the prices of manufactured products will not rise as fast as the prices of agricultural products and wages, so that labourers would be able to purchase products other than food, and would therefore be better off in a regime of high corn prices. This seems to have overlooked the fact that when wages are at or near subsistence level, wages must increase quickly in proportion to food prices; otherwise, within a short period of time, there would be no more workers left alive. Whether and how quickly higher wage costs cause manufacturers to raise prices of manufactured goods would depend on whether they could

54  Manufacturing, machinery, and inventions meet the higher wage costs without causing their profits to fall to unacceptable levels, and on whether the percentage increases in the prices of manufactured products would occur without a greater percentage reduction in sales. Malthus’s opinion that prices of manufactured goods would not rise quickly and proportionately with increases in food prices and wages, is not as compelling as he seems to have believed. In his evidence before the Select Committee on Emigration, 1827, he argued that the growth of manufacturing could stimulate wages. Replying to a suggestion that emigration of labourers could cause an increase in the wages of those who remain, and therefore a decrease in the rate of profits, to the detriment of capitalists, he said that “there would be, I should hope, some rise in the price of labour”, and “it is in fact the object of the emigration to improve the condition of the remaining labourers”, but he also believed that this detriment to profits “might, undoubtedly” be overcome by the introduction of machinery. His evidence before the Select Committee also contained an interesting comment on the relation between prosperous manufacturing and good wages. He agreed that the wages of labour in manufacturing form “a very important part of the market for manufactured goods of a cheap kind”, and he also agreed that manufacturing would be only partially prosperous if the labouring classes were not receiving “good wages” (Malthus 1827b, 316–​317. Questions 3274, 3286, 3287). In discussing the effect of machinery on the price of the produce and on the total value of the produce –​that is, “on the value of the whole mass of goods” –​Malthus made use of the concept of what is now called price elasticity of demand. He said: When a machine is invented … the most usual effect is such an extension of the demand for the commodity, by its being brought within the power of a much greater number of purchasers, that the value of the whole mass of goods made by the new machinery greatly exceeds their former value. (Malthus 1989b, I, 402) Whether such an extension of the market occurs will depend on “circumstances” or “a contingency” (Malthus 1989b, I, 403, 577) –​namely, whether the commodity is “of such a nature, that its consumption can extend with its cheapness”; in other cases, the increase of wealth derived from the new machinery is “neither so great nor so certain … still however it may be highly beneficial” (Malthus 1989b, I, 402–​403). If Malthus’s words are translated into modern terminology, he appears to have been saying that, when the use of machinery results in cheaper products, the reduction in the value of each product would be overbalanced by the increase in the quantity of products sold, and if the percentage increase in the quantity is greater than the percentage reduction in price, the total value of the produce –​or, as he called it, “the whole value” –​would increase; the price elasticity of demand would be greater than unity. He seems to have believed that this “contingency” would be the “natural” situation: “The natural tendency

Manufacturing, machinery, and inventions  55 of machinery is, by cheapening the commodity produced, so to extend the market for it, as to increase its whole value” (Malthus 1989b, I, 577). This contingency situation was challenged by McCulloch, who argued that “the advantages attending the introduction of machinery do not, as Mr. Malthus supposes, at all depend on the market extending in proportion to the reduction in the price of commodities” (McCulloch 1821, 112). But it was Malthus’s view that the introduction of machinery does in fact occasion such extensions of the market for the products: from the introduction of new machinery, and a more judicious division of labour in manufactures … it almost always happens … not only that the quantity of manufactures is very greatly increased, but that the value of the whole mass is augmented, from the great extension of the demand for them both abroad and at home, occasioned by their cheapness. (Malthus 1989b, I, 170–​171ii) He also said: “in most of our great manufactures, the extension of demand, owing to the cheapness occasioned by machinery, has greatly increased the whole value as well as a whole quantity of the produce” (Malthus 1989b, II, 262). In a letter to Ricardo on 16 July 1821, Malthus said –​referring to the new chapter, “On Machinery”, inserted by Ricardo in the third edition (1823) of his Principles –​“I quite agree with you in the theory of your proposition”, but he added: “practically I think that the cases are very rare in which for any length of time the gross produce is diminished by machinery” (in Ricardo 1973, IX, 18). Ricardo’s new chapter contained the view that the introduction of machinery could have adverse effects on production. Unfortunately, Malthus in this letter did not elaborate on the precise points of his disagreement with Ricardo. One possible interpretation of Malthus’s position in this letter is that, in his view, machinery would be introduced only in situations where it was expected that the demand for the cheaper products would increase, and hence that total revenue would increase. In the 1817 edition of the Essay Malthus warned of “the immediate effects that attend a great predominance of a manufacturing population, such as increased unhealthiness, increased turbulence, increased fluctuations in the price of corn, and increased variableness in the wages of labour” (Malthus 1989a, II, 65). But it is significant that these dire warnings were directed not at the manufacturing system as such but against unbalanced development, or “a great predominance” of manufacturing.

Balance between manufacturing and agriculture As Geoffrey Gilbert has shown, the Essay in later editions recognised that, with economic growth, consumption of manufactures by the poor may be ii In the second edition of the Principles “new machinery” was changed to “improved machinery”.

56  Manufacturing, machinery, and inventions both possible and desirable; it could inspire them with a taste for comforts and conveniences, and persuade them “to substitute comforts for children”. This is not to say that over the course of successive editions of the Essay, Malthus developed a pro-​manufacturing bias; rather “it would be closer to the mark to say that this suggests the emergence in Malthus’ thinking of a more balanced view of industrial and agricultural growth as potential contributors to working class welfare” (Gilbert 1980, 95–​96). Malthus argued that the harmful economic and social effects of an excessively dominant manufacturing population could be remedied by “restricting the importation of foreign corn, and making agriculture keep pace with manufactures”, and thus maintaining “a more equal balance between the agricultural and commercial classes” (Malthus 1989a, II, 65). His support for the Corn Laws has sometimes been seen as an attempt to safeguard or promote the interests of landlords, but it would seem rather that they were motivated by a search for macroeconomic balance, rather than a physiocratic-​inspired plea for agricultural dominance. Although he recognised that an excessive growth of manufacturing can be a threat to agriculture, he also recognised that a prosperous manufacturing industry can be a stimulus to agricultural production. A great increase in the value of manufactures exported to foreign countries would bring back a great increase of value in return, which increase in value could not fail to increase the value of the raw produce. The demand for agricultural as well as manufactured orders would be augmented; and a considerable stimulus … would be given to every kind of improvement on the land. (Malthus 1989b, I, 170; altered slightly in the second edition) The stimulus given to agriculture by manufacturing can also occur through the impact of manufacturing on higher wages: from the introduction of new machinery, and a more judicious division of labour in manufactures … it almost always happens … not only that the quantity of manufactures is very greatly increased, but that the value of the whole mass is augmented, from the great extension of the demand for them both abroad and at home, occasioned by their cheapness. It can lead to advances in the wages of both commercial labour and manufacturing labour, and an increase in the price of corn; an advance in the price of agricultural labour will follow (1989b, I, 170–​171; II, 165). In a letter to R. J. Wilmot-​Horton on 23 August 1830, he agreed that a combination of commerce and manufacturing with agriculture is necessary if adequate employment is to be generated, and that agriculture alone will not be a sufficient source of employment: “It is in the very nature of things that

Manufacturing, machinery, and inventions  57 agricultural industry, with little aid from commerce and manufactures, must always produce a large proportion of unemployed population” (see Ghosh 1963, 55). The introduction of manufacturing would be of benefit to countries such as Ireland, where agricultural areas are overpopulated, and population is greatly in excess above the demand for labour … The Land in Ireland is infinitely more peopled than in England; and to give full effect to the natural resources of the country, a great part of this population should be swept from the soil into large manufacturing and commercial Towns. (Letter of 17 August 1817 to Ricardo; Ricardo 1973, VII, 175; original emphasis) In arguing for a balance between agriculture and manufacturing, Malthus stated: “The countries which thus unite great landed resources with a prosperous state of commerce and manufactures, and in which the commercial part of the population never essentially exceeds the agricultural part, are eminently secure from sudden reverses” (Malthus 1989a, II, 43). Blaug ([1958]1973, 95) interpreted this to mean that, according to Malthus, the ideal state is one in which the commercial part of the population never essentially exceeds the agricultural. But if we accept that it was Malthus’s aim to advocate a balance between manufacturing and agriculture, he could be interpreted as saying that an ideal state is not necessarily one where manufacturing does not exceed agriculture; it might be one where agriculture does not exceed manufacturing. For Malthus, the preferred situation is not defined by incorporating only one of those two conditions. To achieve sectoral balance between agriculture and manufacturing, and to prevent an excess of manufacturing, Malthus argued for an expansion of agriculture –​in particular, by a continuation of the Corn Laws –​but it is significant that he did not argue for a reduction in the existing level of manufacturing, or for a slowing down in the growth of manufacturing. In an extraordinary prediction, bordering on Godwinian utopianism, Malthus said that if a balance between manufacturing and agriculture had been maintained, England’s wealth could have gone on increasing in theory for “thousands of years”: “There is no discoverable germ of decay in the system”. With increasing agricultural production, “There is no apparent limit to the quantity of manufactures which might in time be supported” (Malthus 1989a, I, 400).

Superiority of agriculture over manufacturing Nevertheless, despite his numerous assertions of the productiveness of manufactures, and despite his call for a balance between agriculture and manufactures, Malthus seems to have retained a belief in the superiority of

58  Manufacturing, machinery, and inventions agriculture over manufacturing. He did not see his belief in the productiveness of manufacturing as inconsistent with a belief in the superior productivity of agriculture: “To establish the very great importance of manufactures it is not necessary to deny the superior importance of food and raw materials” (Malthus 1824a, 306). In a biological sense, Malthus was of course right; without food there would be no manufacturing; but in an economic sense, it is difficult to accede to his view that while manufacturing is productive, agriculture is more productive. In the second (1803) and later editions of the Essay he based this superiority on grounds of health, happiness, and security of employment; he argued that, if the greater proportion of the labouring poor become employed in manufactures, and fewer in agriculture, this exchange of professions will be allowed, I think by all, to be very unfavourable in respect of health, one essential ingredient of happiness, and also with regard to the greater uncertainty of manufacturing labour, arising from the capricious taste of man, the accidents of war, and other causes, which occasionally produce very severe distress among the lower classes of society. (Malthus 1989a, I, 382; slightly altered in the 1806 Essay) Also in the 1803 Essay he argued –​far from persuasively –​for the superiority of agriculture on the grounds that agricultural activity pays its expenses from its own funds, but manufacturing has to pay the employees from existing funds, and their wages have to be deducted from the sales revenue before calculating national profit (Malthus 1989a, I, 406–​407; slightly rewritten in the 1806 Essay). The first edition (1820) of the Principles included a reference to “the natural pre-​eminence of agriculture”. This was omitted from the second edition, as part of a 14-​page omission of his discussion of the concept of scale of productiveness; its omission does not necessarily mean a change of opinion on the superiority of agriculture over manufacturing (Malthus 1989b, I, 39; II, 33, 306–​308). The claim of agriculture’s greater profitability was even more strongly affirmed in Malthus’s article in the Quarterly Review: “a given quantity of labour employed on the land, taking an average of the rich and poor land together, is actually productive of a greater value and revenue than the same quantity of labour employed in manufactures” (Malthus 1824a, 306; original italics). Agreeing with Adam Smith, and invoking the metaphor of a watch, Malthus defended the superiority of agriculture by arguing that more importance should be attributed “to that species of industry which is the prime mover of the whole, and without which everything would stop”, in the same way as the main spring of a watch is “of more importance to its movement than some of the subordinate wheels, or its ornaments” (Malthus 1824a, 306). It seems true, as Ronald Meek noted, that Malthus retained to the end the physiocratic notion “that agriculture was superior to manufacture, that the

Manufacturing, machinery, and inventions  59 agricultural surplus held a key position in the economy” (Meek 1951, 252), but it is just as true that, in Malthus’s view, manufacturing also held a key position.

Manufacturing and economic growth In later editions of the Essay, as well as in the Principles, Malthus clearly stated the link between manufacturing and economic growth. For example, he described the “enriching power” of machinery as “prodigious” (Malthus 1989b, I, 577). He argued that the reason for poverty and want being greater in Scotland than in England was the greater proportion of towns and manufactories in England (Malthus 1989a, I, 282). In a further endorsement of manufacturing, he argued that one of the “very great natural and political advantages of England” was that her “numerous manufactures employ nearly all the hands that are not engaged in agriculture, and afford the means of regular distribution of the annual produce of the land and labour to the whole of her inhabitants” (Malthus 1989a, II, 144–​145; “nearly” was added in the 1806 Essay); and an addition to the second edition of the Principles stated that an increase in the production of manufactures will have beneficial effects on employment; by cheapening manufactures, it “enlarges the limits of the effective demand for labour, and renders it for a longer time effective” (Malthus 1989b, II, 208). In the 1817 Essay the role of manufacturing as a stimulus to demand and growth was illustrated by the case of Poland, where “the miserable effects of the agricultural system” arose from “the little encouragement given to industry of any kind, owing to the state of property and the servile condition of the people”. It was Malthus’s view that the best remedy for “this miserable state of things … would unquestionably be the introduction of manufactures and commerce, which could alone liberate the mass of the people from slavery and give the necessary stimulus to industry and accumulation”. Malthus recognised that if the people of Poland were “free and industrious, and landed property easily divisible and alienable”, Poland might still prefer to import manufactures in return for its agricultural exports, but the condition of the people would be much improved (Malthus 1989a, II, 29). As argued elsewhere (Pullen 2016a, 11–​ 15), and in Chapter 13, a key element of Malthus’s theory of growth was his emphasis on the need for a proper distribution of income, property, and wealth as a means of promoting effective demand, and thus promoting investment, production, and employment. He believed that manufactures would bring about a wider distribution of income, and a wider distribution would generate a more effective demand for manufactures: a large body of manufacturers and merchants can only find a market for their commodities among a numerous class of consumers above the rank of mere workmen and labourers. And experience shews[sic] us that manufacturing wealth is at once the consequence of a better distribution of

60  Manufacturing, machinery, and inventions property, and the cause of further improvements in such distribution, by the increase in the proportion of the middle classes of society, which the growth of manufacturing and mercantile capital cannot fail to create. (Malthus 1989b, I, 431iii) His insistence on the reciprocity of the relationship between manufacturing and agriculture, and between manufacturing and general growth is a distinguishing feature of his views on manufacturing, and one that has significant analytical implications. Manufacturing is seen not only as a concomitant or an effect of general economic growth, but also as a necessary cause of growth: “a very considerable admixture of commercial and manufacturing population with the agricultural is absolutely necessary” if there is to be “an adequate stimulus to the production of wealth from the soil” (Malthus 1989a, II, 70) –​thus placing manufacturing in an essential role in his theory of growth. The connection made by Malthus between manufacturing and general economic growth has not always been recognised. For example, according to Boyd Hilton, “Malthus wanted intervention (e.g. corn laws) to prevent too much capital from accumulating in the manufacturing sector” (Hilton 2006, 343). However, I think that Malthus’s objection to too much capital accumulating in the manufacturing sector was intended to apply only to a situation in which he considered manufacturing had been encouraged to grow excessively in proportion to agriculture. He did not object in principle to the growth of manufacturing; on the contrary he encouraged it, provided it kept in proportion with agriculture. It has also been said that “Malthus was torn between wanting manufacturing to expand in the hope that it might inhibit growth, and not wanting it to on the grounds that industry was socially deleterious” (Hilton 2006, 343; original emphasis). The textual evidence points in the opposite direction; it shows that, although he deplored the living conditions in manufacturing towns, Malthus encouraged manufacturing, if kept in proportion with agriculture, in the belief that it would foster growth. There thus seems to be abundant textual evidence that Malthus’s mature views on manufacturing became an integral part of his theory of growth and his theory of gluts, because of the influence of manufacturing on a wider distribution of income and on the raising of effective demand. But if it is true that manufacturing played a key role in Malthus’s theory of growth, is it also true that it played an essential role? Malthus described its role as “absolutely necessary” –​see the statement quoted above from Malthus 1989a, II, 70 –​and other textual evidence seems to support the view that it was a necessary component, although not the only necessary component, of his theory of growth. Malthus’s views on the effects of machinery were quite optimistic in both editions of the Principles, but a number of alterations in the second edition suggest that his views on this question were even more optimistic in the second than in the first. For example in the first edition he stated “there is little reason iii Slightly altered in the second edition, see II, 269.

Manufacturing, machinery, and inventions  61 to apprehend any permanent evil from the introduction of machinery”, in the second edition that statement was changed to “there are great advantages to be looked forward to, and little reason to apprehend any permanent evil …” (Malthus 1989b, I, 412). In the first edition, referring to the effect of the introduction of machinery on the demand for labour, he said “in general, therefore there is little to fear”; in the second edition this was altered to “there is no occasion therefore to fear” (Malthus 1989b, I, 264). In the first edition he said that the use of machinery would not greatly affect the wages of labour: “their remuneration would be nearly the same as before”; but the following optimistic comment was incorporated in the second edition: “under the influence of good machinery” the labourer would receive “a greater quantity than before of the produce obtained, though not necessarily a greater proportion of it” (Malthus 1989b, I, 81; original italics). However, these more optimistic tones in the second edition were tempered and balanced, in keeping with his usual practice, by a cautionary comment, concerning the transfer of capital from old to new occupations: To maintain that the same extent of benefit will result in all cases, and that there never can be the least difficulty in finding new employments for capital at the same profits, does appear to me, I own, an assertion equally contradicted by all just theory, and universal experience. (Malthus 1989b, II, 261, alteration 1. 403b; original italics) In his Principles, Chapter VII, “On the Immediate Causes of the Progress of Wealth”, he referred to five basic causes –​population, accumulation of capital, fertility of the soil, inventions to abridge labour, and the distribution of landed property. His inclusion of “inventions to abridge labour” would appear to be an attempt to show how his views on manufacturing are integrated, along with other components into his general theory of economic growth. In other chapters he recognised that an economy based mainly or primarily on agriculture would not by itself be capable of generating sufficient effective demand and sufficient employment for a constantly rising population. The agricultural sector, however richly endowed with natural resources, would need to be accompanied by a prosperous service sector and prosperous manufacturing and commercial sectors. He saw a prosperous manufacturing sector as an integral condition of sustainable growth, not just as an optional adornment. It would be necessary as a supplement to agriculture and as a cause of a prosperous agricultural sector.The strength of his arguments for manufacturing is such that it must surely be textually legitimate to interpret it is as an essential cause of growth.

Conclusion on manufacturing One of the strangest features in the history of commentaries on Malthus is the prevalence of the myth that he had an aversion to manufacturing. Although he deplored the hardships endured by factory workers in towns, there is clear

62  Manufacturing, machinery, and inventions evidence that he was very much in favour of the growth of manufacturing.The fact that he advocated policies favouring agriculture –​such as the continuation of the Corn Laws –​may have contributed to the widespread perception among commentators that he denied or underestimated the importance of manufacturing. His fundamental concern was the maintenance of an appropriate balance between agriculture, commerce, services, and manufacturing. In his judgement of the circumstances prevailing in Britain at the time, the balance had moved too far towards manufacturing, and needed to be redressed. The validity of this practical judgement might be debatable, but his arguments for the benefits of manufacturing growth, and for the principle of balanced growth in agriculture, commerce, services, and manufacturing, cannot be easily dismissed. Far from being opposed to, or indifferent to, the development of manufactures and machinery, Malthus can be seen from the textual evidence to have been particularly enthusiastic about them. He attributed to manufacturing an important and integral role as a stimulus to the development of employment, effective demand, the middle class, and general economic growth. The view that he ignored or underestimated the advantages of manufacturing, at least by comparison with Ricardo, might perhaps have stemmed from the fact that Ricardo added a new chapter entitled “On Machinery” in the third edition of his Principles, whereas Malthus had no separate chapter specifically or mainly concerned with machinery, and did not collect his thoughts on manufacturing into one specific place within his other chapters. Malthus’s views on manufacturing and machinery are dispersed through his writings, and their collective significance therefore is not easy to assess. This may have led to the mistaken perception that he was either opposed to manufacturing, or that he thought its effect on growth was insignificant, or that he was mainly concerned with agriculture. If he had conceived his Principles as a textbook of political economy, the abundant references to manufacturing, as cited above, would have provided sufficient material for an additional chapter, or an additional section, with a title such as “Of Manufactures, Considered as a Stimulus to the Increase of Wealth”, along with the other sections in Chapter VI, “Of the Immediate Causes of the Progress of Wealth”. He failed to write a specific chapter on manufactures, not because he had no thoughts on the question, but because his aim at that time was not to present a systematic treatise: “The present period … seems to be unpropitious to the publication of a new systematic treatise on political economy”. He apparently deemed it more advisable to publish a systematic treatise when “the different parts may then be combined into a consistent whole” (Malthus 1989b, I, 5; see also, I, xxxvi). Malthus’s publisher –​John Murray –​in a letter to Malthus on 3 January 1815, referred to Malthus’s intention to publish a volume of “detached remarks on the more interesting topics or political economy” (James 1979, 270). From the number of items listed by Murray for possible inclusion in the intended volume, and from the size of the payment offered by Murray (one thousand pounds), it seems likely that the

Manufacturing, machinery, and inventions  63 volume under discussion eventually became the Principles of Political Economy, and that Malthus had conceived it as “detached remarks” rather than a formal textbook. The importance given by Malthus to manufacturing indicates that any attempt to formulate a mathematical model of Malthus’s theory of growth would need to incorporate manufacturing as one of the causes of growth. A purely agricultural model would not do justice to the system. The overwhelming textual evidence makes it abundantly clear that the omission of manufacturing would result in a very incomplete model of Malthus. It might be a Malthus-​inspired model, or variations on a theme of Malthus, but unless it included, as essential elements, the causative role of manufacturing and its interdependence with the other sectors, it would remain a distorted version of Malthus’s thought. Malthus has sometimes been accused of altering his views sneakily and surreptitiously, without clear and public announcement. Even if such accusations of a disingenuous lack of candour could be justified in some instances, which I very much doubt, they would surely be difficult to sustain in the case of the development of his views on manufactures, where abundant evidence to the contrary, as listed above, shows that he could not have been more forthright and outspoken. The textual evidence thus does not seem to support the view that Malthus was antipathetic towards manufacturing, or that his theory of growth was based only or mainly on agricultural growth. On the contrary, it seems to have been as much based on manufacturing as on agriculture. He believed it was both normal and desirable for “most landed nations” to develop their own manufacturing and commerce: “According to all general principles, it will finally answer to most landed nations to manufacture for themselves, and to conduct their own commerce” (Malthus 1989a, II, 43).

5  Population growth and per capita economic growth

A widely held opinion is that Malthus saw growth of population as a threat to economic growth, because it would eventually require recourse to less fertile land with diminishing returns, leading to lower wages, higher food prices, and a stagnant or declining economy; for example, Werner Stark (1943, 88) referred to “the ever ill-​ boding Malthusian law of population”. Malthus has been complimented for having drawn attention to the possibility of an inverse relation between population growth and economic growth, or between numbers and prosperity: Malthus’s “great achievement was to suggest that numbers and prosperity, as goals and tendencies, may work not in harmony, but in opposition” (Poynton 1969, 151). It has been asserted that, according to Malthus, the general level to growth is negatively related to population size “due to diminishing returns to labour inputs on scarce agricultural land” (Lee 1986, 98). But Malthus also argued that there can be a direct relation between numbers and prosperity, and that population growth can exert a stimulating influence on economic growth, with this positive or optimistic tendency coexisting with the negative or pessimistic tendency –​yet another illustration of his recognition and deployment of the notion of counteracting causation as a methodological principle. Although he is rightly famous for his warnings of the dangers of excessive population, he firmly believed in the desirability of population growth, provided it was accompanied by the availability of food and other necessaries. With that proviso, he advocated population growth per se on humanitarian and theological grounds, linking it with his “growth-​of-​mind” vision of the human condition, as presented principally in the final two chapters of the first edition of the Essay. These humanitarian arguments for population growth have been discussed at length elsewhere (in Pullen 1992) and do not need to be repeated here. They are mentioned now merely in order to situate his economic arguments within their wider context. The main purpose of this chapter is to draw attention to Malthus’s reasons for holding that the growth of population is capable of exerting beneficial effects on per capita income and standards of living, and to present a critical assessment of his arguments. The writings of Malthus are frequently deployed by advocates of Zero Population Growth, but the writings of the ZPG movement rarely refer to Malthus’s pro-​population ideas.

Population and per capita economic growth  65

Economic benefits of population growth Although Malthus’s views on the harmful economic effects of excessive population are widely known, his arguments on the potential economic benefits of population growth are less well-​known, and are often ignored or denied or minimised. His pro-​population views can be clearly seen in the following selection of quotations: 1 “That a permanent increase of population is a powerful and necessary element of increasing demand, will be most readily allowed” (Malthus 1989b, I, 347; in the second edition of the Principles “permanent” was changed to “continued”). 2 “That an increase of population, when it follows in its natural order, is both a positive good in itself, and absolutely necessary to a further increase in the annual produce of the land and labour of any country, I should be the last to deny” (Malthus 1989a, I, 439). 3 Referring to countries with great landed resources, and a prosperous balance of commerce and manufactures, Malthus said “there is no reason to say that they might not go on increasing in riches and population for hundreds, nay, almost thousands of years” (Malthus 1989a, II, 43). That statement does not refer specifically to population growth as a cause of economic growth, but it does state that the two goals are not inconsistent, and that the growth of population does not preclude economic growth. 4 The compatibility of population growth and economic growth is reaffirmed in his assertion that “the two grand desiderata” are “a great actual population, and the state of society in which squalid poverty and dependence are comparatively but little known; which are far from being incompatible” (Malthus 1989a, II, 108–​109; in the 1817 edition of the Essay “squalid” was changed to “abject”). 5 This optimistic co-​existence of population growth and the growth of wealth is repeated in the statement that when a proper balance has been established in a country between food and population, “I can easily conceive that this country, with a proper direction of the national industry, might, in the course of some centuries, contain two or three times its present population, and yet every man in the kingdom be much better fed and clothed than he is at present” (Malthus 1989a, II, 110–​111). 6 In defending his support for the Corn Laws, he referred to the fact that the Corn Laws did not “prevent that degree of wealth and population which would naturally take place” (Malthus 1989a, II, 70), which does not explicitly state that population growth is a cause of economic growth, but which implies that population growth can co-​exist with the growth of wealth. 7 The coexistence of population growth and economic growth is also implicit in the statement: “the natural and regular progress of a country to a state of great wealth and population” (Malthus 1989a, II, 81).

66  Population and per capita economic growth 8 His belief that a larger population and a greater supply of food are not mutually exclusive is implicit in the statement: “it is an utter misconception of. my argument to infer that I am an enemy to population. I am only an enemy to vice and misery, and consequently to that unfavourable proportion between population and food which produces these evils” (Malthus 1989a, II, 205). 9 In reply to critics, he said “they proceed upon the very strange supposition that the ultimate object of my work is to check population, as if anything could be more desirable than the most rapid increase of population unaccompanied by vice and misery” (Malthus 1989a, II, 210; italics in original). 10 Malthus’s view that population growth can be a stimulus to economic growth can be seen in his statement that excessive prudential restraint with regard to marriage and procreation could have adverse economic impacts: “Prudential habits, among the labouring classes of a country mainly depending upon manufactures and commerce, might ruin it” (Malthus 1989b, I, 236; in the second edition of the Principles “Prudential habits” was altered to “Prudential habits with regard to marriage carried to a considerable extent”, and “ruin it” was altered to “injure it”). This comment by Malthus appears to have surprised Ricardo: “This is quite a new doctrine –​I shall have other opportunities of examining whether it be a true one” (Ricardo 1973, II, 221, note 140). 11 His belief in the possibility of a positive relation between population growth and economic growth is also implicit in the statement that an increase in the employment and pay of labourers “forms the true and healthy encouragement to the further increase of numbers” (Malthus 1989b, I, 451–​4520, although this was part of a three-​paragraph omission from the second edition of the Principles. However, in an Appendix as to the third edition (1806), and repeated in later editions of the Essay, Malthus confessed that he had perhaps overstated the rate of population growth that could be achieved without misery: On the possibility of increasing very considerably the effective population of this country, I have expressed myself in some parts of my work more sanguinely, perhaps, than experience would warrant. I have said that in the course of some centuries [this country] might contain two or three times as many inhabitants as at present, and yet every person be both better fed and better clothed … I have allowed the produce of the earth to be unlimited, which is certainly going too far. (Malthus 1989a, II, 210–​211) It is difficult to find commentators who cite pro-​population statements by Malthus, and even more difficult to find commentators who regard them as significant and integral components of Malthus’s theory of growth. Such

Population and per capita economic growth  67 statements cannot be easily reconciled with the popular anti-​population image of Malthus. One exception might be Joseph Spengler, who observed: For Malthus, “while population growth and the threat of population pressure were not direct sources of growth, they were indirect sources, being essential … to the overcoming of man’s inertia and torpor” (Spengler 1971, 11).This endorses the idea that there is a positive relation between population and growth, but it is a weak psychological or motivational relation, rather than one embodying enhanced productivity. In his unpublished work, “The Crisis”, written in 1797, Malthus said that “Increasing population is the most certain possible sign of the happiness and prosperity of a state”. The question to be discussed in this chapter is whether Malthus regarded population as a cause as well as a sign of prosperity. Many commentators argue that in Malthus there is a positive causal connection from economic growth to population growth, but some deny that in Malthus there is a positive causal connection from population growth to economic growth. For example, Edwin Cannan has been quoted as saying that Malthus “neglected entirely the increment of labour supplied by the increment of population” (quoted in Tunzelmann 1986, 71); and it has been said that Malthus “does not appreciate to the full the possible effects of an increase of population in maintaining or swelling the rate of increase in subsistence” (Haney 1949, 277). It was the view of Lord Robbins that in Malthus’s theory of population “no interaction between the population and the resources at its disposal is postulated … The part played by increasing numbers in increasing the produce –​even in its narrowest sense –​he leaves almost undiscussed” (Robbins 1927, 104–​105). Hollander (1969, 323) refers to the “well-​known rejection by Malthus in the Principles of population increases as a stimulus to increased wealth”. Malthus has been interpreted as predicting that population growth will lead not to economic growth but to disaster: “Malthus presents a cruel future, dominated by the spectres of famine, pestilence, plague, disease and war … [He] predicted that humanity will breed until the teeming millions die off from war, disease and hunger … [He] envisioned a world driven by uncontrollable forces … [He] offered a theory of human failure” (Weaver and Wisman 1978, 101). And the statement “Population to Malthus is seen predominantly as consumption, rather than as production” (Tunzelmann 1986, 71) does not explicitly recognise Malthus’s view that population can be a significant stimulus to production, as well as to consumption. These quotations from the secondary literature imply that Malthus saw the connection between economic growth and population growth as unidirectional, with the direction being from economic growth to population growth. That argument has been used to support the claim that Malthus’s theory of economic growth is self-​contradictory, because any improvement in economic conditions would lead to an increasing population, which would nullify the per capita economic improvement. But the argument being put forward in this

68  Population and per capita economic growth chapter is that the relation envisaged by Malthus could be reciprocal, not unidirectional; or, in other words, the connection between population and economic growth, as perceived by Malthus, could be either positive or negative. An increase in population could lead to a decrease in per capita income, if it surpasses the food supply, but it could also lead to an increase in per capita income, if it encourages division of labour, specialisation, and productivity.This combination or co-​existence of positive and negative causation between population growth and economic growth also means, according to Malthus, that, although population growth might prevent economic growth, by exceeding the growth of the food supply, economic growth might also retard population growth, by stimulating the desire for comforts and conveniences rather than more children. He recognised that when population rises above its optimum level, and begins to retard per capita income, economic conditions could be improved by a decrease in population size. He also recognised that in some countries, such as America in the early years of European colonisation, economic growth suffered from lack of population. This means that his theory of population does not merely say that an increase in population can lead to a decrease in per capita income; it also argues that per capita incomes could be low because of the smallness of the population, or could worsen because of a decline in population: An unfavourable proportion [between population and food] has no necessary connection with the quantity of absolute population which a country may contain. On the contrary, it is more frequently found in countries which are very thinly peopled than in those which are populous. (Malthus 1989a, II, 205) This double-​sided relation between population and growth would appear to be an essential component of Malthus’s theory of population, although unsympathetic critics might regard it as evidence of inconsistency and self-​contradiction in Malthus’s thought. Keynes spoke of the threat of overpopulation as the “Malthusian Devil”, but Malthus’s recognition of the potential benefits of population growth means that in certain circumstances population growth could be regarded as the “Malthusian Angel”. Interpretations of Malthus on this issue are difficult because the influences under discussion are sometimes understood as overriding and inevitable in their effects, but at other times are understood merely as tendencies which have to coexist with other tendencies, operating in different directions and with different degrees of intensity. Although Malthus regarded population growth as a possible cause of economic progress, he did not elevate it to the status of a sufficient or sole cause. He stated that “population alone cannot create an effective demand for wealth”, and will not “alone furnish an adequate stimulus to the increase of wealth”. The progress of wealth is slowest in nations “where the population presses the hardest against the limits of subsistence” (Malthus 1989b, I, 350, 351; slightly

Population and per capita economic growth  69 altered in the second edition of the Principles). He did not deny or understate the importance of other determinants of production, not merely the physical determinants –​land, labour, and capital –​but also the psychological determinants –​motivation, aspiration, and the desire to better one’s condition –​ and the institutional determinants, such as the ownership and distribution of natural resources, the role of private ownership, the role of public ownership and government intervention, and the degree of economic equality, as discussed in the following chapters. Malthus’s theory that population growth can have a positive effect on economic growth has been described as a population-​push hypothesis, but that description would be a correct statement of his position only if the growth of population is deemed to be the only cause or the main cause of economic growth, rather than merely one of the many possible causes of economic growth he identified. The fact that Malthus insisted on the possible positive influence of population growth on economic growth does not mean that he ignored or denied the possible negative influence of population growth on economic growth. Here, as in other aspects of his political economy, he recognised the presence of counteracting causation. The positive influence and the negative influence can co-​exist, neither is necessarily an overriding determinant, and the outcome in any time and place will depend upon their relative strengths. The popular interpretation of Malthus’s theory of population places an exclusive or at least an overriding emphasis on the negative aspects of population growth.This pessimistic interpretation seems to be derived from a concentration on the Essay and a relative neglect of the Principles. But Malthus’s aim in writing the Principles was to show how economic progress could be achieved despite the pressure of population.To suggest that his ultimate aim was to prove that population pressure must inevitably result in widespread misery and poverty is to interpret the 600 pages of the Principles as a waste of space. Malthus’s theory of population has been summarised in the phrase “population presses against the means of subsistence”, but this single statement fails to recognise the complexities and nuances of his theory of population. The relative lack of attention given to Malthus’s pro-​population views might be attributable, at least in part, to an unfortunate editorial misjudgement. For many years the only reprint in English of Malthus’s Essay generally available was the Dent Everyman edition, which was undoubtedly a valuable contribution to the study of Malthus, but which unfortunately omitted several appendices that had been added by Malthus to the fourth (1807), fifth (1817), and sixth (1826) editions of the Essay. The Everyman edition justified these omissions on the grounds that these Appendices were written in response to contemporary critics and were therefore only of contemporary interest. But in fact they contain some of Malthus’s strongest pro-​population statements, which he felt obliged to insert precisely in order to counteract the criticism that he was unduly pessimistic and anti-​population. Thus, because of this editorial misjudgement students and teachers for over a hundred years, unless they had access to the original editions

70  Population and per capita economic growth of the Essay, or to several editions which appeared in about 1870, would not have been aware of his important pro-​population statements. Fortunately, this omission is now rectified in Volume 1 and Volume 2 of the eight-​volume Works of Malthus (Malthus 1986) published by William Pickering in 1986, edited by E. A. Wrigley and David Souden; and in the two-​volume variorum edition of the Essay (Malthus 1989a) published by Cambridge University Press in 1989 on behalf of the Royal Economic Society, edited by Patricia James. As these two new editions record the important Appendices, his pro-​population views might now become more widely known. The relative neglect of Malthus’s pro-​population views might also be attributable, at least in part, to the persuasiveness of his arithmetic and geometric ratios in convincing readers of the dangers of population growth, and in popularising the myth that he was anti-​population.The powerful and hypnotic impact of the ratios as an anti-​population argument was so great that it swamped any pro-​ population arguments to be found elsewhere in his writings, even if, as some commentators suggest, they are not essential to his argument and were only intended as metaphors. A further reason for the neglect of Malthus’s arguments on the economic benefits of population growth might be that commentators have tended not to distinguish, on the one hand, what could be called his descriptive or warning model, and, on the other hand, his prescriptive or preferred model, the latter having been described by Samuel Hollander as Malthus’s exhortatory model. The warning or descriptive model is bleakly pessimistic, but it merely describes what will happen if we do not heed Malthus’s warnings about the danger of over-​population. The preferred or prescriptive model is guardedly optimistic. The failure of many commentators to give sufficient attention and emphasis to Malthus’s pro-​population views could also be explained, at least in part, by their not having interpreted it in conjunction with his “doctrine of proportions” –​an essential piece of his methodological framework, as discussed in Chapter 1 –​and with the principle of the just mean, or the golden mean, or the happy medium. From the excerpts cited earlier, it is obvious that Malthus’s position on population was not one of being completely opposed to population growth, nor one being completely in favour of population growth, but rather one of advocating a “full complement” of population, or a “natural and proper” level population, or a proper proportion between population and food. Malthus’s notion of a positive connection between population growth and economic growth seems to have been endorsed by John Ramsay McCulloch, who in other respects was a severe critic of Malthus: The principle of increase [of population], as explained by Malthus, and afterwards by Chalmers, appeared to form an insuperable obstacle to all permanent improvement in the condition of society, and to condemn the great majority of the human race to a state approaching to destitution. But further inquiries have shown that … so far from being inimical to

Population and per capita economic growth  71 improvement, we are really indebted to the principle of increase for most part of our long comforts and enjoyments, and for continued progress of arts and industry, (McCulloch [1864] 1965) where “arts” would have been used, in accordance with contemporary practice, to include technological improvements. Malthus appears to have been arguing that population growth exerts a stimulus on economic growth in two ways –​first, by increasing the supply of the labour required for the increased production of food and other consumption goods, and by generating the extra savings and capital required for new investments, and second, by providing the pressure or stimulus or motivation to undertake the higher level of production. This notion of population pressure seems to have been regarded by Malthus as the psychological initiating force that leads to per capita economic growth. Paradoxically, it seems to have been recognised and accentuated by one of Malthus’s contemporary critics, John Weyland, who argued that the incipient pressure of population against the actual means of subsistence, or, more correctly speaking, the excess of population just beyond the plentiful supply of the people’s want, instead of being the cause of most of the miseries of human life, is in fact … the cause of all public happiness, industry and prosperity. (Weyland 1816, 22; original italics) an argument which Weyland seems to have intended as a criticism of Malthus, but which in fact appears to encapsulate neatly Malthus’s notion of population pressure. Although Malthus asserted that population growth is a necessary cause of economic growth, he did not explain at any length the precise nature of the causal connection, he did not explain the causal mechanism by which he believed population growth would stimulate economic growth, and he did not provide reasons for saying that population is a necessary cause of economic growth. Because of his customary emphasis on both the means and the motives, or on the power and the will –​as we have seen, for example, in his views on the growth of savings and investments –​we could reasonably think he had implicitly assumed that the growth of population would generate both the power and the will that would generate economic growth, but he did not show that the causative connection would be automatic or inevitable or necessary. Population growth would provide labour, but would it provide capital? It would probably also generate the desire for material growth, but would it provide an adequate level of effective demand? As we have seen, he had addressed these issues elsewhere in his writings, and might have hoped that readers would have remembered and accepted his earlier arguments, but his pro-​population case

72  Population and per capita economic growth would have been strengthened if these issues had been explicitly and at length addressed in this particular context. The title of Section II of Chapter VII in the first edition of the Principles was entitled, “Of the Increase of Population considered as a Stimulus to the continued Increase of Wealth”, and suggests that this section would include, amongst other things, his argument that increases of population are capable of generating increases of wealth, but this section is mainly concerned to show that increases of population by themselves are not sufficient to generate increases of wealth.

The desire of bettering our condition It appears to be generally assumed among commentators that, in Malthus’s theory of population, economic growth will tend to generate population growth. This has led some commentators to the ultra-​pessimistic view that any increase in standard of living can only be temporary, and that the world’s destiny is persistent poverty and misery. But, as mentioned earlier, Malthus’s views on the relation between population growth and economic growth become much more complex when we recognise that he saw this relation as sometimes direct, with economic growth generating population growth, and sometimes inverse, with economic growth tending to retard population growth. He believed, or hoped, that this inverse relation would occur because of the strength of the “desire of bettering our condition”, which he regarded as a natural, powerful and universal aspect of human nature, and one which would persuade people to use their resources to improve living standards for themselves and their children, rather than to generate more children with little prospect of caring for them (see Pullen 2019a). It is sometimes argued that Malthus was unable to reconcile the two goals of higher wages and lower population growth, because higher wages will lead to an increase of population by encouraging early marriages, larger families, and reduced mortality rates. Malthus believed that this pessimistic forecast could be avoided through prudential restraint, and he cited evidence from England and Scotland in the early eighteenth century to argue that higher wages do not necessarily result in a proportionate increase in population. Much, he said, would depend on the character of “lower classes of society”, which will depend on their civil and political liberty and education. He believed that the first half of the 18th century the people of England were living under “an excellent government, and enjoying all the advantages of civil and political liberty in an unusual degree” (Malthus 1989b, I, 253; in the second edition “an excellent government” was changed to “a good government”). The result was that, “instead of an increase of population exclusively, a considerable portion of their increased wages was expended in a marked improvement of the quality of the food consumed, and a decided elevation in the standard of their comforts and conveniences”, but “this great increase of command over the necessaries of life did not, however, produce a proportionate increase of population” (Malthus

Population and per capita economic growth  73 1989b, I, 254; slightly altered in the second edition, including “necessaries” altered to “first necessary”). He believed that “habits of prudential restraint … most frequently arise from the custom of enjoying conveniences and comforts” (Malthus 1989a, II, 27). He was thus arguing that higher wages will not necessarily be followed by a self-​destructive growth of population.

6  Land, landlords, rent, and diminishing returns

This chapter and the following two chapters on “Labour and wages” and “Capital, profits, investment, and interest” do not aim to provide a complete account of every aspect of Malthus’s views on these topics. Their purpose is to present and discuss his views on the extent to which the three factors –​ land, labour, and capital –​contribute to economic growth, and on how their respective rewards –​rent, wages, on profits –​are relevant to his theory of growth. Whether “land” is defined simply as the soil, or more widely as all natural resources, no one could possibly dispute its importance for human welfare and for economic growth, but disputes and controversies proliferate when attention is directed to the question of how the benefits of the ownership of land and other natural resources are to be distributed. These questions have been extensively debated throughout the history of political economy. A small recent contribution (Pullen 2019b) presents a selection of conflicting opinions from leading participants. The secondary literature frequently states that Malthus’s aim was to support the interests of landlords rather than those of other classes; for example, Malthus “linked his macroeconomics with an espousal of the landlord class … Other leading thinkers who did not share his preference for this class … were repelled by the ideological taint of his macroeconomics” (Spiegel 1991, 298); and Malthus was the open defender of the role of the landed proprietors as against the rising capitalist class … It was on their behalf that he defended protective tariffs and it was their consumption of luxury goods and their employment of personal retainers that he was defending when he argued that they were necessary for the prevention of over-​production. (Baumol 1977, 160) Many other commentators have also said that Malthus was biased in favour of the landlords and the upper economic classes. It is certainly true that he preferred a structure of society that includes lower classes, middle classes, and upper classes, and that he did not condemn or seek to abolish landlords, landlordism, land rents, and private ownership of land. He offered the following eulogy:

Land, landlords, rent, and diminishing returns   75 Rents are the reward of present valour and wisdom, as well as of past strength and cunning. Every day lands are purchased with the fruits of industry and talents. They afford the great prize, the “otium cum dignitate” to every species of laudable exertion. (Malthus 1989b, I, 238i) But many commentators forget that he also recognised that the condition of British society at that time was not ideal, and would be greatly improved by a change in the proportions between the classes. He believed that improved economic conditions would enable members of the lower economic classes to move up into the middle classes. He was also very critical of the “pernicious power of landlords”, and he looked forward to the “emancipation of the great body of society from a dependence on the landlords” (Malthus 1989a, II, 84). He was critical of landlords who charged “unnatural” and “exorbitant” rents (Malthus 1989b, II, 126), and he recognised that “So much of violence, and unjust monopoly has attended the appropriation of land in the early times of all long settled states” (Malthus 1989b, II, 152), but he was not opposed in principle to the existence of rents or to the right of landlords to charge rent; he denied that “the labourer, who in the lottery of human life has not drawn a prize of land, suffers any hardship or injustice in being obliged to give something in exchange for the use of what belongs to another”, and he maintained that the possessors of land, whoever they may be, conduct themselves, with regard to their possessions, exactly in the same way as the possessors of labour and capital, and exchange what they have, for as many other commodities as the society is willing to give them for it. (Malthus 1989b, I, 82ii) He also spoke, with apparent approval, of situations where rents “are equally fair for the landlord and tenant”, and where “the landlord may fairly look forward to a gradual and permanent increase of rents” (Malthus 1989b, I, 203). Malthus and Ricardo held opposing views on the relation between the interests of the landlords and the interests of society, and obviously thought the question was of some importance, although Schumpeter later disparagingly said their disagreement “produced nothing worthy of attention” (Schumpeter 1954, 677). Malthus believed that the interests of landlords are strongly linked to the interests of the state, but he also believed that the interests of the state include the interests of labourers and the middle classes, and that the main part of the interests of society is the interests of labourers. He emphasised the harmony of interests between landlords and society, and criticised Adam Smith for his harsh opinion of landlords: i In the second edition of the Principles “cunning” was altered to “abilities”. The significance of this alteration is discussed in II, 396–397. ii Slightly altered in the second edition of the Principles. See alteration 182j.

76  Land, landlords, rent, and diminishing returns In speaking of the landlords, Adam Smith’s language is again exceptional. He represents them, rather invidiously, as loving to reap where they have never sown … But he would himself be the first to acknowledge that, if land were not appropriated, its produce would be beyond comparison, less abundant, and consequently dearer. (Malthus 1989b, I, 81iii) However, the possibility of a conflict of interest between landlords and others is implicit in a footnote introduced in the second edition; in arguing that rent has but little effect on price, he said “the greater is the value of the rent, the less is the value of the labour and profits” (Malthus 1989b, II, 59).

Differential rent and absolute rent A distinctive feature of Malthus’s theory of rent concerned the concept of differential rent. It was the view of Ricardo, and the view held by other political economists of that time, as well as by many economists today, that rent arises because cultivation extends from more fertile soil to less fertile soil, and rent is measured by the differences in output or revenue. Malthus agreed that differences in the fertility will affect the amount of rent that landlords can charge for the use of their land: “when poor lands are employed, the price compared with the cost of production must be such as to yield rents on all the richer lands, in proportion to their goodness” (Malthus 1989b, I, 546). In a letter to Say, Malthus claimed that this differential theory was his before it was Ricardo’s, having included it in his An Enquiry into the Nature and Progress of Rent … 1815, and that his precedence had been acknowledged by Ricardo: “la doctrine ètait originairement la mienne, comme il en convient lui-​même”. Malthus said that Ricardo had drawn overlarge inductions from the doctrine and had fallen into several errors, but Malthus was convinced that the doctrine was important and true (Malthus, Letter to Say, 1827, in Say 1833, 302–​303, presumably translated by Say). Malthus’s precedence with respect to the differential theory of rent is sometimes recognised in the secondary literature –​for example, “Malthus initiated the ‘Ricardian’ theory of rent” (Bowman 1951, 10). But Malthus did not see relative fertility as the only cause of rent. He argued that rents can be generated even if there are no differences in fertility: We must not infer, however, that this gradation of soils is strictly necessary to the formation and rise of rent; all that is required is, limited territory, combined with fertility and demand. If all the lands of a limited territory iii In the second edition of the Principles “less abundant” was altered to “less abundant compared with the demand”, and consequently dearer” was altered to “consequently the producers and consumers would be much worse off ”.

Land, landlords, rent, and diminishing returns   77 were equally rich, rents, after a certain time, would be high in proportion to the fertility of the soil. (Malthus 1989b, I, 547) Having defined rent as a differential return, Ricardo believed that, if all land were of equal fertility and there were no differences in output, rents would not exist, but Malthus did not restrict rent to a differential return, and argued that rent could still exist even if there are no differences in fertility. Malthus gave the following formal definition of the “Rent of Land”: “That portion of the produce of land which remains to the owner after all the outgoings belonging to its cultivation are paid, including the ordinary profits of the capital employed” (Malthus 1827a, 238). It is significant that this formal definition does not include the concept of differential rent. Malthus was thus distinguishing between two different kinds or two different sources of rent: differential rent and non-​differential rent. He did not use the expression “non-​differential rent”, and did not suggest an alternative expression. A possible alternative might be “a productivity explanation of rent”, as used by Schumpeter (1954, 677), but that term could also be used to describe the differential theory of rent, which involves a comparison of the productivity of different parcels of land. A term such as “absolute rent”, as distinct from “differential rent”, might be more appropriate, as discussed in Pullen 2016b, 355–​356. Malthus did not suggest that these two concepts of rent –​absolute rent and differential rent –​were mutually exclusive or contradictory. In its non-​differential or absolute sense, Malthus regarded rent as “a gift of nature to man” (Malthus 1989b, I, 140), as “a bountiful gift of Providence” (Malthus 1989b, I, 226), as “an exact measure of the relief from labour in the production of food granted to him by a kind Providence” (Malthus 1989b, I, 229; italics in original), and as “a boon most important to the happiness of mankind” (Malthus 1989b, I, 239), but Schumpeter (1954, 677) thought the expression “bounty of nature” was “a clumsy phrase”. Malthus also described rent as “That quality of the earth, by which it can be made to yield a greater portion of the necessaries of life than is required for the maintenance of the persons employed on the land” (Malthus 1989b, I, 139; in the second edition of the Principles “earth” was altered to “soil”, and “portion” was altered to “quantity”, restating it as “a clear indication of a most inestimable quality in the soil, which God has bestowed on man –​the quality of being able to maintain more persons than are necessary to work it” (Malthus 1989b, I, 149). He appears to have been attempting to make a distinction between the measure of rent and the nature of rent. He said that rent would be measured by the “excess of the price of raw produce above the costs of production” (Malthus 1989b, I, 139; in the second edition of the Principles “excess” was altered to” ordinary excess”). For Malthus, rent, considered as a gift of nature or Providence to man, could exist even if the land is cultivated by the owner without a paying tenant, and cultivated for the owner’s own use, without the output being sold to purchasers.

78  Land, landlords, rent, and diminishing returns Having conceived rent to include this “absolute” sense, Malthus was able to eulogise rent as “a fund for the enjoyments and leisure of the society, sufficient to leaven and animate the whole mass” (Malthus 1989b, I, 237), and as the source of all power and enjoyment … without which, in fact, there would be no cities, no military or naval force, no arts, no learning, none of the finer manufactures, none of the conveniences and luxuries of foreign countries, and none of that cultivated and polished society, which not only elevates and dignifies individuals, but which extends its beneficial influence through the whole mass of the people. (Malthus 1989b I, 149–​150) He also said: Among the inestimable advantages which belong to that quality in the land, which enables it to yield a considerable rent, it is not one of the least, that in the progress of society it affords the main security to man that nearly his whole time, or the time of nearly the whole society, shall not be employed in procuring mere necessaries. (Malthus 1989b, I, 237) It is obvious that this concept of rent was utterly different from the concept of differential rent. An intimation of this “absolute” theory of rent can be seen in A Calm Investigation of the Present Scarcity of Grain, 1801, by James Anderson, where earth is described as “an indulgent mother to all her children, ever ready to yield her stores in abundance to all those who know properly how to draw them from her” (Anderson 1801, 5; quoted by Patricia James in Malthus 1989a, II, 257. James noted that a copy of Anderson’s work is in the Malthus Library at Jesus College, Cambridge, inscribed “Dr Malthus from the Author”). In his second edition of the Essay Malthus referred, favourably in one respect and unfavourably in another, to A Calm Investigation, but did not refer to the above comment by Anderson on rent. The concept of absolute rent –​though not the term “absolute” –​was also put forward by another contemporary of Malthus, Thomas Peronnet Thompson who critically deconstructed, passage by passage, Ricardo’s version of the theory of rent, and argued: “the celebrated Theory of Rent is founded on a fallacy”. According to Thompson, it was Ricardo’s view that when land is most productive, it yields no rent; and it is only when its powers decay, that a share of the original produce of the more fertile portions is set apart for rent”, on which Thompson commented: “there is no foundation for the … proposition, that it is only when the powers of land decay, that there will be rent”. According to Thompson, Ricardo’s theory of differential rent confuses causes and consequences; differences in returns from land are the consequence, not the cause, of rent: “the fallacy lies, in assuming to be the cause what in reality is only a consequence” (Thompson 1826, 6, 7, 22).

Land, landlords, rent, and diminishing returns   79 Malthus’s concept of absolute rent sees rent as the return from land, or the benefit derived from the use of land, as distinct from the benefit derived from the use of labour or the benefit derived from the use of capital. Ricardo’s differential theory defines rent not as the return from land, but as the difference between the returns from various units of land. Using a similar differential concept, wages could be defined, not as the product or return from a unit of labour, but as the difference between the products of units of labour of different levels of productivity. If there is a differential theory of rent, and if there is to be logic and consistency in definitions, there should also be a differential theory of wages, profits, and interest. Malthus noted that the earth “has been sometimes compared to a vast machine, presented by nature to man for the production of food and raw materials” (Malthus 1989b, I, 184). But if the earth or land is a machine, and if a differential theory of rent is used to define the returns on land, there would seem to be no logical reason for not defining the profits on capital as a differential. Is there any significant theoretical reason for declaring the theory of rent to be a differential theory, and for attempting to distinguish rent on that criterion from the returns of other factors of production? Malthus’s concept of rent presents a challenge to the standard or Ricardian theory which restricts rent to a differential concept. Does the concept of differential rent have an ideological basis? If the concept of absolute rent provides a perfectly adequate definition of rent, why was the concept of differential rent developed? Why has it become a standard definition of rent in economics, virtually replacing the concept of absolute rent? What theoretical or practical advantages have been derived by replacing absolute rent by differential rent? One feature of the differential concept is that it tends to minimise or downplay the extent or impact of rents. By emphasising the relativity of rents, and asking why one parcel of land generates a higher rent than another, it directs attention to differences between rents, rather than to the level of rents. It leaves aside the broader economic and ethical implications of land ownership as raised in Malthus’s views on the importance of the redistribution of income and wealth, as discussed in Chapter 13. The differential theory also gave Ricardo an opportunity “to get rid of the element of rent that disturbed his labour-​quantity theory of value” (Schumpeter 1954, 675).These broader implications of rent in its absolute sense were the concern of radical land reformers. The development of the concept of quasi-​rent by Alfred Marshall is seen as a development of the concept of differential rent. The higher wage awarded to a worker of particular skill is described as a differential payment or quasi-​rent, and deemed to be justifiable. Marshall opposed Henry George’s view that land is a common good and that the private ownership of land rent is ethically unjustifiable. If land rent is defined as a differential payment, it might be described as a quasi-​rent, and might therefore also be deemed justifiable, and Henry George would be refuted.

80  Land, landlords, rent, and diminishing returns Rent and growth These conceptual differences led to different interpretations of the relation between rent and aggregate economic growth. For Ricardo, an increase of rent is of benefit to landlords, but is not in the interests of society. For Malthus, rent conceived as a gift of nature is a benefit to society as well as to individuals. Malthus argued that, although rent “falls mainly to the landlord” (Malthus 1989b, I, 226), it is not restricted to one social class, and he expressed the view that in the progress of society rents world be distributed more widely and “may be divided among a much greater number of persons” (Malthus 1989b, I, 238). The proprietor of the land who benefits from the rent could be the labourer who works on the land. A land-​scarcity theory of rent? Malthus’s theory of rent is sometimes described as a land-​ scarcity theory. He certainly recognised that land scarcity would tend to occur if there is a limited supply of fertile land available for an increasing population, and that this increasing scarcity of land would result in an increase in the price of land, and an increase in the rents charged by landowners. But he did not hold the doomsday view that such increases would inevitably lead to stagnation and universal poverty. As discussed in the next chapter, he recognised that land scarcity would tend to lead to higher costs of food production, higher food prices, and falling profits, but he also believed that these tendencies could be offset by countervailing forces. Land scarcity would be a “limiting” cause of profits, but not a “regulating” cause. He accepted that if population growth became uncontrollable, this worst-​case scenario would ultimately prevail, but until that situation arrived, his theory of rent and his theory of economic growth could not be reasonably described as land-​scarcity based.

Diminishing returns The question of the role played in Malthus’s macroeconomics by the Law of Diminishing Returns (hereafter LDR) has been extensively debated in the secondary literature, and seems to involve three distinct issues: (1) Did Malthus recognise the LDR in the Essay (1798) and in later writings, and if so, did he give it adequate emphasis? (2) What was the relation between the LDR and his theory that the food supply tends to increase in the arithmetical ratio 1, 2, 3 … every 25 years? (3) What part did the LDR play in Malthus’s theory of economic growth? This commentary on the LDR begins with some examples, in roughly chronological order, of the divergent opinions of a selection of commentators, and then presents an account on Malthus’s statements on the LDR, with an appraisal of the debate in the secondary literature. The view of some commentators that Malthus either failed to mention the LDR or failed to give

Land, landlords, rent, and diminishing returns   81 it sufficient emphasis has been heralded by some as proof of his inadequacy and incompetence as a macroeconomist. According to James Bonar, author of the first major study of Malthus’s life and work, “the germ of the theory of Decreasing Returns” can be seen in the first edition of Malthus’s Essay on Population (Bonar [1885] 1924, Notes, xx; for other references by Bonar to diminishing returns, see Bonar [1885] 1924, 88, 90, 187). James Field (1931, 16) appears to have agreed with Bonar in thinking that the Essay (1798) implicitly contains the notion of diminishing returns. Field said the Essay contains the “spirit” of diminishing returns; Bonar said it contains the “germ” of diminishing returns. However, although Malthus said the returns on inferior land would diminish, Field said the idea that the returns would be less-​than-​proportionate was only implicit in the Essay (1798), and that the Essay did not express this idea in direct language. Field also argued that, although the LDR did not enter explicitly into Malthus’s arithmetical ratio, the arithmetical ratio was an inkling or premonition of the LDR (Field 1931, 50). Contrary to Bonar and Field, Frank A. Fetter believed that, in contrasting the increases of food and population, Malthus had presented in the 1798 Essay, not merely the germ or the spirit, but the “essential thought” of diminishing returns. Fetter was of the opinion that Malthus developed it more consistently in his later writings, but still without adequate consistency; Malthus frequently looks upon the level of food as “a fast and unyielding one” (Fetter 1898, 157). Edwin Cannan’s position on this issue was diametrically opposed to that of Fetter. According to Cannan, Malthus did not have in mind the principle of diminishing returns in agriculture, in either the first (1798) edition of the Essay or in the second. Cannan slightly modified this position in his Production and Distribution, saying that, although in enunciating the arithmetical ratio Malthus was groping towards the LDR, and although the 1798 Essay displayed “at best some Inkling of It here and there”, there was no explicit statement of the LDR in the 1798 Essay. (Cannan 1894, 144). Cannan’s opinion has received strenuous objections. For example, Heimann (1945, 58) argued that the arithmetical ratio is “mainly illustrative” of the LDR, and criticised Cannan for denying Malthus’s knowledge of it. In Heimann’s view, Malthus adopted the LDR “as the basis of all economic reasoning”. Support for Cannan’s view came from Kenneth Smith, who thought that Malthus in writing the Essay was aware of the LDR, but was not influenced by it: “Malthus’s Essay was not based on the law of diminishing returns, although it might be argued that some aspects of this law were present in his mind”. Nevertheless, in Smith’s opinion, the LDR greatly strengthened Malthus’s theory of population and gave it “a much more plausible air” (Smith, K. 1951, 228). George Frederick McCleary was convinced that in Malthus’s Essay 1798 there is a causal connection between the LDR and the arithmetical ratio, but McCleary admitted “it is curious that the law of diminishing returns is not mentioned in the Essay”. McCleary nevertheless considered that “although Malthus did not explicitly base his arithmetical ratio on the law of diminishing

82  Land, landlords, rent, and diminishing returns returns, the concept of diminishing returns was present and influential in his mind” (McCleary 1953, 111; cited in Robbins 1967, 278]. In opposing Cannan’s view, Lionel Robbins contended that Malthus must have at least had a perception or awareness of the LDR in his Essay (1798): “I confess that I find it singularly difficult to accept the suggestion that there was no perception of the idea of diminishing returns underlying his main argument” (Robbins 1967, 258); and “Surely it is odd to contend that not the least suspicion of it has crossed his mind at the time when his main population theory was developed” (Robbins 1968, 35; Robbins also cited Malthus’s use of the idea of diminishing returns in publications other than the 1798 Essay.) In Mark Blaug’s view (1973, 104), even though Malthus in the 1798 Essay recognised the role of the LDR, he did not in the 1798 Essay emphasise its role, but in his pamphlets on the Corn Laws he was one of the first to develop the concept. However, Blaug believed that Malthus in his Summary View (1830) stated “quite clearly why he was unwilling to resort to decreasing returns as the basis of the arithmetical ratio” (Blaug 1973, 164). Blaug was also of the view that Malthus did not give sufficient attention to the role played by diminishing returns in explaining inadequate levels of investment, and hence in explaining either slow growth or secular stagnation. According to Blaug (1973, 93) “time and time again Malthus denied the need to consider” the connection between insufficient investment and “diminishing returns to capital due to growing scarcities of cooperating resources”. Walter Eltis (1984, 170) argued that diminishing returns occupied a fundamental place in Malthus’s political economy: “diminishing returns from the employment of extra labour in agriculture … is one of Malthus’s first and most fundamental propositions”. George N. Tunzelmann (1986, 68, 70, 71, 90) argued that Malthus often either doubted or rejected diminishing returns; that Malthus accepted diminishing returns “only under the obviously greatest sufferance”; that for Malthus diminishing returns “obviously enter into the conditions of products on the supply side, but they are for Malthus a generally distant and very long-​run component of costs, of dubious significance for the short-​run fluctuations that dominated Malthus’s economic interests”; that the Malthusian model rejected “the centrality of Diminishing Returns”; and that Malthus argued for “the relative unimportance of diminishing returns except as a long-​run tendency”. Samuel Hollander (1997, 16) agreed that in Malthus’s work there is a relationship between the LDR and the arithmetical progression of production, but argued that there is “little justification for reading into the ratios a tight functional dependency”. Further examples of differing opinions on the role attributed by Malthus to the LDR can be seen in Waterman 1998, 314–​315. An essential component of Malthus’s macroeconomics However, despite the contrary statements of some commentators, the logical structure of Malthus’s arguments shows that the LDR must have been an

Land, landlords, rent, and diminishing returns   83 essential part of his macroeconomics. He said that diminishing returns are an important determinant of profits, and he argued (see Chapter 8) that profits are an important determinant of growth, from which it must surely follow that diminishing returns were an integral element in Malthus’s theory of growth. For Malthus, there is a clear causal sequence: profits are affected by diminishing returns, profits affect the level of savings, savings are a source of investment, and investment is a determinant of growth. The following quotations from his Essay, and his Principles and other writings must leaves no doubt that Malthus recognised the existence and importance of diminishing returns: • “When acre has been added to acre, till all the fertile land is occupied, the yearly increase of food will depend upon the amelioration of the land already in possession; and even this moderate stream would be gradually diminishing” (Malthus [1798] 1926, 107n). This sentence was repeated, with slight alterations, in the second and later editions of the Essay. In the fifth edition (1817), “stream” was replaced by “fund”. (Malthus 1989a, I, 13). • “in proportion as cultivation extended, the additions that could yearly be made to the former average produce must be gradually and regularly diminishing” (Malthus 1989a, I, 14). • “the best land would naturally be the first occupied” and there would be a “decreasing power of production in the new land to be taken into cultivation” (Malthus 1989a, II, 78–​79). • “the tendency of an extended cultivation and a great increase of capital to yield smaller proportionate returns” (Malthus 1989a, II, 46). • He commented on the distress caused in France by “the increasing population and diminishing sources of subsistence” (Malthus 1989a, II, 171). • “The productiveness of labour employed on the land is continually diminishing” (Malthus 1824a, 315). • “the general tendency of a continued increase of produce in a limited territory to diminish the power of its increase in future” (Malthus 1830, 27; italics in original). • “by the laws of nature in respect to the powers of a limited territory, the advances which can be made in equal periods to the food which it produces must, after a short time, either be constantly decreasing, which is what would really take place; or, at the very most, must remain stationary, so as to increase the means of subsistence only in an arithmetical progression” (Malthus 1830, 31). • “as capital accumulates on the land, its profits must ultimately diminish” (Malthus 1989a, II, 68). • “The necessity of resorting constantly to poorer land … which would consequently occasion each fresh addition to the raw produce of the country to be purchased at a greater cost” (Malthus 1989b, I, 194; with minor alterations in the second edition of the Principles).

84  Land, landlords, rent, and diminishing returns •

“when the land becomes more and more exhausted” the expense of producing necessaries will increase (Malthus 1989b, I, 335). • “the increasing difficulty of procuring the food of the labourer” (Malthus 1989b, I, 370). • In an addition to the second edition of the Principles, in referring to “the circumstances which determine profits”, Malthus stressed “the importance of that cause which depends upon the diminishing productiveness of labour on the last land taken into cultivation. This cause is indeed of such a nature, that, if its action goes on, it must finally overwhelm every other. Yet, still an attempt to estimate the rate of profits in any country of ten or twenty years together by reference to this cause alone, would lead to the greatest practical errors” (Malthus 1989b, II, 233). • “the increasing difficulty of procuring food from the soil” (Malthus 1989b, I, 334). • When capital is “applied to the progressive cultivation of new and less fertile land, or the further improvement of what had before been cultivated … the rates both of profits and of real wages would be highest at first, and would regularly and gradually diminish together, till they both came to a stand at the same period, and the demand for an increase of produce ceased to be effective” (Malthus 1989b, I, 299). • When capital is employed upon the land, “the productive powers of labour necessarily diminish” (Malthus 1989b, I, 299). • “The labour required to produce corn has a constant tendency to increase from inevitable physical causes” (Malthus 1989b, II, 228, replacing a slightly different version in the first edition, Malthus 1989b, I, 300). • “As the society continued to proceed, if the territory were limited, for the soil of different qualities, it is quite obvious that the productive powers of labour as applied to the cultivation of land must diminish; and … there would evidently be less and less produce to be divided between labour and profits. (Malthus 1989b, I, 298; slightly altered in the second edition). • “When cultivation is pushed to extreme practical limits, that is, when the labour of a man upon the last land taken into cultivation will scarcely do more than support such a family as is necessary to maintain a stationary population, it is evident that no other cause or causes can prevent profits from sinking to the lowest rate required to maintain the actual capital” (Malthus 1989b, I, 312). • In a letter to William Whewell on 31 May 1831, he referred to “the undoubted truth of the natural tendency to diminished returns in a limited space unless prevented by improvements in agriculture or manufactures”, and he added: “Were there no such tendency, and had not such a tendency frequently operated, no adequate reason can be given why the accumulating capitals of a new colony should not continue to be applied to the lands first occupied, or why the inhabitants of the Eastern states of America are now emigrating in such numbers to the Western. The tendency to diminished returns must be the general principle”. In other words,

Land, landlords, rent, and diminishing returns   85 Malthus argued that if there were no tendency to diminishing returns, the entire increasing population of America could have been fed from the land originally occupied by them. Malthus also criticised Richard Jones for seeming inclined to deny this “undoubted truth”. But, while insisting on the tendency to diminishing returns, Malthus also said that Ricardo was “quite wrong … in dwelling upon the diminished returns of agricultural capital as the sole cause of increasing rents” (De Marchi and Sturges 1973, 391; original emphasis by Malthus). For further statements on diminishing returns when cultivation is extended to poorer land, see for example Malthus 1989b, I, 194, 197,334; II, 181. This selection of quotations does not pretend to be a complete list of Malthus’s comments on the LDR, but is surely sufficient evidence of the importance he attached to this topic. Some commentators have acknowledged his frequent references to the LDR, but have argued that he did not integrate the LDR into his theory of aggregate growth. Within the above quotations there is convincing evidence to the contrary. He clearly saw that diminishing returns are an important determinant of production, and hence of profits and wages, with repercussions on the level of effective demand –​the concept central to his macroeconomics. A commonplace? Malthus could have added that this “undoubted truth” is also a commonplace, and one that is too simple, too well-​known, too banal, and too trite to be worthy of mention, or to be endowed with the honorific title of “Law”. Historians of economics have struggled to identify the discoverer of the LDR. Perhaps they should consider William Shakespeare: “If music be the food of love, play on/​Give me excess of it, that, surfeiting, /​The appetite may sicken, and so die” (Twelfth Night, I.i.1). Does this suggest that music and love –​like land, labour and capital –​are susceptible to diminishing returns? Some say the LDR is the basis of neoclassical economics. According to John Stuart Mill ([1848] 1909, 177), the LDR is “the most important proposition in political economy”. Does this mean that Shakespeare is a discoverer or founder of the LDR, and should be regarded as a neoclassical economist, along with every agriculturalist and every home gardener? If indeed the LDR is nothing more than a commonplace, it matters little who was the political economist who “invented” it, or who boldly and dramatically published it. One might as well spend one’s research time trying to find the discoverer of the “Law” that “the sun rises in the morning”. It is difficult to understand why some commentators endow the LDR with great intellectual profundity, and adopt an ecstatic tone in proclaiming its wonders, as if the rest of the world should be eternally grateful to economists for having discovered it. As soon as you are old enough to realise that the world’s population cannot be fed simply by using more and more water and fertiliser on one hectare of land, you have in fact discovered the Law

86  Land, landlords, rent, and diminishing returns of Diminishing Returns, and do not need to read it in your first economics textbook. Is it merely a simple idea absorbed into economics and dressed up to make it portentous? Has it been given the title “Law” rather than “Idea” or “Theory” in order to endow it with quasi-​religious significance, and to promote particular economic policies? If the LDR is defined in a way that includes the customary textbook array of geometry and algebra as an essential component, then obviously Malthus’s writings do not involve and are not dependent on the LDR, so defined, but if the LDR is defined merely as the idea that when additional inputs of a variable factor are applied to a fixed set of other factors, the amount of extra output that follows each additional unit of input of the variable factor will tend to diminish, then Malthus would have to be declared bereft of common sense if he had denied the LDR (so defined) or had excluded it from the Essay or his other writings. Commentators who say that the LDR was not present in Malthus’s Essay, or was present only in a minimal or implicit way, but not in a “formal” way, appear to understand “formal” in the exclusively mathematical sense frequently used by economists, forgetting that the word “formal” existed in other senses before we economists sought to commandeer it. It is true that Malthus allocated only a relatively minor space to the LDR, but his reason for not allocating more might have been that he thought that Adam Smith had said all that needs to be said about the LDR. Another reason might be that he considered it not worthy of prominent mention. More difficult to explain is why so much prominence is given in the secondary literature to the LDR. By implying that it is a fatalistic scourge of human existence, attention is being directed away from other possible causes of poverty, such as inequality in the distribution of the benefits of natural resources, as Malthus insisted. Discussions about the LDR do not always distinguish between the LDR as a statement of a tendency, the impact of which may be weakened or offset by counteracting tendencies, and the LDR as a statement of an inevitable and immutable force, which must ultimately prevail and override all counteracting tendencies, leading inevitably to universal penury. Malthus showed how diminishing returns in agriculture might be offset by improvements in agricultural methods, by developments in agricultural machinery, by infrastructure works such as roads and canals, by the health and skills of agricultural labourers, and by proper land management.

7  Labour and wages

Two issues central to any macroeconomic system are: whether general economic growth will be stimulated or discouraged by an increase in wages; and whether a reduction in wages will provide a remedy for unemployment, or whether it would make unemployment worse. Judgements about macroeconomic competence must depend, at least in part, on the adequacy of an author’s responses to these questions. This chapter shows that Malthus addressed these questions, and that his responses contain considerable theoretical and practical substance. Malthus spoke strongly in favour of higher wages on compassionate and humanitarian grounds, but compassion was not his sole reason for urging higher wages. He believed that an increase in the general level of wages could be a stimulus to economic growth, and could have other beneficial macroeconomic effects. For example, he said: “It is the diffusion of luxury therefore among the mass of the people, and not an excess of it in a few, that seems to be most advantageous, both with regard to national wealth and wage advocate national happiness” (Malthus 1989a, II, 193).

Malthus as a low-​wage advocate It has been said by some commentators that although Malthus expressed compassion for the labouring classes, he believed that low wages are inevitable; for example, according to Malthus, “in the long run the real wage gravitates to its natural subsistence by his population theory” (Smith, M. 2020, 74). Other commentators have argued that, in Malthus’s view, higher wages would have a harmful effect on profits and growth, and that the remedy for depression is a reduction in wages, not a Keynesian-​policy designed to enhance the spending power of the labouring classes. William Godwin in his Of Population (1821) had said that Malthus was upon all occasions an advocate for low wages, and that Malthus saw vice and misery as evils indispensable in the prevention of overpopulation.The reply to Godwin in the Edinburgh Review stated: “Mr. Malthus had laboured in all his works, even to tiresome repetition … to show the labouring classes how they may raise

88  Labour and wages their wages effectively, and become more independent of the rich” (Malthus 1821, 374). Cannan (1929, 361, and citing other authors) concluded that Malthus’s position was that “an increase in the real wages of workers (or in transfers) would not be good”. Cannan supported this conclusion by arguing that, according to Malthus, an increase in real wages will lead to an increase in marriages, births, and population, and that this would counter the increase in real wages. It has also been argued that Malthus opposed higher real wages because he believed they would encourage indolence and laziness. He has been interpreted as saying “the propertyless working class should not get more than the bare minimum necessary for their existence” and that “wages above this minimum would induce indolence among the workers and would not add demand for goods” (Khosla 1978, 132). More recently, it has been argued that Malthus was against higher real wages, and that he had an “ostensible contempt for the poor” (Brezis and Young 2003, 28). Statements by Malthus used by commentators to support a low wage interpretation The following quotations from Malthus’s Principles have been quoted in the secondary literature as evidence that he supported or condoned low wages: as a great increase of consumption among the working classes must greatly increase the cost of production, it must lower profits, and diminish or destroy the motive to accumulate, before agriculture, manufactures, and commerce have reached any considerable degree of prosperity. and If each labourer were actually to consume double the quantity of corn which he does at present, such a demand instead of giving a stimulus to wealth, would probably throw a great quantity of land out of cultivation, and greatly diminish both internal and external commerce. (Malthus 1989b, I, 472–​473i) From this it has been argued that “Malthus recognised that if wages were increased, this would not solve the problem, as increased wages lowered profits”; and that Malthus saw under-​consumption or a lack of effective demand as “inherent in the capitalist system” (Coontz 1965, 51–​52). A similar interpretation of Malthus has been given in Eagly (1974, 99): “an increase in wages would reduce the profit rate and discourage investment demand too violently. Wage increases then were not the answer”, and wage-​owners as a class are “irrelevant to a solution of the glut problem”. i In the second edition of the Principles, “probably” was altered to “unquestionably”.

Labour and wages  89 Discussion of the low-​wage interpretation In response to the view that Malthus was a low-​wage advocate, it should be noted that the above statements by Malthus (1989b, I, 472–​473) were referring to the disadvantages of “a great increase” of consumption; they do not appear to have been a general argument in favour of lower wages, or to have been saying here that increases in wages and consumption will always have harmful macroeconomic consequences, or that wages must always be low. It could also be noted that in the same context (Malthus 1989b, I, 473), he said “supposing so impossible case as a very great consumption among the working producers, such consumption would not be the kind to push the wealth of the country to its greatest extent”, but this statement was omitted from the second edition of the Principles. The view that Malthus opposed increases in wages and condoned low wages has been based also on the statement: it is the want of necessaries which mainly stimulates the labouring classes to produce luxuries; and were this stimulus removed or greatly weakened, so that the necessaries of life could be obtained with very little labour, instead of more time being devoted to the production of conveniences, there is every reason to think that less time would be so devoted. (Malthus 1989b, I, 379) From that statement it has been concluded: “According to Malthus, an increase in wages would reduce the supply of labour and reduce aggregate supply rather than increase aggregate demand” (Eagly 1974, 99). Malthus’s concern in that context was to show that countries with very fertile land will not produce an abundance of comforts and conveniences if labourers lack the motives to produce them; comforts will not be produced “if, after the necessaries of life were obtained, the workman should consider indolence as a greater luxury than those which he was likely to procure by further labour”. Malthus believed that “this choice seems to be very general in the early periods of society, and by no means uncommon in the most improved states” (Malthus 1989b, I, 379). In modern terminology, was Malthus here saying that, when wages reach a certain level, the supply curve of labour will be backward sloping, with higher wages leading to a reduction in the quantity of labour supplied? The argument that, according to Malthus, an increase in wages will be self-​ defeating because it will tend to weaken the motives of workers to produce comforts and will cause an increase in population, should be considered, not in isolation, but in combination with other statements in which he stressed the strength of the workers’ natural desire of bettering their condition. Malthus believed that higher real wages will encourage workers to raise their level of aspirations, and that having acquired a taste for a better lifestyle for themselves and their families they would not wish to jeopardise it by improvident

90  Labour and wages marriages. Could he be accused in this instance of self-​contradiction? Was he intending to enunciate a general principle and an inevitable and universal characteristic of human nature, or was this another situation in which he was recognising the operation of conflicting tendencies? Another statement by Malthus that seems to indicate opposition to increases in consumption among workers is: generally, all such increased consumption, whether desirable or not on other grounds, must always have the specific effect of preventing the wealth and population of the country, under a system of private property, from being pushed so far, as it might have been, if the costs of production had not been so increased; but that statement was omitted from the second edition of the Principles. The reason for the omission is not obvious (Malthus 1989b, I, 475; II, 459–​460).

Malthus as a high-​wage advocate: humanitarian arguments and economic arguments Those statements which seem to support the view that Malthus was a low wage advocate have to be reconciled with other statements where he seems to support high wages. Malthus’s arguments in favour of higher wages could be classified into either humanitarian arguments or economic arguments. He frequently expressed compassion for workers on low wages: “It is most desirable that the labouring classes should be well paid, for a much more important reason than any that can relate to wealth; namely, the happiness of the great mass of society” (Malthus 1989b, I, 472). He described “the cry of the master manufacturers and merchants for low wages, to enable them to find a market for their exports” as “that most distressing and disheartening of all cries to every man of humanity”. He added: “If a country can only be rich by running a successful race for low wages, I should be disposed to say at once, perish such riches!” (Malthus 1989b, I, 235–​236). He frequently stressed his belief in the benefits of higher wages: “There is no one that more ardently desires to see a real advance in the price of labour than myself ” (Malthus 1989a, I, 355). This concern for higher wages can also be clearly seen in his responses to the 249 questions put to him when examined at the Select Committee on Emigration, 1827. He said that if the employed are paid lower, manufactures produced for foreign sale “might be sold cheaper, and more of them might be produced, but it would be at the expense of great misery to the whole body” (Malthus 1827b, 314, question 3242). His compassion –​described by one of his interviewers as “compassion to the labouring poor and regard to the public peace” –​was expressed, forcefully but quite politely, in rejecting the view proposed to him that “labour should be kept permanently in a state bordering on distress, to avoid the injury that might accrue to the national wealth from

Labour and wages  91 [raising wages and] diminishing the rate of profit”. He regarded such a view as “by no means fitting”. When he was asked whether a redundant supply of labour would be “beneficial to the manufacturing and commercial interest, inasmuch as it lowers wages and raises profits, and renders possible a successful competition with foreign capitalists”, he replied “I should think that even if it did so, no persons could possibly bring themselves to encourage such a system with that view” (Malthus 1827b, 317, question 3284), thus showing again his willingness to allow the overall interest of labourers to override manufacturing and commercial interests. He added:“I consider the labouring classes as forming the largest part of the nation, and therefore that their general condition is the most important of all” (Malthus 1827b, 317, question 3281), which indicates his willingness to sacrifice general economic growth or national wealth on humane grounds, or because of a higher maxim. His evidence before the Select Committee on Emigration, 1827 shows that he advocated higher wages not only for humanitarian reasons but also as a source of economic growth. This support for higher wages can be seen in his principal publications –​the Essay and the Principles –​but is expressed more strongly in the report of the Select Committee. Critics in the secondary literature who say either that he believed low wages are inevitable, or that he was opposed to wage growth because of its effect on profits and growth, or who think that his arguments for higher wages were based on compassionate grounds only, appear not to have given due weight to his evidence before the Select Committee. He stressed the link between higher wages and the effectual demand for manufactures and other commodities produced at home: I think that the home demand of the country depends very much upon the condition of the labouring classes; that is, that the extent of the effectual demand for manufactures and commodities consumed at home, depends essentially upon the good condition of the labouring classes. (Malthus 1827b, 317, question 3282) One of his reasons for supporting emigration was its effects in raising the wages of the remainder: “there would be, I should hope, some rise in the price of labour; it is in fact the object of the emigration to improve the condition of the remaining labourers” (Malthus 1827b, 316, question 3274). This connection between a prosperous home trade and higher wages was also stated in replying to the question of whether a redundancy of labour is favourable to trade and commerce: In one respect it is, and in one respect not; it may enable the capitalist to work up his commodities cheaper, and to extend his foreign trade, but it certainly will have a tendency to diminish the home trade, and I think the home trade much more important than the foreign. (Malthus 1827b, 317, question 3285)

92  Labour and wages His argument for higher wages was also linked to his belief in the benefits of foreign trade. He believed that higher wages at home could benefit foreign trade, and that foreign trade will not flourish without high wages at home: it is certainly conceivable that [the price of labour] may be too high for the prosperity of foreign commerce. But I believe it is much more frequently too low; I doubt if there has ever been an instance in any country of very great prosperity in foreign commerce, where the working classes have not had good money wages. It is impossible to sell very largely without being able to buy very largely; and no country can buy very largely in which the working classes are not in such a state as to be able to purchase foreign commodities. (Malthus 1989b, II, 246–​247) And even more forcefully: The merchants and manufacturers who so loudly clamour for cheap corn and low money wages, think only of selling their commodities abroad, and often forget that they have to find a market for their returns at home, which they can never do to any great extent, when the money wages of the working classes, and money incomes in general, are low. (Malthus 1989a, II, 248–​249) In general, a situation in which wages are high “would do much towards placing the great mass of the labouring classes in a state of comparative comfort and independence”. But comfort and convenience are not the only benefits of high wages. High wages would not only … greatly increase the stimulus to industry and economy throughout all the working classes of the society, and place the great body of them in a very superior situation, but it would furnish them with the means of making an effectual demand for a great amount of foreign commodities and domestic manufactures, and thus, at the same time that it would promote individual and general happiness, would advance the mercantile and manufacturing prosperity of the country. (Malthus 1989a, II, 248) Further optimism for the economic well-​being of labour is implicit in Malthus’s statement that “perhaps, with proper precautions, a certain portion of land might be given to a considerable body of the labouring classes” (Malthus 1989a, II, 222). In one place Malthus seems to have suggested that “mere workmen and labourers” do not provide a market for the products of manufacturers and merchants. (Malthus 1989b, I, 431); but in another place he suggested that if the whole produce were to be increased by the work of an extra two million

Labour and wages  93 labourers who were equally well supported, some of them would “unquestionably have a part of their wages disposable” (Malthus 1989b, I, 425), which implies that effective demand for conveniences and luxuries can be generated by all classes, and by all “below the rank of the great proprietors of land” (see Malthus 1989b, II, 269, alteration 1.431b) The positive effect of “good wages” on the home market for manufactures was repeated in his statement: “I think it forms a very important part of the market for manufactured goods of a cheap kind” (Malthus 1827b, 317, question 3286); and even more forcibly in the statement that the country which does not have that degree of demand from the labouring classes could not be a prosperous manufacturing country: “it would be only partially prosperous” (Malthus 1827b, 317, question 3287). The question of whether a general reduction of wages could be a remedy for depression, employment and gluts was not treated at length by Malthus, but, given his assertions of the positive effects of increased wages on overall or national economic growth, as quoted above, it would be reasonable to conclude that, if the question had been explicitly put to him, he would have argued that a general reduction in wages would aggravate depression and hinder recovery. On Malthus’s views on wage reductions as a cure for depression, see Chapter 12. There thus seems to be little doubt that Malthus regarded a situation where the labouring classes are “living well and comfortably” (Malthus 1827b, 318, question 3290) as an important cause of increased effective demand, and hence of economic growth, and that to some extent he believed in the trickle-​up effect of wage-​led growth. The secondary literature gives more attention to statements by Malthus referring to causes, such as population pressure, that tend to reduce wages or keep wages low, but less attention, and only occasionally, to his statements referring to the possibility and desirability of higher wages. A notable exception recognising Malthus’s emphasis on the economic advantages of higher wages is the following: Malthus “repeatedly affirmed the desirability of higher wages”, because of their effect on aggregate demand (Tunzelmann 1986, 89). But despite these arguments in favour of wage growth, Malthus recognised that wage growth could have some adverse effects on general economic growth. He recognised that the causal relationship between low wages and overall economic growth could be both direct and inverse. This two-​way relationship would occur if the working producers, by increasing their consumption, supposing them to have the means of doing so, would impede the growth of wealth more by diminishing the power of production, than they could encourage by increasing the demand for produce. (Malthus 1989b, I, 476–​477) He saw no contradiction in asserting the existence of counteracting causation in the relation between wage growth and general economic growth.

94  Labour and wages His arguments for higher wages and against reductions in wages can also be seen in his discussion of the advantages of an increase in wages compared with the advantages of a fall in the price of necessaries. He argued that, although their effects may appear similar, “they may be, and in general are, most essentially different”, because of their different effects on employment. The result of an increase in the “wages of labour, both nominal and real” will be “to ensure full employment to all the labouring classes, and to create a demand for further produce, and for the capital which is to obtain it. In short, it is the infallible sign of health and prosperity”. By contrast, a fall in the price of necessaries would result in “a permanent want of employment, and the most distressing poverty” (Malthus 1989b, I, 456; in the second edition of the Principles, “wages of labour both nominal and real” was changed to “money wages of labour”. A slightly different version of the same argument was given in Malthus 1989b, I, 289). The economic advantages of high wages were also implicit in his comments on the benefits that would ensue from a wider diffusion of wealth and luxury: “It is the spread of luxury … among the mass of the people, and not an excess of it in a few, that seems to be most advantageous, both with regard to national wealth and national happiness” (Malthus 1989a, II, 193; “spread” in the 1803 Essay was changed to “diffusion” in the 1817 Essay). In the same context Malthus added: “It is by no means necessary that the rich should be excessively luxurious, in order to support the manufactures of a country, or that the poor should be deprived of all luxuries in order to make them sufficiently numerous”. His views on the possible economic advantages of a wider distribution of wealth are presented more fully in Chapter 13. It is obvious therefore that Malthus believed that the wages of labourers would not necessarily be spent entirely on necessaries, but that to some extent they could and would be spent on comforts and conveniences, including manufactures and foreign commodities, and that the spending by labourers on non-​necessaries would be beneficial for the manufacturing industry and for the economy as a whole. The following statement asserts that high wages can have beneficial effects on the productivity of labour: the employment of a greater number of labourers and the payment of higher wages, if the population does not immediately increase, “always occasions that demand for labour, which so powerfully encourages the exertions of those who were before perhaps only half paid and half employed; and is at once the surest sign and most effective stimulus of increasing wealth” (Malthus 1989b, I, 452; omitted from the second edition of the Principles). This was a most forceful statement of the advantages of high wages. Its omission from the second edition is puzzling. He rejected the argument, often associated with Ricardo, that the relation between wages and profits will always be inverse, and that higher wages will lead to lower profits.To the question “Are not the manufacturers profits principally dependent on low rate of wages?” he replied: I do not quite agree to that doctrine, I think that wages and profits very often rise together.When the value of the whole commodity arises from the

Labour and wages  95 state of the supply compared with the demand, there is a greater value to divide between the capitalist and the labourer; the labourer will have higher money wages, and the profits of stock may be higher at the same time. (Malthus 1827b, 317, question 3283) Excessive increases in wages His recognition of the need for a balance between more consumption for the working classes and more benefits for the other classes is an illustration of his doctrine of proportions. Malthus recognised that the effects of higher wages might not always be beneficial: “indolence, drunkenness, and waste of labour” are “too frequently a consequence of high wages”, but he believed or hoped that these could be prevented by an increase in prudential habits (Malthus, 1989a, II, 196), and he recognised that excessively high wages could damage profits: as a great increase of consumption among the working classes must greatly increase the cost of production, it must lower profits, and diminish or destroy the motive to accumulate, before agriculture, manufactures, and commerce have reached any considerable degree of prosperity (Malthus 1989b, I, 472); and “a very great consumption among the working producers … would not be of the kind to push the wealth of a country to its greatest extent” (Malthus 1989b, I, 473; omitted from the second edition of the Principles), but he added in the second edition that there is very little danger of a diminution of wealth from this cause. Owing to the principle of population, all the tendencies are the other way; and there is much more reason to fear that the working classes will consume too little for their own happiness, than that they will consume too much to allow of an adequate increase of wealth. (Malthus 1989b, I, 473ii) It should be recognised that Malthus was here referring explicitly to a great or very great increase of consumption among the working classes, a situation which he described as “so impossible a case”; he was not referring to a situation where they consume “a fair proportion of what they produce”. In his evidence at the Select Committee on Emigration, he agreed with an interviewer who asked: “Then it would resolve itself into a question of proportions?” (see Malthus 1827b, 318, question 3291), and he acknowledged:“It is not easy to determine what is the price of labour most favourable to the progress ii Omitted from the second edition of the Principles, as part of a block of three omitted paragraphs that express further working-class sympathies. Reasons for the omission of these paragraphs are discussed in Malthus 1989b, II, 459–460.

96  Labour and wages of wealth” (Malthus 1989a II, 246), thus repeating his previous statements that, as in all aspects of political economy, it might not be possible to reach the precise optimum point, even though we should try to ascertain and attain it.

Savings by labourers The secondary literature frequently states that in Malthus’s view workers do not save; for example, The precondition for capital accumulation in Malthus’s theory is that the … workers spend all their income on consumption goods and do not save. Saving is conceived to be undertaken only by capitalists and land-​owners, being the property-​owning classes, and depends on their income in the form of profit less the amount they spend on consumption, and “Malthus supposes that workers generally consume their entire wage income”, and that saving depends on “the propensity to save of the property-​ owning classes” (Smith, M. 2020, 58–​59, 63). Attempts to construct mathematical models of Malthus’s macroeconomics often incorporate the assumption that workers do not save. It is not always clear whether this assumption is incorporated in order to simplify the model, or because the model builders believe that the assumption is a true reflection of Malthus’s views. The conviction that Malthus thought labourers cannot and do not save is probably adopted by some commentators as a corollary of their conviction that Malthus thought wages must always be at subsistence level. However, on the contrary, there is ample textual evidence that Malthus thought the wages of labourers could be higher than subsistence, and that it would be quite possible, as well as highly desirable, for labourers to save. He said that if there were an additional two million labourers, some would “unquestionably have a part their wages disposable” (Malthus 1989b, I, 425); and in a group of passages added to the second edition of the Principles, he said: “Workmen and mechanics who received the common wages, and various higher salaries, which are realized upon material objects, have the means of saving just in the same manner as menial servants, and others engaged in personal services” (Malthus 1989b, II, 30). He also referred to the fact that productive labourers obtain for themselves not only wealth, but also “the means of accumulation” (Malthus 1989b, II, 30). In discussing the source of capital, Malthus noted that it could be furnished “by the labourers themselves or by others” (Malthus 1989b, I, 341). He advocated that single men should be well paid so that they “would have a superfluity” (Malthus 1989a, II, 228). They would be able “to save a sum for the common contingencies of the married state” (Malthus 1989a, II, 111), and even the poor “might have saved in their single state” (Malthus 1989a, II, 195); if prudential restraint were adopted, the “period of delayed gratification would be passed in saving the earnings which were above the wants of a single man” (Malthus 1989a, II, 97).

Labour and wages  97 On one occasion he expressed a contrary view, doubting that the labouring poor would save: they “seem always to live from hand to mouth … Even when they have an opportunity of saving, they seldom exercise it”, but this was said in the context of his discussion of the harmful effects of the Poor Laws: “the poor laws … diminish both the power and the will to save among the common people”. He believed that the labouring poor would save if there were no parish assistance to rely on: “it is difficult to conceive that [workmen] would not save a part of their high wages for the future support the families … if they did not rely on parish assistance for support in case of accidents” (Malthus 1989a, I, 359). It is also important to remember that Malthus was actively engaged in the support of Provident Institutions established to encourage and facilitate saving, and the establishment of “country banks”: “they enable the poor to provide against contingencies themselves” (Malthus 1989a, II, 243), but “At present the few labourers who save a little money are often greatly at a loss to know what to do with it” (Malthus 1989a, II, 191). He was involved with “The Provident Institution for Savings, established in the western part of the metropolis, No. 13, Panton Street, Haymarket, late of 28, Leicester Square”. It was supported by leading members of society, with the Duke of Somerset as President, and about 20 Vice Presidents, consisting of members of the royalty, other Dukes and Earls, and Bishops. The List of Managers, about 60 in all, included Malthus and Ricardo and a number of other political economists. The function of the Managers was to attend for the purpose of receiving the savings of depositors, which could take place on two days each week at specified hours. The purpose of the Provident Institution was set out in the prelude to their reports: Whoever is desirous to preserve a portion of his savings for the purpose of providing against the season of sickness or old age, or to accumulate by prudence and frugality during the earlier years of life, sufficient to ensure future comfort and independence, should embrace the advantages which this Institution offers. The number and social standing of its organisers and supporters show there was at that time a belief in the possibility of savings by labourers. It is unlikely Malthus would have bothered to encourage and facilitate these saving facilities if he had thought labourers could not or would not save. Further details of this Provident Institution can be seen in its reports held in the Goldsmiths Library, London, for example: items 21525, 21528, 21540. He believed that the development of manufacturing and commerce had widely stimulated savings: “The prosperity of manufactures and commerce in any state … shows that the great body of the people … have both the power and the will to save” (Malthus 1989a, II, 40). Consequently, it would be appropriate and indeed historically accurate for a mathematical model of Malthus to incorporate a variable representing workers’ savings. Models of Malthus’s macroeconomics that exclude his views on

98  Labour and wages workers’ savings must be theoretically incomplete. An economic model set up for purposes of analysis and commentary, which incorporates the condition that there are no savings by labourers, is an academic fantasy set up by the model builders, or a variation on a theme by Malthus. It is a condition that might or might not lead to interesting results, but it is not part of the macroeconomics of the economic system preferred by Malthus. The question of whether Malthus thought that workers should be able to save, and that it would be desirable for them to save, is of course different from the question of whether there is empirical evidence that workers in his day actually saved, or saved to a significant extent. The latter question belongs to economic history, the former to the history of economic thought.

The future of wages Although Malthus deplored attempts to reduce wages, he recognised that there is a tendency for wages to fall; the prospect for wages is bleak: the physical wants of the labourer remain always the same; and though in the progress of society, from the increasing scarcity of provisions compared with labour, these wants are in general less fully supplied, and the real wages of labour gradually fall; yet it is clear that there is a limit, and probably at no great distance, which cannot be passed, and “there is no doubt that the labourer will be obliged to employ a greater quantity of labour to procure that portion of his wages which must be spent in necessaries”(Malthus 1989b, I, 298–​299; in the second edition of the Principles, “real wages” was altered to “corn wages”). Also, “it would not be possible, under the principle of competition, (which can never be got rid of,) to secure much more leisure to those actually engaged in manual labour” (Malthus 1989b, I, 237; in the second edition of the Principles, “there is no doubt” was altered to “the probability I fear is”). In one instance these rather pessimistic forecasts for the future of wages were counterbalanced by the possibility of upward mobility for some workers: “if the more intelligent among the working classes were raised into overseers of works, clerks of various kinds, and retail dealers” and if “numerous others … could live nearly at leisure on their mortgages … what an improved structure of society would this state of things present”, but these remarks were omitted from the second edition of the Principles (Malthus 1989b, I, 482–​483). The first edition of the Essay presented a quite pessimistic prospect for wages. He recognised that the lower classes of mankind are the most numerous and “the most important part of the human race”, but doubted whether there could be “any great and decided amelioration of their condition” (Malthus [1798] 1926, 277), and he argued that no improvement could come from the “sacrifices or exertions of the rich”. He also doubted the usefulness of government interference to promote equal shares; interference would destroy the spirit

Labour and wages  99 of industry and would produce “misery for all” (Malthus [1798] 1926, 36, 277). But in later writings, while recognising and deploring the current misery of the lower classes, he expressed a relatively optimistic forecast of an improvement in their condition. If they acquired the habit of regulating the supply of their labour in proportion to the demand we might even venture to indulge a hope that at some future period the processes for abridging human labour, the progress of which has of late years been so rapid, might ultimately supply all the wants of the most wealthy society with less personal labour than at present; and if they did not diminish the severity of individual exertion, might, at least, diminish the number of those employed in severe toil, (Malthus 1989a, II, 194) and under the prevalence of habits of prudence, the whole of this vast mass might be nearly as happy as the individuals of the other two classes, and probably a greater number of them, though not a greater proportion of them, happier. (Malthus 1989b, I, 423)

The labouring classes The wages, health, and happiness of the labouring classes are important because they are “the most important portion” of society: In every point of view therefore, both in reference to the part of the annual produce which falls to their share, and the means of health and happiness which it may be presumed to communicate, those who live on the wages of labour must be considered as the most important portion of the society, (Malthus 1989b, I, 423, 580) and Those who live on the wages of labour, unproductive as well as productive, receive and expend much the greatest part of the annual produce, pay a very considerable sum in taxes for the maintenance of the government, and form by far the largest portion of its physical force. (Malthus 1989b, I, 423; II, 267iii) Similar comments on the importance of the labouring classes are found in his 1815 pamphlet, Grounds of an Opinion, where they are described as “the iii In the second edition of the Principles, “unproductive as well as productive” was altered to “including of course those engaged in personal services”.

100  Labour and wages foundation on which the whole fabric rests; and, from their numbers, unquestionably of the greatest weight, in any estimate of national happiness”, adding that he would argue for free import of corn if he were convinced that it would permanently improve the condition of labour (Malthus 1815b, 23); and in a letter to Nassau Senior on 31 March 1829, he wrote that the interests of the labouring classes “ought to be considered as the main interests of society” (in Senior 1829, 86). Malthus’s judgement that the interest of the labouring classes is the main interest of society contrasts starkly with a view that he was a lackey of the landowners. Working conditions and hours of work of the labouring classes Despite his recognition of the difficulties involved, Malthus emphasised the importance of ameliorating the condition of the labouring classes Malthus’s concern for the wages and employment of workers included concern for their working conditions. In a footnote in his pamphlet, Enquiry into … Rent, he said: To work really hard during twelve or fourteen hours in the day, for any length of time, is too much for a human being. Some intervals of ease are necessary to health and happiness: and the occasional abuse of such intervals is no valid argument against their use. (Malthus 1815c, 49) This footnote was not carried forward with other parts of the Enquiry into Chapter III, “Of the Rent of Land”, in the Principles, but a later chapter in the first edition of the Principles contained a similar expression of sympathy for reduced working hours, even if it meant a reduction in national wealth: I have always thought and felt that many among the labouring classes in this country work too hard for their health, happiness, and intellectual improvement; and if a greater degree of relaxation from severe toil could be given to them with a tolerably fair prospect of its being employed in innocent amusements and useful instruction, I should consider it as very cheaply purchased, by the sacrifice of a portion of the national wealth and populousness. (Malthus 1989b, I, 473–​474). Incentives and aspirations for higher wages It has been suggested that, according to Malthus, labourers do not aspire to wages at a level higher than the minimum sufficient to meet the necessaries of life, and prefer indolence and leisure instead of the effort required to earn higher wages. If this is a correct interpretation of Malthus, it would mean that he believed wages remain constant, labourers do not save, and labourers do not generate more than a basic amount of overall effective demand. It would mean

Labour and wages  101 investment and growth will have to depend on the efforts and expenditures of capitalists and landlords. It would seriously restrict the applicability of a Malthus model of economic growth to modern economic conditions, and would justify the view that Malthus has little credibility as a theorist of economic development and that his macroeconomics is not worthy of consideration. This minimalist interpretation of Malthus’s theory of wages has been adopted by a number of commentators. For example, it has been said that a basic assumption of Malthus was “that the workers will never demand anything but necessaries even if their income increases” (Meek 1951, 258); and that Malthus “regarded the workers as unwilling to submit to much continued labour beyond the point where their conventional necessities could be obtained” (Sowell 1972, 103). The following statement by Malthus seems to corroborate this minimalist interpretation: it seems to be proved by experience that the lower classes of society seldom acquire a taste for conveniences and comforts till they become plentiful compared with food, which they never do till food has become in some degree scarce. If the labourer can obtain the full support of himself and family by two or three days’ labour; and if, to furnish himself with conveniences and comforts, he must work three or four days more, he will generally think the sacrifice too great compared with the objects to be obtained, which are not strictly necessary to him, and will therefore often prefer the luxury of idleness to the luxury of improved lodging and clothing. (Malthus 1989a, II, 85) This suggestion by Malthus that the condition of the labourer will not improve until food has become in some degree scarce, appears to involve the assumption that human progress can be achieved only by struggling with hardship, and that labourers need the shock of poverty to shake them out of their torpor and indolence. It seems to be an application of the principle he enunciated in the final pages of the first edition of the Essay (Malthus [1798] 1926, 395): “Evil exists in the world, not to create despair, but activity”. However, this statement by Malthus of minimalist motivation on the part of labourers seems to conflict with his view expressed elsewhere that higher real wages will encourage workers to raise their level of aspirations. He believed that their desire to better their condition is extremely strong, and that, having acquired a taste for a better lifestyle for themselves and their families, they will not wish to jeopardise it by improvident marriages (see Pullen 2019a). It also fails to distinguish between Malthus’s views on the economy as it is, and his views on the economy as he thought it could and should be, or in other words, to distinguish between the pathological and the physiological conditions of the economy as he perceived them. According to his minimalist interpretation of the aspirations of labourers, their escape from the poverty trap depends on

102  Labour and wages food becoming in some degree scarce. According to his belief in the desire of bettering our condition, escape is initiated by a rise of real wages. Legislative intervention in wages and conditions Malthus’s comments in support of better wages and conditions were accompanied by a rejection of legislative interference to achieve them, because of his adherence to the creed of laissez-​faire: “to interfere generally with persons who are arrived at years of discretion in the command of the main property which they possess, namely their labour, would be an act of gross injustice” (Malthus 1989b, I, 474). The reference to “persons who are arrived at years of discretion” was presumably intended to mean adults, rather than children, and it leaves unanswered the question of whether in this context Malthus was opposing or not opposing legislative intervention to regulate the hours of work of children. He further argued that legislative interventions would not be feasible, and would be in contravention of the principle of competition: I see no probability, or even possibility, of accomplishing this object … and the attempt to legislate directly in the teeth of one of the most general principles by which the business of society is carried on, namely, the principle of competition, must inevitably and necessarily fail. (Malthus 1989b, I, 474) He also said: there is no one that more ardently desires to see the real advance in the price of labour than myself, but the attempt to effect this object by forcibly raising the nominal price, which was practised to a certain degree, and recommended almost universally during the late scarcities, every thinking man must reprobate as puerile and ineffectual. (Malthus 1989a, I, 355) These remarks seem to have been intended not as an overall assessment of the possibility of improvement for labourers, but as an opinion on the possibility of improvement by legislative means. The paragraphs containing these passages on p. 474 of the first edition of Principles were omitted from the second edition. It is not known whether their omission can be interpreted as a change of opinion by Malthus on legislative involvement in the hours of work of labour in general, or of the labour of children in particular; it is also not known whether these omissions were made by Malthus himself or by the editor of the posthumous second edition. If the omission was made by Malthus, it might possibly have been a reaction to the reports of the Select Committee of 1832 and the passing of the Factory Act of 1833, which regulated the hours of child labour and set up a full-​time,

Labour and wages  103 salaried inspectorate to enforce the regulations. Did he become in later years more resigned to the need for legislative action to reduce the hours of work? (see Malthus 1989b, I, 473–​475; II, 278, 459–​460). Malthus’s views on legislative intervention in the form of the Poor Laws and other forms of poor relief are discussed below in Chapter 10, “Laissez-​faire and government intervention: private sector and public sector”. Malthus argued that when corn prices rise, money wages will rise proportionately, but the prices of other things –​which he labelled “comforts and conveniences” –​would rise either less than proportionately or more slowly, so that the ability of wage earners to purchase more comforts and conveniences would mean that their standard of living would increase. This was one of the arguments he used in favour of the retention of the Corn Laws and against their abolition. However, that argument has been challenged. For example, William Grampp (1956) argued that the historical evidence does not support the idea that higher corn prices will necessarily lead to higher money wages, and that if higher corn prices did lead to higher wages, they would also lead to proportionately higher prices for comforts and conveniences, with the result that there would be no increase in the standard of living. The argument would appear to depend on the time period being considered. In the short run, workers who are faced with high corn prices might not readily succeed in their demands for higher wages, but in the longer run starvation would reduce the supply of workers, and employers who are seeking to employ more workers might have to offer higher wages.This seems to have been the standard position of Malthus and most of his contemporary political economists. Malthus, for example, said that if the price of provisions increases and wages do not rise, “sickness and famine would quickly diminish the number of labourers; and the supply of labour being unequal to the demand, its price would soon rise in still greater proportion than the price of provisions” (Malthus 1989a, I, 357). The statement that historical evidence does not support the idea that an increase in corn prices leads to an increase in money wages, raises the usual question: does “lead to” mean “necessarily lead to”, or does it mean merely “has a tendency to”, and could this tendency be counterbalanced by opposing tendencies? Does the statistical evidence necessarily disprove the existence of a tendency of higher corn prices to lead to higher money wages? The ability of workers to purchase a greater quantity of non-​food items will depend of course on the relative rates of increase of wages, prices of food, and prices of non-​food items (i.e. comforts and conveniences). There are many possible combinations of their relative rates of increase. In the absence of specific information, it is difficult to decide whether Malthus or Grampp was correct; it is difficult to find a way of theoretically confirming or denying Malthus’s view that an increase in food costs would enable workers to enjoy more non-​food items, or did in fact allow them to do so at the time. This issue of sticky wages in Malthus’s theory of wages and prices is discussed in L. A. Dow 1977.

104  Labour and wages Expenditures by labourers: their effect on investment and growth Malthus has been interpreted as saying that the spending by labourers of their wages does not generate significant effective demand, and does not contribute significantly to investment and economic growth. For example, as quoted above, he has been interpreted as holding that: “Wage-​earners as a class were also irrelevant to a solution of the glut problem … Wage increases then were not the answer” (Eagly 1974, 99). But that does not appear to have been Malthus’s view. He agreed that no power of consumption on the part of the labouring classes can ever… alone furnish an encouragement to the employment of capital. … nobody will ever employ capital merely for the sake of the demand occasioned by those who work for him; (Malthus 1989b, I, 471iv) however, he also argued that if the labourers “produce an excess of value above what they consume”, and, if this further value … affords a sufficient excitement to the saving and employment of stock, then certainly the power of consumption possessed by the workmen will greatly add to the whole national demand, and make room for the employment of a much greater capital. (Malthus 1989b, I, 471–​472) This statement about the “further value” and about the effect of consumption by workmen on demand and the employment of capital negates the view that the consumption expenditures by wage earners are irrelevant to a solution of the problem. As Malthus said, if the employment of workers does not generate this “further value”, they will not be employed. In other words, Malthus seems to have realised that the viable employment of labour necessarily involves also the employment of capital, even if only an elementary form of capital, and that the resulting product is always a joint product of labour and capital. In this sense, therefore, if labour is a necessary condition of production, and if an adequate level of consumption by labourers is a necessary condition of their existence, it logically follows that consumption by labourers is a necessary condition of production, and thus contributes to the investment of capital and to the growth of wealth. If he had lived to witness the rise of the Marginal Productivity Theory of Distribution, he probably would not have agreed with exponents of that theory who suggest that when production increases after the addition of an extra unit of capital in combination with the existing labour force, the extra production is causally and solely attributable to the extra unit of capital (see Pullen 2010). This emphasis on the role played by consumption by labourers can be seen in his replies in 1827 to the Select Committee on Emigration, in response to iv In the second edition of the Principles, “nobody” was altered to “no one”.

Labour and wages  105 the question “do you not consider that it is to the best interests [of the capitalist class] that the labourers should be in an average state of prosperity?”, he said: I think that the home demand of the country depends very much upon the condition of the labouring classes; that is, that the extent of the effectual demand for the manufactures and commodities consumed at home, depends essentially upon the good condition of the labouring classes. (Malthus 1827b, 317, question 3282) He warned of the harmful consequences of excess consumption by the labouring classes, but he recognised that national growth depends very much on the consumption expenditures of wage earners.

Cause of wages Malthus used expressions such as “funds destined for the maintenance of labour” (Malthus 1989b, II, 236), and “funds which are actually employed on the maintenance of labour” (Malthus 1989b, II, 234), and the idea that wages would be determined by the funds for the maintenance of labour was introduced in numerous alterations in the second edition of the Principles, but he does not appear to have subscribed to a “Wages Fund Theory”,1 according to which the amount of money available to capitalists for the payment of wages is fixed or relatively inflexible, as that expression later often came to be used. He recognised that wages would be paid out of capital that had been accumulated by capitalists or borrowed from others, but in his view the amount of capital available for wages does not by itself provide an adequate explanation of the level of wages; it accounts only for the supply cause of wages, ignoring the demand cause. His support for a demand-​ and-​ supply theory of wages can be seen in statements such as The principle of demand and supply is the paramount regulator of the prices of labour as well as of commodities, not only temporarily but permanently; and the costs of production affect these prices only as they are the necessary condition of the permanent supply of labour, or commodities. (Malthus 1989b, I, 241) This statement was omitted from the second edition of the Principles, but Malthus’s position on this question does not appear to have altered. The omission of such a concise statement is puzzling. His support for a demand-​and-​supply theory of wages involved a rejection of the theory that wages are determined solely by the skills or quality of the labour. In both editions of the Principles Malthus argued, against Adam Smith, that wages are determined by scarcity, not merely by the demand or esteem for particular labour skills (Malthus 1989b, I, 245, repeated with even more emphasis in Malthus 1989b, II, 246.)

106  Labour and wages His theory of the causes of wages was therefore not a cost of production theory; he said that “the price of the necessaries of life”, or what he called “the cost of producing labour”,2 has an important influence on the price of labour, but it “only influences wages as it regulates the supply of labour” (Malthus 1989b, I, 241), and he said “it is of great importance to a thorough understanding of the subject … to see clearly and distinctly the constant and predominant action of the principle of supply and demand” (Malthus 1989b, I, 243). The importance he gave to the demand for labour as a cause of wages did not diminish the importance he gave to the supply of the available funds for the employment of labour. “It is as the condition of the supply, that the prices of the necessaries of life have so important an influence on the price of labour” (Malthus 1989b, I, 241; II, 218). In evidence before the 1827 Select Committee on Emigration from the United Kingdom, Malthus agreed that the general situation of labourers is very much deteriorated by “a comparatively small excess of the supply of labour over the demand”; and he added: “and sometimes by a smaller excess than one might perhaps suppose” (Malthus 1827b, 315, Q. 3258). If Malthus had said that wages are determined solely and fully by the funds for the maintenance of labour, he could be accused of overlooking the role of effective demand. The existence of a body of funds for the maintenance of labour does not of itself constitute an effective demand for labour. He was thus able to explain why wages in a new fertile country were high. If, according to a wages-​fund theory, wages are paid out of a capital fund, wages in a new country where capital is scarce would be low, but the facts contradicted that theory; wages in a new fertile country like America were high. A passage in the Principles which might possibly be interpreted to imply that wages are determined by supply or cost considerations, independently of demand, is the passage stating that the causes which explain irregularities in wages are “causes of a nature to influence the supply of labour in the particular departments in question” (Malthus 1989b, I, 243).The absence of any reference to demand in that passage could lead to the interpretation that demand is irrelevant. But such an interpretation would have to ignore the frequent references in the same Section to demand, as well as supply, as determinants of wages. It was probably in order to forestall or answer such a misinterpretation that Malthus altered the statement in the second edition of the Principles to include a reference to demand, namely, “causes of a nature to influence the supply of labour in the particular departments in question and to determine such wages by the demand compared with the supply of the kind of labour required” (Malthus 1989b, I, 243; II, 198). In discussing whether Malthus believed that wages are determined by demand and supply, or by cost, it should be remembered that the title he gave in the first edition of the Principles to Section I of Chapter IV on wages was “Of the Dependance[sic] of the Wages of Labour upon Supply and Demand”, a title which remained substantially unchanged in the second edition of the Principles. It would seem therefore that Malthus’s theory of the determination of wages was consistent with his general theory of the determination of prices.

Labour and wages  107 While recognising that the supply of capital funds is a cause of wages –​ though not the only cause –​Malthus made an important distinction between the funds available for wages and the funds actually employed as wage payments. He explicitly stated that he had changed his opinion on this matter; whereas he had previously thought that the demand for labour depended on the whole value of the capital of the country, he now believed that demand for labour is proportioned to the funds actually employed in the maintenance of labour: the demand for labour is not proportioned to the increase of capital in any shape; nor even, as I once thought, to the increase of the exchangeable value of the whole annual produce. It is proportioned only … to the rate of increase in the quantity and value of those funds which are actually employed in the maintenance of labour. (Malthus 1989b, II, 203; original emphasis) This change of opinion can also be seen in a number of alterations in the second edition of the Principles. (See Malthus 1989b, I, alterations 261d, 262d, 263d, 264b, 265 f, 266f, 266g, 297e). Although he said the demand for labour is not proportioned to the capital of the country or the value of the whole produce, he also said that an increase of capital would be generally followed by an increase in the demand for labour, “since its ordinary and natural effect is to increase the value of the funds destined for the maintenance of labour” (Malthus 1989b, I, 261; II, 236). In this context he referred on some occasions to “funds which are actually employed on the maintenance of labour”, and on other occasions to “funds destined for the maintenance of labour” (Malthus 1989b, II, 234, 236). It is not clear whether he intended a significant doctrinal distinction between the two expressions, or whether he intended them to be interpreted synonymously. In a statement added to the second edition of the Principles, he distinguished between the funds for the maintenance of labour and the motive to use those funds: “profits and the encouragement to future production do not depend merely upon an excess of produce above that which is consumed by the labourers, but upon whether this excess is wanted” (Malthus 1989b, II, 252; original emphasis), and appeared to argue that the funds for the maintenance of labour provide the means, but not the motive, for employing labour; they are a necessary cause of the demand for labour, but do not constitute a sufficient cause or a guarantee of an effectual demand for labour; the demand for labour depends on the funds for the maintenance of labour, but not on those funds alone. He did not in this context explain how potential funds for the maintenance of labour become converted into actual funds for the maintenance of labour. Another difficulty in interpreting Malthus’s views on the causation of the demand for labour lies in the terms he used to describe the causation. In the first edition of the Principles he said that the demand for labour “was occasioned by and proportioned to” capital and revenue (Malthus 1989b, I, 261). In the

108  Labour and wages second edition of the Principles he omitted “occasioned by” and simply said that the demand for labour was “proportioned to” capital and revenue (Malthus 1989b, II, 203). He also said in the second edition that an increase in the value of the whole produce was “generally followed by” an increase in the demand for labour, adding that this was its “ordinary and natural effect” (Malthus 1989b, II, 206). The use of these various expressions, without formal definitions and distinctions, makes it difficult to determine the exact nature of the relationships he was attempting to elicit between the various phenomena. He seems to have been struggling to define and distinguish three different concepts of causation: “occasioned by”, “followed by”, and “proportioned to” –​but the struggle seems to have ended without a clear-​cut resolution.

Combinations of masters and combinations of labourers Malthus argued that a low level of wages frequently occurs because of the “want of freedom in the market for labour, which occurs more or less in all communities, either from parish laws, or the more general cause of the facility of combination among the rich, and its difficulty among the poor.” This “operates to prevent the price of labour from rising at the natural period, and keeps it down some time longer; perhaps, till a year of scarcity, when the clamour is too loud, and the necessity too apparent to be resisted”. The rich then affect to grant an increase in wages “as an act of compassion and favour to the poor”. When plenty returns, the rich complain that the price of labour does not again fall, and “indulge themselves in the most unreasonable of all complaints … when a little reflection would shew, that it must have risen long before, but from an unjust conspiracy of their own”. Thus, “the rich by unfair combinations, contribute frequently to prolong a season of distress among the poor”. However, he added that “no possible form of society could prevent the almost constant action of misery, among a great part of mankind”, thus indicating that, while condemning these injustices on the part of the rich, he did not regard them as the only cause of distress among the poor (Malthus [1798] 1926, 35–​36). Although Malthus clearly condemned the “unjust combinations” used by employers to prevent increases in wages, his views on the justice of combinations by labourers to improve wages and conditions were sympathetic, but he doubted their expediency. In the first edition of the Principles he argued that an individual labourer who attempted to improve his working conditions by choosing to work fewer hours in the day would suffer, unless there was a “simultaneous resolution” on the part of all the labouring classes to do likewise. Malthus believed that such a simultaneous resolution would be “scarcely possible”; and he added “it might be desirable … that the labouring classes should not work so hard; but as this could only be accomplished by a simultaneous resolution among workmen, it cannot take place”. He also thought that we could not “reasonably expect” that the labouring classes “should not enter into a competition with each other in working” (Malthus 1989b, I, 474, 587). However, these statements were omitted from the second edition of the

Labour and wages  109 Principles, as part of an extensive omission of three paragraphs (Malthus 1989b, II, 278; alterations 1.473bc, 1.475a), and there is no indication of whether the omission involved a recantation of these ideas by Malthus. The significance of the omission is discussed in Malthus 1989b, II, 459–​460. In his evidence in 1824 before the Select Committee on Artizans and Machinery he was asked for his opinion on the “Justice, policy or propriety” of the Combination Laws which had been set up “To punish men who attempt to meet, and attempt to demand an increased rate of wages of their masters, and refuse to work, if those wages are not given”. In his replies he said of the Combination Laws: They evidently appear not to be just, and ought to be avoided; therefore, if not absolutely necessary, under the actual circumstances, they do not appear to me to be necessary. … They are unjust to the men, because it is understood that the masters combine, without being liable to punishment; and that the men, when they combine, are liable to very severe punishment. He added that if those laws were repealed, the dealings between workmen and masters would “in all probability” be carried on better, but he also said that the laws have had very little effect; in preventing combinations of workers “for it appears that combinations have existed to a considerable extent”. He said that the laws have had “a partial effect; a pernicious effect, I think” on wages, and “have no doubt operated against the general principle of wages finding their natural level”. He agreed with an interviewer’s statement that masters and men “should be left to make what bargains they please, both as to the mode of paying and the hours they ought to work”. However, he also said that “any sort of force or intimidation on the part of the men, to prevent others taking lower wages, should be punished severely; such as acts of intimidation either towards the masters, or other men” (Malthus 1824b, 601). These comments before the Select Committee show that Malthus did not disapprove of trade unions, and did not regard them as inconsistent with the principle of laissez-​faire.

Capital accumulation and high wages Did Malthus argue that increases in wages depend on increases in capital accumulation? Did he say that capital accumulation is a necessary cause of higher wages or a sufficient cause of higher wages? Did he agree or disagree with Adam Smith on this issue? The question has significant implications for economic policy. If capital is a sufficient cause, higher wages could be fostered by measures designed to encourage the growth of capital by stimulating profits, instead of directly raising wage rates. It has been argued that, in Adam Smith’s view, capital accumulation is both a necessary cause and a sufficient cause of higher wages, and that Smith believed in the unique importance of capital accumulation in getting and keeping wages high. However, as Anthony Waterman pointed out, Malthus introduced two

110  Labour and wages important qualifications to Smith’s position, namely, “operation of the prudential check” and “land scarcity and diminishing returns”: Malthus thought that capital accumulation is neither necessary nor sufficient for higher wages; he did not see capital accumulation as necessary for wage increases, because wage earners themselves could bring about higher wages by reducing the supply of labour, through delayed marriages or prudential restraint; and he did not see capital accumulation as a sufficient cause of wage increases, because the tendency of capital accumulation to boost wages could be offset by other causes, such as land scarcity and diminishing returns, leading to a decline in profits and wages (Waterman 2012). A further reason for not agreeing with Adam Smith that capital accumulation is a sufficient cause of wages is that employers would be reluctant to pay increased wages unless there is an increase in the revenue received from their productions, and this increased revenue would not occur unless there is an increased effective demand for the products. Malthus’s theory of growth would give as much emphasis to the effective demand for products as to the amount of capital accumulation available to the employer. Another possible reason for doubting whether capital accumulation by itself will be sufficient to generate higher wages –​a reason not specifically mentioned by Malthus, but consistent with his emphasis on the importance of distribution, as discussed in Chapter 13 –​is that the level of wages will depend, not only on the level of production and on the level of funds available to the employer, but also on the pattern of distribution of the funds between labour and other factors of production. Malthus believed that wages could be increased by an increase in their share, even if capital is not accumulating. This particular question is complicated by the different meanings given to the concept of capital. It is generally used in contrast to land and labour, but Malthus occasionally also used it in a broader sense to include wages, with “capital” being the genus and “wages” one of its species. In this broader sense, wages are a form of capital, and therefore, although there can be an increase of capital without an increase of wages, there cannot be an increase of wages, other things being equal, without an increase of capital. If we adopt this broader concept of capital to include wages, it becomes logically and grammatically necessary to say, other things being equal, that capital is a necessary cause of increased wages. Malthus’s use of this broader concept of capital can be seen in his statement: “The amount of capital advanced consists of the amount of wages paid from the first to the last together with the amount of rent paid either directly to the landlord or in the price of raw materials” (Malthus 1989b, I, 103; omitted from the second edition of the Principles), but he also said that it would be preferable to use the three terms –​profits, wages, and rents –​rather than only one term –​capital. Demand for labour: depends on fixed capital or circulating capital? Malthus and Ricardo differed on the question of whether the demand for labour depended on fixed capital or circulating capital. In the first edition of

Labour and wages  111 his Principles Malthus’s opinion was that in individual cases the demand for labour was in proportion to circulating capital, as distinct from fixed capital, but that, taking the nation as a whole, the distinction was unnecessary because the demand for labour depends upon “the rate at which the value of the general produce, or of the capital and revenue taken together, increases” (Malthus 1989b, I, 261–​262). This discussion was omitted from the second edition of the Principles. Ricardo in a Note had said that there was a fallacy in the whole of the mathematical example used by Malthus to support his argument. Ricardo argued that the distinction between fixed and circulating capital was important because the effective demand for labour depends on circulating capital (Ricardo 1973, II, 234; Ricardo’s Note was also later deleted). As noted above, Malthus in the second edition of the Principles stated that the demand for labour depends on the funds used for the maintenance of labour. His argument no longer depended upon the distinction between fixed and circulating capital; it now depended, not upon capital in general, but upon that part of capital which is actually devoted to, or destined for, the maintenance of labour. This distinction has significant macroeconomic implications. It reinforces Malthus’s arguments, in opposition to Say’s Law, that the mere accumulation of capital will not necessarily result in economic progress. With regard to the funds destined for the maintenance of labour, Malthus obviously did not think that supply creates its own demand.

Wages as quantities or proportions The question of whether rent, wages, and profits should be estimated by proportions or quantities, was one of the fundamental points of disagreement between Malthus and Ricardo, and one on which neither disputant was willing to compromise. Ricardo argued that rent, wages, and profits are all estimated by their proportions to the total produce. Malthus argued that profits are estimated by proportions, but that wages and rents are estimated by quantities. Malthus believed that Ricardo’s approach, while logically consistent in itself, was completely divorced from a general understanding of the terms, and that to estimate rent and wages by the proportion which they bear to the whole produce must lead to confusion and error. Malthus’s statements on this issue in the first edition of the Principles were quite unequivocal, and the alterations he made in the second edition of the Principles show that he was concerned to express even more strongly in the second edition his opposition to Ricardo on this question. For example, in one alteration in the second edition he described Ricardo’s concept of wages as “proportionate wages”, and argued that such a concept tells us nothing about the condition of the labourer. He noted that proportionate wages “are low in the United States of America, and high in countries where the labourer may be starving” (Malthus 1989b, II, 217). Ricardo, he believed, was the first person to use the term “wages” in that proportionate sense. He referred to Ricardo’s use of “wages” in a proportionate sense as “the peculiar views and language of Mr.

112  Labour and wages Ricardo”. James Mill used the term “rate of wages” to refer to “the proportion of the produce which falls to the share of the labourer”, and Malthus thought that the term “rate of wages” to refer to this share or proportion “is in some respects preferable to the term real wages”, but Malthus thought that Mill’s term “rate of wages” is still highly objectionable, because it is an old and familiar term used in an entirely new sense. When the expressions high or low rates of wages were used, before the time of Mr. Ricardo and Mr. Mill, no one understood them to mean the proportion of the produce awarded to the labourer. In fact, this meaning had not been before conveyed by any appropriate terms in the language of political economy. Malthus conceded that a term for the proportion awarded to the labourer was “much wanted in explaining the theory of profits”, and he argued that, instead of Ricardo’s use of “wages” in a proportionate sense, “a new term should certainly have been chosen, and not an old one, which was familiar in a different sense”. In what appears to have been an attempt at a genuine reconciliation, Malthus said “There seems to be no objection to the term proportionate wages, which has been used by Mr. Macculloch” (Malthus 1827a, 67–​68; original emphasis). This indirect praise by Malthus for McCulloch would have to be balanced against the statement which immediately followed: However incautious Mr. Ricardo and Mr. Mill may have been in the definition and application of their terms, I fear it will be found that Mr. Macculloch has been still more so; and that, instead of growing more careful, the longer he considers the subject, he seems to be growing more rash and inconsiderate. (Malthus 1827a, 69) In another alteration in the second edition of the Principles, Malthus went so far as to suggest that, in order to avoid ambiguity, it would perhaps have been better if he had replaced the term “wages” by the terms “quantity of necessaries &c awarded to the labourer” or “the money wherewith he purchases those necessaries”, even though he was sure that, despite Ricardo, the reader always understood “wages” in that sense. Despite Malthus’s insistence that wages should be regarded as a quantity, not as a proportion, there was at least one instance in the first edition of the Principles where his choice of terms might have indicated the opposite. In the Principles (306), he spoke of wages as a “portion”, “share”, and “division” of the total produce. In the second edition (279), he removed the possibility of misinterpretation, by replacing these terms with “quantity” (Malthus 1989b, I, 306; II, 279). Ricardo’s reply to Malthus’s criticism was interesting. Ricardo denied that there was a real difference of opinion between himself and Malthus on this

Labour and wages  113 question. He believed he had simply used different names, and that his definition of wages did not prevent an examination into the real condition of the labourer: “I should first enquire what the labourer’s money wages were, and should estimate his condition by the abundance of necessaries which those money wages would procure him” (Ricardo 1973, II, 250). Thus, it would seem that the term “condition of the labourer” as used by Ricardo was equivalent to the term “real wages” as used by Malthus, namely, the amount of necessaries and other things that the labourer’s money wages could procure. In Ricardo’s terminology, it would be possible to say that the “condition of the labourer” had increased even though “wages” (i.e. the proportion of the produce) had fallen. Despite this reply from Ricardo, Malthus in the second edition of his Principles held firmly to the idea that wages should be defined as a quantity, not as a proportion, and was not prepared to compromise in any way with Ricardo’s definition of wages as a proportion.

8  Capital, profits, interest, investment, and the wages–​profits relation

Profits and capital In his Principles Malthus defined profits as “that portion of the national revenue which goes to the capitalist in return for the employment of his capital” (Malthus 1989b, I, 293), and said that the measure of profits was “the excess of the value of produce over the value of advances” (Malthus 1989b, II, 245). In his Definitions (1827) he said:“profits consist of the difference between the value of the capital advanced, and the value of the commodity when sold or used”, and he described the rate of profits as “The per centage proportion which the value of the profits upon any capital bears to the value of such capital”. He also distinguished between profits and monopoly profits, the latter being “The profits which arise from the employment of capital where the competition is not free” (Malthus 1827a, 241). His views on profits are sometimes not easy to comprehend, partly because he appears to have used the term “profits” in at least three different senses that were not always clearly distinguished: (1) an amount of money, (2) a percentage or proportion of the capital employed, (3) a percentage or proportion or portion or share of the total revenue. He said that an increase in (1) or (2) would be an increase of profits, but that an increase in (3) would not necessarily be an increase of profits. Importance of profits In the previous chapter it was shown that Malthus was considerably concerned about the level of wages, not only for humanitarian reasons but also as a cause of prosperity for the economy as a whole, as well as for the workers receiving the wages.This emphasis on wages might conceivably be interpreted as a denial or neglect by Malthus of the importance of profits, or that he thought the growth of wages was more important than the growth of profits. Also, the emphasis given by Keynes to Malthus’s views on the importance of effective demand seems unaccountably to have persuaded some commentators to think that Malthus denied or neglected the importance of profits and capital as determinants of economic growth, or that he was more of a demand-​side

Capital, profits, interest, investment, and the wages–profits relation   115 economist than a supply-​side economist. The textual evidence shows that was definitely not the case. Relative importance of profits and rents Malthus appears to have had a change of opinion on the importance of profits relative to rents. He described rents and profits as surpluses, and in the first edition of the Principles he said that profits are “a more important surplus”, but in the second edition that phrase was omitted. In the first edition he said that profits are “the most important source of wealth, as they are, beyond all question, the main source of accumulation”, but that statement was also omitted from the second edition (Malthus 1989b, I, 199). It is unlikely that these omissions were intended as a recantation of his opinion about the importance of profits, given the positive endorsements of profits that were retained in the second edition (Malthus 1989b, I, 199; II, 385–​386). It is more likely that these omissions indicated a change of opinion on the relative importance of profits, compared with the importance of rents and wages. It seems that he changed his opinion on whether profits are the most important source of wealth and the main cause of accumulation, but there is nothing in the second edition to suggest that he believed profits were unimportant. In the second edition of the Principles he described profits as “that great department of the national revenue” (Malthus 1989b, II, 27), and he referred to “the other most important class of society which lives upon the profits of capital” (Malthus 1989b, II, 30). Importance of capital It is very clear that Malthus attached great importance to capital as a source of economic growth: “It is both the cause and effect of increasing riches” (Malthus 1989a, II, 84). He also said that “as capital … is absolutely necessary to the division of labour and the use of machinery, its powerful influence on the progress of national wealth must be considered as incontrovertibly established” (Malthus 1989b, I, 31; II, 27; slightly altered in the second edition of the Principles). He referred to “the extreme desirableness of an increase of capital” in countries where it is deficient, and to the desirableness of a “wholesome and effective capital” (Malthus 1989b, I, 372), and to the natural and regular progress of a country towards its “full complement” of capital and population (Malthus 1989b, II, 158) –​a notion similar to the notion of an optimum level of population, and another example of his application of the doctrine of proportions. See also Chapter 4 on manufacturing for further references to the importance of capital and investment. The growth of capital is important also because of its effect in altering the structure of society and the distribution of wealth. According to Malthus the increase of capital, which is both the cause and effect of increasing riches, may be said to be the efficient cause of the emancipation of the

116  Capital, profits, interest, investment, and the wages–profits relation great body of society from a dependence on the landlords. In a country of limited extent, consisting of fertile land divided into large properties, as long as the capital remains inconsiderable, the structure of society is most unfavourable to liberty and good government. This was exactly the state of Europe in the feudal times.The landlords could in no other way spend their incomes than by maintaining a great number of idle followers; and it was by the growth of capital in all the employments to which it is directed that the pernicious power of the landlords was destroyed, and their dependent followers were turned into merchants, manufacturers, tradesmen, farmers, and independent labourers –​a change of prodigious advantage to the great body of society, including the labouring classes. (Malthus 1989a, II, 84) As well as insisting on a reciprocal causal relation between the growth of capital and the growth of riches, he also insisted on a reciprocal causal relation between the growth of capital and the distribution of wealth. Capital promotes the distribution of wealth but also requires the distribution of wealth; the benefits to be derived from the accumulation of capital will require the “better distribution of capital” (Malthus 1989a, II, 85) –​another example of the importance given by Malthus to distribution, as well as to production, and another example of the role of reciprocal causality in his methodology. However, as would be expected, Malthus warned that, despite the great advantages of the growth of capital, there must be a limit to its growth. He argued that a country with abundant resources, combined with improvements in agriculture, manufactures, and foreign commerce, would produce “the greatest national prosperity”, and that “it is extremely difficult to say when they will reach their limits”, but that “there is, however, a limit which, if the capital and population of a country continue increasing, they must ultimately reach, and cannot pass” (Malthus 1989a, II, 48). Was Malthus anti-​capitalist? Notwithstanding his strong and emotional criticisms of the low level of contemporary wages, it is obvious that Malthus was not anti-​capitalist. He did not see the capitalist class as an enemy of the labouring class, and, in a criticism of Adam Smith, he stated that he did not regard profits as a deduction from wages (Malthus 1989b, I, 81). He would not have agreed with the adage “Profits are unpaid wages”. He believed that capital and capitalists are essential for a thriving economy. He was critical of situations where profits were extremely high –​he referred to the “extravagant profits of the farmers” –​and believed they could be reduced by competition from manufacturers and commerce (Malthus 1989b, I, 164), –​but did not go to the other extreme of advocating zero profits. He recognised that unless capitalists could expect a level of profits sufficient to provide an acceptable surplus over costs, capital would not be accumulated at a sufficient rate, and production and employment would suffer.

Capital, profits, interest, investment, and the wages–profits relation   117 Justice of profits Malthus’s economic arguments in favour of the existence and growth of profits were supported by ethical arguments. He described profits as “the remuneration for the capital advanced”, as “only a fair remuneration for that part of the production contributed by the capitalist”, and as necessary “to bring the articles to the production of which they were applied to market” (Malthus 1989b, I, 80–​81). He said that the profit of a trade which cannot maintain itself without a bounty is not a “proper profit”; he was critical of competition which is not “perfectly fair”, and said that a great bounty would mean that an independent workman would be “unjustly excluded from the market” (Malthus 1989a, I, 365). Competition, as a cause of profits In Malthus’s view, profits are “determined upon the principles of competition” (Malthus 1989b, I, 190), and “can only be regulated by the principle of competition, or of demand and supply” (Malthus 1989b, I, 328). As discussed by Graham Tucker, Malthus argued that the principle of competition would influence profits in two ways: “Throughout most of his correspondence with Ricardo, the principle of competition was interpreted indifferently to refer either to the effect of the accumulation of capital on the supply of commodities available or on the amount of labour demanded” (Tucker 1960, 132). The accumulation of capital would tend to increase the production and supply of products, and thereby reduce prices and profits. Also, the increase of production would tend to increase the demand for labour, and thereby increase wage costs and further reduce profits. In Tucker’s view, the distribution of emphasis between these two ways of affecting profits varied at different stages of Malthus’s writings; but the second of these –​namely, the effect of accumulation on the demand for labour and consequently on wages and profits –​“appears to have an increasingly important place in Malthus’s thought” (Tucker 1960, 133). Land scarcity: limiting principle of profits It has been argued that the scarcity of fertile land is the fundamental cause of declining profits; the diminishing productivity that results when agriculture is obliged by population growth to be extended to less fertile land, would mean increased labour costs per unit of produce, which would mean reduced profits. Malthus agreed that the scarcity of fertile land would impose an ultimate limit on the rate of profits. He described land scarcity as the “limiting principle” of profits, but he argued that the state of the land is not the sole cause of agricultural profits. He distinguished between the “limiting principle” of profits and the “governing principle” of profits, arguing that until the ultimate limit is reached, there are offsetting and countervailing causes which govern the rate

118  Capital, profits, interest, investment, and the wages–profits relation of profits, such as improvements in agricultural machinery and methods, which could tend to prevent a continuing fall of the profit rate. He did not deny the effect of land scarcity as a determinant of profit rates and national prosperity, and he agreed that there must ultimately be a limit which cannot be passed to the growth of capital and population, but he argued that it is difficult to say when this limit will be reached. He believed that “this limit, upon the principle of private property, must be far short of the utmost power of the earth to produce food” (Malthus 1989a, II, 48). Malthus agreed with Ricardo that with the extension of cultivation to poor land, and when “cultivation is pushed to its extreme practical limits”, profits will tend to fall. He insisted that he did not mean to underrate the importance of that cause. It is a “powerful and certain cause” (Malthus 1989b, I, 117), and “in its final operation, so much so as to overwhelm every other”. But he also argued that “its progress is extremely slow and gradual; and while it is proceeding with scarcely perceptible steps to its final destination”, it is “frequently counteracted and overcome by other causes”; which “might contribute to operate most powerfully for almost any length of time” and “often for twenty or thirty, or even 100 years” (Malthus 1989b, I, 311, 312, 313, 317). The difficulty of understanding Malthus’s views on profits is compounded by the number and complexity of the alterations made in the second edition of the Principles. In the statement quoted above, “for almost any length of time” was changed to “for a great length of time”. In the second edition it was stated that this counteraction by other causes may occur “for a considerable time, as to leave very great play to the influence of the competitions of capital” (Malthus 1989b, II, 236–​237). The first edition of the Principles said that these other causes would include “the proportion which capital bears to labour”, and in the second edition “capital bears” was altered to “capital and produce bear”. In the first edition of the Principles the other causes included “the causes which award a larger or smaller share of … necessaries to each labourer”, but that was part of a long paragraph omitted from the second edition (Malthus 1989b, I, 310–​313). In the first edition, in referring to the causes which have “a very strong tendency to counteract the effects arising from the necessity of taking poorer lands into cultivation”, he said “it is not easy to say how long and to what extent they may balance or overcome them” (Malthus 1989b, I, 316), but this also was not included in the second edition. Capital, as a determinant of profits Malthus said that the amount of capital is a determinant of the rate of profit. He did not say it is the only determinant; if it were the only determinant, the rate of profits in any country would go on falling when capital was increasing. He argued that the rate of profits will depend not only on the absolute amount of capital, but also on the possibility of finding profitable investment opportunities for it.

Capital, profits, interest, investment, and the wages–profits relation   119 Risk and uncertainty Unlike Keynes, Malthus did not discuss in any detail the relation between risk, uncertainty, and profits. John Berdell stated (1999, 29): “For some readers the greatest difference between the Keynesian and Malthusian principles of effective demand may lie in the role allocated to uncertainty”. However, the few references Malthus made to the role of risk and uncertainty show that he was not unaware of their importance. For example, he defined the “interest of money” as “The net profits of capital in money separated from the risk and trouble of employing it” (Malthus 1827a, 241, definition 34). He observed that the rent on pasture land in the highlands of Scotland would be affected by “the greater risk on a poor soil and in an exposed situation” (Malthus 1989b, I, 99). He recognised the greater risks involved in the export trade by comparison with home trade (Malthus 1989b, I, 499). He acknowledged that the risk of lending money “tends to raise interest” (Malthus 1989b, I, 158; II, 157). As already noted, he said that the rate of profits would be affected by the “difference of security” (Malthus 1824a, 321–​322).The connection between risk and profits was clearly expressed in the statement: “universally, risk in employing capital has precisely the same effect in diminishing the motive to accumulate and the reward of accumulation, as low profits”, and he argued that “certain and steady” profits are better than “high” profits as a stimulus to the increase of capital, because the encouragement effect of high profits might be offset by the discouragement effect of high risk (Malthus 1989b, I, 373; II, 444). This argument could be seen as a further application of his doctrine of proportions, and as a recommendation that a just mean should be sought between high profits and high risk. He recognised that uncertainty not only pervades transactions within the economy, but also exists within the science of political economy: parts of the science of political economy are “most uncertain”, and “we cannot … lay down a certain rule for growing rich” (Malthus 1989b, I, 515). Uniformity of profits Malthus and Ricardo both believed in the uniformity of profits, or in other words, in the tendency of the rate of profits throughout all sectors of the economy to gravitate toward the same level, because of the forces of competition: it is an acknowledged truth that in an improved and civilized country the profits of stock, with few and temporary exceptions which may be easily accounted for, must be nearly on a level in all the different branches of industry to which capital is applied, and “it is certain that if the profits on land permanently fall … profits in manufactures and commerce must fall too” (Malthus 1989b, I, 317). This

120  Capital, profits, interest, investment, and the wages–profits relation statement was part of two paragraphs omitted from the second edition, but there is no evidence of recantation on this point. Primacy of agricultural profits However, when the profit rates of the various sectors in the economy differ from one another before reaching uniformity, Malthus and Ricardo disagreed on which profit rate exerts a primary and determining influence. Ricardo argued “it is the profits of the farmer which regulate the profits of all other trades” (Ricardo 1973,VI, 104). Malthus argued that the agricultural profit rate is not the sole determinant of the general profit rate –​the agricultural profit rate would play a part along with the profit rates of other sectors in establishing the general rate of profit –​but he thought that the agricultural profit rate is governed by the general profit rate. Future course of profits Ricardo argued that there would be a secular decline of profits, because of the growth of population and the extension of cultivation to less fertile land with diminishing returns and increasing wage costs. He therefore insisted that in order to avoid a secular decline of profits it was necessary to offset increasing wage costs by abolishing the Corn Laws, and permitting the import of cheaper corn. But Malthus argued that a secular decline of profits had not been occurring in Britain and would not necessarily occur in the future, and therefore it would not be necessary to abolish the Corn Laws; he acknowledged that land scarcity and diminishing returns create a tendency for profits to decline, but argued that countervailing tendencies could prevent this tendency from becoming an inevitable trend. These countervailing causes were said to include, for example, improvements in agriculture, an increase of personal exertion is in the labouring classes, a rising price of corn without a proportionate rise of other commodities, etc., which would be “sufficient to counterbalance the effect of taking additional land into cultivation”, and would exert their effects “in the actual state of those countries in the world, or in their probable state for some centuries to come” (Malthus 1989b, I, 325).These comments were part of five paragraphs omitted from the second edition, but a paragraph added to the second edition included the statement that, for various reasons, the effect of taking poorer land into cultivation is so likely to be counterbalanced under such circumstances, that in the actual state of many countries, or in their probable state for some centuries to come, we may fairly lay our account to such a result when the occasion calls for it. Malthus concluded his Chapter V, “Of the Profits of Capital”, with a paragraph that sums up his opposition to the view that profits will necessarily fall because poorer land is being taken into cultivation. It includes the statement:“No

Capital, profits, interest, investment, and the wages–profits relation   121 theory of profits therefore can approach towards correctness, which attempts to get rid of the principle of demand and supply and competition” (Malthus 1989b, I, 336).

Interest, loanable funds, and liquidity preference Malthus did not devote a distinct chapter or section to expounding his views on interest, and he did not present an explicit or fully articulated theory of interest, but his limited and scattered remarks on interest show that he was aware of the importance of interest rates in economic growth. As already quoted, Malthus defined the “interest of money” as “The net profits of capital in money separated from the risk and trouble of employing it” (Malthus 1827a, 241, definition 34). The expression “interest of money” was also used in other places, for example Malthus 1989b, I, 318, 373. He also referred to interest as a payment on “public and private debts” (Malthus 1989b, I, 43). He appears to have thought of interest as a payment on borrowed capital, or a return on loan capital, and to have regarded interest as a cost that has to be met, along with other “advances”, and has to be deducted from the value of produce in order to calculate net profits. These “advances” were described as “accumulations generally made up of wages, rents, taxes, interest, and profits” (Malthus 1989b, II, 218; alteration 1. 293g, 2. 262. This definition of interest was left somewhat unclear because of the inclusion of “profits” as one of the advances that had to be met before the “profits of capital” can be calculated). He distinguished between profits and interest, but he also noted that they are often confused: “in many countries profits are thought to be high, owing to the high interest of money when they are really low” (Malthus 1989b, I, 373), and I have long been of opinion, that though the rate of interest in different countries is almost the only criterion on which a judgment can be formed of the rate of profits; yet that in such countries as India and China, and indeed in most of the eastern and southern regions of the globe, it is a criterion subject to the greatest uncertainty. (Malthus 1989b, I, 158) If it is true that Malthus ignored the role of interest, then any claim that he should be taken seriously as a macroeconomist must be undermined. Ever since John Maynard Keynes pronounced that Malthus did not have a valid theory of interest, it seems to have been taken for granted by many that Malthus did not have a valid theory of interest. I am not aware of anyone who has challenged Keynes’s opinion on this matter. Keynes attributed to Malthus a loanable funds theory of interest, a theory that Keynes regarded as unacceptable because it does not explain why, in a depression in which there is an abundant supply of savings seeking investment, interest rates do not fall to zero, thus becoming a counteracting force to depression, and stimulating economic growth. Keynes believed that a liquidity funds theory of interest would remedy

122  Capital, profits, interest, investment, and the wages–profits relation the deficiency in Malthus’s thinking. This criticism by Keynes appears to have entered into the mainstream of macroeconomics texts and histories of economic thought as a permanent and irrefutable fixture, but it appears not to have given due recognition to Malthus’s use of the concept of effective supply. As noted above, Malthus did not use the term “effective supply”, but the concept of effective supply was clearly used, and when applied to the theory of interest appears to provide a response to the alleged deficiency. If the loanable funds theory of interest is expressed in terms of the physical or potential supply of savings that are available for investment but are being withheld from the market –​because of poor prospects and an unacceptable degree of risk in the reliability of returns on the investment and in the security of the capital, or for other reasons personal or commercial –​then Keynes’s criticism shows the deficiency of the loanable funds theory as a remedy for depression. But if it is defined to include, not merely the physical or potential supply of savings available for investment, but also the effective supply of savings –​by which is meant the supply of loanable funds actually being brought to the market and offered for investment in the market –​then the alleged deficiency appears to dissipate. For Malthus, the question of why interest rates do not fall to zero in a depression is answered by the fact that in a depression the supply of surplus savings might not be an effective supply, because of a lack of suitable investment outlets. The mere existence of owners of equity capital seeking investment does not guarantee the existence of suitable investment opportunities. The surplus savings are therefore withheld as idle or redundant savings, or “floating capital” –​a term used in Malthus 1989b, I, 499; II, 224 –​rather than being entered into money market transactions, such as loans and mortgages, and thus are not exerting downward pressure on interest rates. If Malthus’s concept of effective supply –​a supply which is “brought to market” –​is introduced into the argument, the loanable funds theory of interest appears to provide a perfectly adequate theory of why interest rates do not fall to zero in a depression. It means that, in order to explain the behaviour of interest rates in a depression, Malthus’s theory of interest does not require the support of a liquidity preference theory, and does not need to be abandoned and replaced by a liquidity preference theory. The reluctance to invest because of a preference for holding funds in liquid form is a supplement, rather than an alternative, to the reluctance to invest because of the absence of suitable profitable investment opportunities. Another Malthusian-​style response to Keynes’s criticism could be expressed by deploying Malthus’s habitual use of the distinction between power and will. The holders of loanable funds might have the power to lend, but in a state of economic depression they might not have the will to lend, if they judge that potential borrowers are not reliable and competent borrowers, either because they lack adequate prospects of servicing and repaying the loan, or because they are unable to provide secure collateral. In such a situation, the loanable savings could be described as floating, idle, spare, or redundant –​terms used

Capital, profits, interest, investment, and the wages–profits relation   123 by Malthus –​and would not constitute an effective supply in the market, and would not force interest rates down. An earlier version of this argument was presented in Pullen 2001.

Investment Does investment depend on saving? Malthus said saving is a cause of investment, but he did not say it will guarantee investment; its effect could be counteracted by an insufficiency of effective demand for the products of the proposed investment and by inadequate profit prospects. As usual, Malthus was invoking the distinction between power and will, or between means and motives, or between material causes and final causes. Increased savings provide the power to invest, but investment will not occur until there is also the will to invest. Does investment depend on profits or on effective demand? It has been argued that Malthus, agreeing with Ricardo and Smith, believed that “profit was the basis of investment and growth” (Kregel 1979, 933), but this interpretation does not address the question of the source of profit, and does not distinguish between “the basis” and “a basis”. Malthus obviously thought that profit was a basis for investment, but he also thought that profits were affected by causes such as the level of wages and the effective demand for products. With his customary multicausal methodology, he linked profits to a chain of other causes, each of which could be regarded as a basis for his theory of investment and growth. Does investment depend on interest or on profits? Opinions differ on Malthus’s views on the relative roles of interest and profits as determinants of investment. For example, it has been argued that Malthus in his theory of effective demand made no reference to the rate of interest, and that Malthus (and Ricardo) focused their attention on an investment function which attributed investment to profits, because at that time financial markets in the private sector were not sufficiently sophisticated “to allow a high fraction of investment to be financed by borrowing at a competitively determined interest rate” (Eltis 1980, 51; italics in original). There is no doubt that Malthus regarded profits as a determinant of investment and of growth, but does this mean that he regarded profits as the only cause of investment and growth, or that he ignored or denied the role of interest rates as a determinant? It is true that Malthus did not refer explicitly to the rate of interest as an equilibrating force in reconciling savers and investors (Eagly 1974, 178), but he recognised that the rate of interest will be one of the factors that affect decisions to lend and to borrow. He repeatedly said that investment

124  Capital, profits, interest, investment, and the wages–profits relation and production will not occur unless the expected revenue covers the advances, and that interest was one of the costs or advances that have to be deducted from gross profits in order to determine net profits. From this, it logically follows that in Malthus’s theory of growth the rate of interest, through its effect on profits, must be one of the determinants of investment. It would be very strange if Malthus had not appreciated the role that interest rates play in investment decisions. He invested inherited money in a mortgage and received interest as a mortgagee, and as a holder of government securities he would have been aware of the importance of the level of interest (see Pullen 2013). To say that, for Malthus, investment is not a function of or is not influenced by the rate of interest would suggest that he was devoid of basic common sense with regard to business. To argue that Malthus saw investment as a function of the rate of interest, is not of course to argue that he denied that investment is also a function savings, or past profits, or profit expectations. Did he ever state that interest has no effect on investment decisions? Does investment generate effective demand? Malthus clearly believed that effective demand is an important causal influence on investment, but did he also believe that investment will generate effective demand? That question has been answered in the negative.According to O’Leary (1942, 912), Malthus “overlooked the significance of investment expenditures as a part of effective demand”.This interpretation has been recently repeated:“The crucial point is that Malthus did not conceive of investment as expenditure separate from consumption which contributes to effective demand. He only conceived investment as augmenting productive capacity and, thereby, output”; and “Malthus, like his classical contemporaries, does not conceive [investment] as being expenditure which contributes to effective demand” (Smith, M. 2020, 70, 74). But the textual evidence suggests the contrary.The following quotation from Malthus shows that he regarded investment as a cause of effective demand, as well as regarding effective demand as a cause of investment: demand is quite as necessary to the increase of capital as the increase of capital is to demand. They mutually act upon and encourage each other, and neither of them can proceed with vigour if the other be left far behind. (Malthus 1989b, I, 399) This statement shows that, in Malthus’s view, the investment of capital can generate additional effective demand, and that effective demand could be increased either by consumption expenditure or by investment expenditure. For Malthus, investment would stimulate production not merely by creating the technical facilities for extra production, but also by generating revenue that would stimulate effective demand. Malthus’s enthusiastic statements on the economic

Capital, profits, interest, investment, and the wages–profits relation   125 advantages of manufacturing, as presented in Chapter 4, are evidence of his belief in the principle that effective demand can be stimulated by increases in investment, as well as by consumption, and of the important place that this principle holds in his macroeconomics.

The wages–​profits relation: direct or inverse? Malthus’s arguments in favour of a direct relation Malthus, having defined wages as a quantity, not as a proportion, argued that wages and profits could both increase at the same time: “according to the ordinary and most correct language of society, we frequently see high profits and high wages, low profits and low wages going together” (Malthus 1989b, II, 217), and at the commencement of cultivation in a fertile country “wages and profits would both be high at the same time” (Malthus 1989b, I, 298; II, 227). Malthus’s belief in the existence of a direct relation between profits and wages was restated in his evidence before the Select Committee on Emigration, 1827. When he was asked (Question 3283), “Are not the manufacturer’s profits principally dependent on a low rate of wages?”, he replied: I do not quite agree to that doctrine. I think that wages and profits very often rise together. When the value of the whole commodity rises from the state of the supply compared with the demand, there is a greater value to divide between the capitalist and the labourer; the labourer will have higher money wages, and the profits of stock may be higher at the same time. (Malthus 1827b, 317, question 3283) Further evidence of Malthus’s belief in the possibility of a direct relation between wages and profits –​in this case, falling together –​can be seen in his statement “In the natural and regular progress of a country towards the accumulation of stock and the increase of population, the rate of profits and the real wages of labour permanently fall together” (Malthus 1989b, I, 162; in the second edition of the Principles “towards … population” was altered to “towards its full complement of capital and population”). As evidence of a direct relation –​in this case, rising together –​Malthus said that in the United States of America the plenty and fertility of land enabled farmers to pay their labourers more than double the quantity usually paid in the greatest part of Europe, “and yet to retain good profits” (Malthus 1989b, II, 197). Several statements in the first edition of the Principles supporting a direct relation between wages and profits were omitted from the second edition. In the first edition of the Principles Malthus said in the early periods of society “high profits and high real wages are found together” (Malthus 1989b, I, 302; omitted from the second edition), and “the rate of profits may rise consistently even with an increase in the real wages of labour” (Malthus 1989b, I, 323;

126  Capital, profits, interest, investment, and the wages–profits relation omitted from the second edition. See Malthus 1989b, II, alteration 1.322e). In the first edition of the Principles Malthus stated: In general, however, though capital may be said to be scarce in the early periods of cultivation, yet that particular portion of capital, which resolves itself into food, is often plentiful compared with population, and high profits and high real wages are found together. In the most natural state of things this is generally the case, though is not so when capital is prematurely checked by extravagance, or other causes. (Malthus 1989b, I, 302; omitted from the second edition) The reasons for the omission of these statements affirming a direct relation are not apparent. Ricardo on the inverse relation, and his denial of a direct relation Ricardo, having defined wages as a proportion, emphatically denied the possibility that the relation could be a direct relation: He [Malthus] … says that profits and wages may, and frequently do, rise at the same time.This I say can never be true, why? because value is measured by proportions, and a high value means a large proportion of the whole produce. (Ricardo 1973, II, 267) Ricardo’s categorical assertion that “value is measured by proportions” was not supported by logical argument or historical usage, and would seem to be merely Ricardo’s choice of vocabulary. Ricardo’s assertion that the relation between wages and profit must be an inverse relation, and denial that the relation could be direct, follows necessarily from his decision to define wages and profits as proportions. The inverse relation between wages and profits was repeatedly emphasised by Ricardo; for example: “whatever increases in wages, necessarily reduces profits”; “a rise of wages … would invariably lower profits”; It has been my endeavour to show throughout this work, that the rate of profits can never be increased but by a fall of wages, and that there can be no permanent fall of wages but in consequence of a fall of the necessaries on which wages are expended; “Whatever raises the wages of labour, lowers the profits of stock” (Ricardo 1973, I, 118, 127, 132, 205); and “profits … depend on high or low wages, and on nothing else” (Ricardo 1973, II, 252). The importance for Ricardo of the inverse wages–​profits relation has been noted by Ronald Meek: “Once admit that profits could be affected by any

Capital, profits, interest, investment, and the wages–profits relation   127 factor other than a variation in wages and Ricardo’s whole theoretical structure came tumbling to the ground” (Meek 1950, 50). This inverse relation has been described as the “famous fundamental theorem on distribution”, as “the Ricardian theorem on distribution”, and as the key theory of Ricardian economics (Hollander 1977b, 223, 224), but some critics have argued that it is a trivial and banal principle on which no significant economic theory or policy could possibly be based, and it is a condemnation, not an endorsement, of Ricardian economics; to say it is the essence of Ricardian economics is to trivialise Ricardian economics. The inverse wages–​profits theorem has been given prominent theoretical accord, at least in part due to the way it could be used to oppose the Corn Laws and to support free trade in food. If we begin with the major premise that a reduction in wages must lead to an increase in profits, and add the minor premise that a reduction in corn prices will lead to a reduction in wages, then we syllogistically “prove” that abolition of the Corn Laws will stimulate growth of profits. This raises the question: was Ricardo’s adoption of the inverse wage–​ profit theorem based on theoretical considerations, or was it adopted in order to support his case for abolition of the Corn Laws? The difference between the inverse theorem and the direct theorem could be interpreted merely as a literary quirk. If we express the wages–​profits relation in a sentence such as “wages and profits cannot increase together, unless total revenue increases”, the principal clause –​“wages and profits cannot increase together” –​expresses the inverse relation, and “unless total revenue increases” is a conditional clause. Because of its order in this presentation as the principal cause, the inverse relation achieves a dominant significance. But if the wages–​ profits relation is presented as: “wages and profits can increase together, unless total revenue remains constant”, the direct relation is presented as the principal cause and therefore carries a greater significance. The choice of literary style could have serious implications for economic policy. The difference between the inverse theorem and the direct theorem could also be described as the difference between a microeconomic conception and a macroeconomic conception of the relation between wages and profits. Ricardo’s approach to the wage–​ profit relation was microeconomic, and Malthus’s macroeconomic. A business which pays wages to employees would generally see the wage–​profit relation in microeconomic or accountancy terms, and would regard an increase in wages as a deduction from profits. It would normally not consider the relation in terms of the influences of macroeconomic forces operating in the wider economy; its attention would normally be focused monocausally, or on a limited range of causes affecting its immediate situation. It would adopt a ceteris paribus attitude, and would regard the wider issues as outside the domain of its immediate concerns. The social and political implications of the inverse-​relation theory are significant. Every 19th century English wage-​paying employer would be delighted to be told by political economists that profits will increase when wages fall, and that wages will fall when the Corn Laws are abolished and corn from Poland

128  Capital, profits, interest, investment, and the wages–profits relation or other countries can be imported at a lower price. A similar delightful experience would be shared by English importers of foreign corn, especially if they happen to own Polish corn-​producing land or have a good business relationship or a valuable proprietary connection with a Polish corn exporter. It has been argued that another political implication of the inverse relation between wages and profits is that it implies the inevitability of class war: “The Ricardian doctrine of wages … became the battle-​cry of socialism. His opposition of wages and profits seems to symbolize the class war”, and to provide a foundation stone for economic socialism (Gray 1931, 189). Malthus on the inverse relation Malthus recognised that, when the revenue awaiting distribution is a fixed quantity, there will be an inverse relation between wages and profits: If indeed wages as well as profits were estimated by proportions, it would be perfectly true, as stated by Mr. Ricardo, that they could not both rise or fall together. If wages rose, profits must fall, and if wages fell, profits must rise. This is the necessary consequence of the language adopted. But Mr. Ricardo, I believe, was the first who used the term wages in this sense. (Malthus 1989b, II, 217) Malthus objected to Ricardo’s concept of wages as a proportion; according to Malthus, “wages had always been, and always should be estimated by quantity, either by the quantity of money which the labourer earns, or by the quantity of the necessaries and conveniences of life, which that money enables him to purchase” (Malthus 1989b, II, 217). Malthus admitted that the relationship between wages and profits is necessarily inverse if the revenue is given, but he said it is merely a truism: It is merely a truism to say that if the value of commodities be divided between labour and profits, the greater is the share taken by one, the less will be left for the other; or in other words, that profits fall as labour rises, or rise as labour falls. (Malthus 1989b, I, 310), and “it is unquestionably true, or rather a mere truism, to say that given the production, and supposing it consist of wages and profits, the higher is the amount of one, the lower must be the amount of the other” (Letter to Ricardo, 13 October 1816 in Ricardo 1973,VII, 79–​80). Malthus also described the inverse relation as a self-​evident truth: if the increased reward of the labourer takes place without an increase of produce, this cannot happen without a fall of profits, as it is a self-​evident truth, given the quantity of the produce to be divided between labour and

Capital, profits, interest, investment, and the wages–profits relation   129 profits, the greater the portion of it which goes to labour the less will be left for profits. (Malthus 1823, 33) If it is a truism and self-​evident, it would be a wonderful example of platitudinous economics glorified as a profound economic principle. In his Notes on Malthus, Ricardo said of the wage–​profit theorem: “If it is a truism it is not an error”; Malthus says that profits and wages may, and frequently do, rise at the same time.This I say never can be true,Why? because value is measured by proportions, and a high value means a large proportion of the whole produce. As one proportion of a whole increases the other must diminish. Mr. Malthus says value is not measured by proportions it is measured by quantity –​Increase the quantity then, and though you alter the proportions, both parties may get more. Ricardo believed “generally [Malthus’s] objection is to the language” (Ricardo 1973, II, Note 171, 266–​ 7). According to James Bonar, “What hindered agreement was in some degree Ricardo’s use of old terms in a new sense” (Bonar 1929, 214). Despite having strongly insisted on the possibility of a direct relation, Malthus did not dismiss the possibility that profits and wages might move inversely. In his Principles, in dealing with the nature and measure of value, he recognised that there could be instances where “the fall of profits is in various degrees more than overbalanced by the rise of wages” (Malthus 1989b, I, 94); and in his chapter on rent in the Principles he said that sometimes “a fall of wages raises the profits of stock” (Malthus 1989b, I, 161; in the second edition of the Principles “raises” was altered to “tends to raise”). However, these instances where he seems to have supported the idea of an inverse relation were accompanied by statements suggesting a direct relation; as quoted above, “these are only temporary effects. In the natural and regular progress of a country towards the accumulation of stock and the increase of population, the rate of profits and the real wages of labour permanently fall together” (Malthus 1989b, I, 162; slightly altered in the second edition.) Further support from Malthus for the concept of an inverse relation can be seen in his letter to Ricardo (11 August 1823): “as the positive value of the labour worked up in the wages of any given number of men increases, the positive value of the profits (the other component part of their whole value) diminishes exactly in the same degree” (in Ricardo 1973, IX, 339). And an inverse relation is also implied in a statement to an unnamed correspondent in 1828: “A rise of proportional wages is not the primary cause of low profits … but the consequence.The cause is the previous fall of commodities occasioned by the state of the supply & demand” (Malthus 1997, 134–​136). In the third edition of his Principles, Ricardo expressed the inverse relation in the following terms: “in all countries, and at all times, profits depend on the

130  Capital, profits, interest, investment, and the wages–profits relation quantity of labour required to provide necessaries for the labourers, on that land or with that capital which yields no rent” (Ricardo 1973, I, 126). Malthus commented that this statement by Ricardo was “very clearly and ably expressed” and “contains a most important truth” (Malthus 1823, 28n). This comment by Malthus has been taken as further evidence of his support for the inverse wage–​ profit idea (see Hollander 1977b, 227). However, Malthus added the reservation that this proposition by Ricardo of an inverse relation is “incomplete in reference to the ultimate causes of the variations of profits” (Malthus 1823, 29n). This reservation would appear to be a rejection by Malthus of the idea that the inverse relation provides a unique or adequate theory of the relation between wages and profits. Additional evidence for Malthus’s support for the idea of an inverse relation between wages and profits can be seen in the following statements from his Measure of Value: It may be laid down, however, as a general proposition, liable to no exception, that when the value of any produce can be resolved into labour and profits, then as the proportion of such produce which goes to labour increases, the proportion which goes to profits must decrease in the same degree, and as the proportion which goes to labour decreases the proportion which goes to profits must increase in the same degree. (Malthus 1823, 28–​29; original emphasis) In a footnote he said that “This proposition is essentially the same as that which is very clearly and ably expressed by Mr. Ricardo in his chapter on Profits”. The inverse relation also seems to be endorsed in Malthus’s statement that, when it is said that profits depend on wages, they must not be understood to depend on wages estimated in money, in corn, or in any other commodity, but on proportional wages, that is, on the share of the commodities produced by the labourer, or of their value, which is given to him. (Malthus 1824a, 325) And the idea of an inverse relation between wages and profits is implicit in other statements by Malthus in the Quarterly Review, 1824: “Of all the truths which Mr. Ricardo has established, one of the most useful and important is, that profits are determined by the proportion of the whole produce which goes to labour”, adding that “its simplicity and apparent obviousness do not detract from its utility” (Malthus 1824a, 315). But it should be noted that this was followed immediately by the statement: It is, however, only one important step in the theory of profits which of course cannot be complete until we have ascertained the cause which,

Capital, profits, interest, investment, and the wages–profits relation   131 under all circumstances, regulates this proportion of the whole produce which goes to labour immediate and accumulated. (Malthus 1824a, 315) The first of these two statements on p. 315 of the Quarterly Review, 1824, appears to be an emphatic endorsement of the principle of inverse relation between wages and profits, but the second of these two statements is surely a major reservation, and is so major in fact as to negate the view that the principle of inverse relation is the only acceptable theory of distribution. It is a denial of the monocausality implicit in Ricardo’s view of the inverse wage–​profit relation.This additional statement has been described as Malthus’s “only substantive criticism” of the Ricardian inverse theory; it shows “the unsatisfactory manner” in which Ricardo explained how the division of the whole produce between profits and wages is actually determined (Hollander 1977b, 226). An extensive addition in the second edition of the Principles included the statement: “profits depend upon the proportion of the value of the whole produce, which goes to pay the wages of labour employed to obtain it” (Malthus 1989b, II, 222). This statement has been taken as part of the evidence that “Malthus was warming to Ricardo’s contribution” (Hollander 1997, 267). However, Malthus’s statement was accompanied by a footnote: “This, though rather differently worded, is Mr. Ricardo’s proposition, but he has applied it incorrectly, as will be seen in a subsequent section”, which suggests that Malthus’s support for Ricardo’s inverse theorem was, at the best, lukewarm. Do these statements by Malthus in favour of the inverse theorem indicate that he had finally accepted Ricardo’s case for the inverse theory and had relinquished his former criticisms of the inverse theory? Do they show he had abandoned his arguments for a direct relation between wages and profits? Such an abandonment by Malthus has been advanced in some parts of the secondary literature, for example: Malthus “accepted the substance of the inverse wage-​ profit theorem” (Hollander 1977b, 39); “the inverse wage–​profit relationship left a firm and positive impression on the work of a number of authors normally regarded as dissenters”, including Malthus (Hollander 1977b, 224); and Malthus “accepted much of its substance. It is a serious error to neglect the extent of [Malthus’s] accord with the inverse theorem” (Hollander 1977b, 226). Malthus accepted that an inverse relation between wages and profits will exist when the amount being shared is a fixed quantity. He accepted the truism that when a pie of a given size is to be divided between A and B, then if A gets less, B gets more, and if B gets less, A gets more. As Costabile has said (1983, 146), “Malthus fully acknowledged the existence of an inverse relation between wages and profits, considered as shares of a given output”. Ricardo’s deviation from the inverse theorem There is evidence that Ricardo did not see the inverse relation as a unique or full account. He asserted that high or low profits depend on low or high wages,

132  Capital, profits, interest, investment, and the wages–profits relation but he also denied that “the facility or difficulty of providing food for the labourer” is “the only cause” of high or low profits. He contended that he had “also recognised the other cause, the relative amount of population to capital, which is another of the great regulators of wages” (Ricardo 1973, II, 264–​265). He agreed with Malthus that there are two causes of a fall of profits –​“I fully concur with him [Malthus] that profits never vary but from one or other of those causes” (Ricardo 1973, II, 264). This admission by Ricardo of a second cause of a fall of profits implies a modification or even a rejection of the inverse theorem, because it means that a fall of wages will not necessarily lead to an increase in profits; it could tend to lead to an increase in profits, but this tendency could be offset by the effects of the second cause, namely, the relative amount of population to capital. Ricardo seems to have attempted to avoid this implication, and to retain the integrity of his inverse theorem, by arguing that the two causes “might be classed under one head”, and by arbitrarily assuming that the two causes were in fact one cause. By choosing to define and measure “profits” and “wages” as proportions rather than as quantities, he was able to assert that there is always an inverse relationship between the so-​defined “profits” and “wages”. However, Ricardo was not always consistent in his use of these terms in a proportionate sense. In saying “wages are subject to a rise or fall from two causes: 1st. The supply and demand of labourers. 2dly. The price of the commodities on which the wages of labour are expended” (Ricardo 1973, II, 268), he here appears to have been thinking of wages as a quantity –​either of money, or goods, or the quantity of goods that the wages can purchase. Despite recognising that the distribution of revenue between wages and profits will be affected by a variety of causes, Ricardo preferred to maintain a simple, monocausal explanation of the distribution, thus giving further evidence of the methodological difference between himself and Malthus, and of his desire for theoretical simplicity, even if it meant departing from reality. Ricardo made it clear that his proposition of an inverse relation between profits and wages was based on his peculiar –​one might say, idiosyncratic –​ definitions of profits and wages, according to which wages would be said to have increased only of their share of revenue had increased. To maintain that Malthus accepted Ricardo’s inverse relation proposition, or even that Malthus accepted much of its substance, it would have to be shown that Malthus also shared Ricardo’s proportionate concept of wages and profits. In the case of wages, as discussed already above, that clearly was not the case. Malthus’s synthesis? Malthus agreed that there could be an inverse relation between wages and profits under certain conditions –​namely, when the revenue to be shared between wages and profits was a given quantity. His objection to Ricardo’s inverse theorem seems to have been derived from the fact that Ricardo usually accompanied it with a claim of exclusivity, arguing that it constituted an

Capital, profits, interest, investment, and the wages–profits relation   133 adequate and full explanation of the relation between wages and profits, and denying the possibility of a direct-​relation theorem. Malthus did not accept that the inverse theorem constitutes either a unique or a satisfactory explanation of the wage–​profit relation, and his acceptance of an inverse relation in a special situation, where the revenue being shared is a given quantity, does not mean he had abandoned the possibility in other situations of a direct relation, with both profits and wages rising or falling together. If we accept the clear and unambiguous textual evidence of the arguments presented by Malthus on both a direct relation and an inverse relation between wages and profits, we must surely accept that he believed in the feasibility of a logical coexistence of both theories. He seems to have recognised that the relation between wages and profits can be both inverse and direct. The two counteracting tendencies are simultaneously at work in a double-​sided or two-​ way relationship. They are contraries, not contradictories. This suggestion that the wages–​profits relation could be conceived as a synthesis of direct and inverse tendencies was not articulated by Malthus, but could be formulated as follows in terms consistent with his views; namely, as wages increase, the higher wages will tend to generate more demand, which will tend to lead to more production, more employment, and more profits; but the rise of wages will also tend to cause a fall in profits, if it is assumed that any given level of output is to be divided between wages and profits; and this tendency for profits to fall could be exacerbated if it leads to reduced savings available for investment, reduced motivation for production and investment, and reductions in output. For Marx, the co-​existence of such counteracting tendencies would be seen as one of the intrinsic and self-​destructive contradictions of the capitalist system. For Malthus, it provides yet another instance of the importance of the “doctrine of proportions” in political economy, as outlined in Chapter 1. Malthus was a forceful advocate of higher wages, but at the same time and without self-​contradiction warned that excessive wages could reduce profits and destroy the motive to produce. It would be tempting to explain Malthus’s position on the wage–​profit relation in terms of different time dimensions, with the direct relation being regarded as a short-​term tendency, and the inverse relation being regarded as a long-​term tendency. But I do not think such an explanation would adequately encompass his argument. Rather, he would seem to have been saying that at every instant, either in a short run or a long run, the two tendencies coexist. In any instant the size of the revenue to be shared is given, and the relation between the wages and profits that comprise the revenue will be indirect or conflictual, but if in another instant the revenue to be shared changes, the relation could become direct or mutual, with both wages and profits increasing or decreasing together, irrespective of whether the interval between the two instants is short run or long run. If wages are defined as a quantity, rather than as a proportion, the relation with profits could be either direct or inverse, depending upon supply and demand forces, and on institutional factors.

134  Capital, profits, interest, investment, and the wages–profits relation It has been sometimes suggested that the inverse relationship between profits and wages is an essential or canonical part of classical economics. Malthus’s statements show that he would not have disagreed with that view, as long as it is understood to apply only to situations where the revenue being divided between wages and profits is considered as static or fixed or given or assumed to be given, and provided that the inverse relation is not understood as a denial or exclusion of the possibility of a direct relation. He might also have been inclined to add that as well as being an essential and canonical element of classical economics, the inverse relation is also a truism. But if the canonical inverse relation is understood as a rejection of the direct relation, then Malthus would have to be excluded from the ranks of canonical or classical economists, and on this particular issue “classical economics” and “canonical economics” become synonyms for “Ricardian economics”. It should also be noticed that when Malthus (1824a, 315), agreeing with Ricardo, said that “profits are determined by the proportion of the whole produce which goes to labour”, he was not saying “determined only”. In other areas of his writings, as discussed in Pullen 2016b, he pointed to the presence of multiple causation of economic phenomena, as distinct from the monocausality that often featured in Ricardo’s writings. Malthus’s statement in the Edinburgh Review, 1824, shows that he accepted the inverse relation only when wages and profits are understood in the proportional sense idiosyncratically adopted by Ricardo. Malthus’s position, as outlined before the Select Committee of 1824, seems to have been that, if the whole value of the commodity increases, both the wages and the profits could increase, even though their proportions vary. To conceive the relation between profits and wages as solely an inverse relation, and to deny the possibility of a direct relation, can have significant social and political implications; it is to conceive the relation as one of conflict and disharmony, and to suggest that labour and capital are engaged in perpetual class warfare. This does not seem to have been Malthus’s position. He did not regard profits as a deduction from wages, or wages as an enemy of profits: it is not, therefore, quite correct to represent, as Adam Smith does, the profits of capital as a deduction from the produce of labour.They are only a fair remuneration for that part of the production contributed by the capitalist, estimated exactly in the same way as the contribution of the labourer. (Malthus 1989b, I, 81i) It is somewhat anomalous that although Malthus objected to Ricardo’s use of “wages” in the proportionate sense, he agreed with Ricardo and most of their contemporaries in defining profits in a proportionate sense. It could be argued that the debate between Ricardo and Malthus on whether the relation between wages and profits is inverse or direct is otiose, and that i In the second edition of the Principles, “not, therefore quite correct” was altered to “not, therefore correct”.

Capital, profits, interest, investment, and the wages–profits relation   135 the debate was merely about the meaning of words, because when Ricardo recognised that profits and the “condition of labour” can rise or fall together, he was in fact acknowledging with Malthus that there is a direct relation between interests of labourers and interests of capitalists. However, the debate appears to be more than a dispute over words, and to take on significant social and political implications. To conceive the relation between profits and wages as solely an inverse relation, and to deny the possibility of a direct relation, is to conceive the relation as one of disharmony. It suggests that labour and capital are engaged in perpetual class warfare, and that conflict between workers and bosses, and between lower income classes and higher income classes, is endemic in the capitalist system. It explains why Karl Marx so admired much of Ricardo and was so opposed to much of Malthus.

9  Say’s Law

The academic life of Malthus involved a number of well-​known and sometimes sharp disagreements with other prominent writers. Some were famous historical figures, such as Adam Smith and David Hume, others were contemporaries. At the start of his academic career, soon after the publication of his Essay on Population, 1798, he became involved in a dispute with William Godwin on the utopian prospects of humankind, a dispute which began amicably but later descended into bitterness. For over twenty years, from the first letters with Ricardo in 1811 until the death of Ricardo in 1823, Malthus and Ricardo engaged in spirited but friendly debate, involving about 80 letters and frequent meetings. There were less publicised but no less earnest disagreements with John Ramsay McCulloch, who declared that Malthus’s Principles “deserves to be very roughly handled” (Letter from McCulloch to Ricardo, 19 March 1820, in Ricardo 1973,VIII, 167.) Some of the issues at stake have now retained merely antiquarian interest, but one in particular –​namely, his controversy with Jean-​Baptiste Say, over what has now been called Say’s Law –​remain very much alive and very much controverted. It has been argued that the basic idea behind Say’s Law was previously formulated by James Mill, whose version has been given the name “Mill’s Principle”. Researchers argue about whether it is Mill or Say who should be awarded the honour, or, as opponents would say, should accept the blame. With a few exceptions –​particularly, Malthus, Simonde de Sismondi, and John Atkinson Hobson –​most of 19th century English political economy was supply-​side economics, with its principal exponents being James Mill, David Ricardo, John Stuart Mill, supplemented from French political economy by Jean-​Baptiste Say. With the coming of John Maynard Keynes, there was an upsurge of demand-​side support, but supply-​side forces did not take long to regroup, doing their best to disparage the demand-​side message, and to glorify supply-​siders of the past, but in recent years the spotlight seems to have fallen on supporters of Say as the chosen ones to lead the anti-​Keynes attack. Say’s Law has been defined in various ways, with varying degrees of clarity and succinctness. A common definition of Say’s Law is the one derived from Keynes’s statement, “supply creates its own demand” (Keynes 1936, 18). Other versions encountered in the secondary literature include “aggregate supply

Say’s Law  137 creates its own demand”. Another possible definition could be: “aggregate production contains within itself the seeds of its own consumption”. But whether “supply creates its own demand” is a correct and adequate version of Say’s Law has been disputed. Some commentators think Say did not argue that supply creates its own demand; and that the supply-​creates-​its-​own-​demand version of Say’s Law is a “naive rendition” or a “strawman” version (Jonsson 1995, 147, 148), and “had nothing to do with Say’s actual arguments” (Jonsson 1999, 967), or that Say’s Law should not be restricted to the principle “supply creates its own demand” but should be extended to incorporate other aspects of Say’s writings, including notions such as economic harmony, the initiating role of production, and the self-​correcting powers of the economy. In this way, by retaining its title but enlarging its content, the proponents of Say’s Law claim that it retains academic respectability even if the controversial principle “supply creates its own demand” is discredited.This point will be discussed later, but for the moment we will follow current standard practice and proceed as if “supply creates its own demand” is a concise and correct statement of an idea expressed by Say at the time of his discussions with Malthus. This chapter attempts to present Say’s arguments in favour of Say’s Law and Malthus’s arguments against it, and to assess the validity of the view that Malthus “never produced a logical refutation of [Say’s] Law of Markets” (Blaug 1968, 164). However, the main purpose of this chapter is not to discuss whether or not Say held the principle “supply creates its own demand”, but to discuss the validity of that principle irrespective of who holds it, and to ask whether Malthus’s arguments in opposing it were valid.

Say’s statements on Say’s Law Say did not use the expression “Say’s Law” or a French translation of that expression. It has been argued (see Kates 1995, 75) that the expression was coined in 1921 by the American economist, Fred Taylor. A commonly used English expression is the “Law of Markets”, or “Say’s Law of Markets”. Say’s preferred expression was “Doctrine des débouchés”, a possible translation being “Doctrine of Outlets”, referring to the sales outlets available to a producer or supplier. French dictionaries define “débouché” as an outlet, or opening, or market for an article, or a channel or avenue for trade. In the fifth edition of his Traité (Say 1826, 281), Say defined “débouchés” as: “Ce sont des moyens d’écoulement, les moyens d’échange, les moyens de vente pour un produit”. Say’s discussion of the differences between himself and Malthus on Say’s Law can be found in a number of locations, most notably in his Lettres à M. Malthus, 1820. They were not personal letters in the normal sense of communications written and sent by one person to another, but letters in the literary sense of essays, published or intended to be published, on various themes. Translations of parts of the originals of the Lettres first appeared in the New Monthly Magazine, and were revised and continued by John Richter, who had obtained the originals (see Say 1821, “Advertisement”) and translated them

138  Say’s Law as Letters to Mr Malthus, 1821. They present Say’s view on a large number of topics, but in this chapter the focus will be mainly on his theory of gluts and depressions, with particular emphasis on the differences between himself and Malthus as contained in Malthus’s Principles (1820). The following quotations set out the main themes of Say’s position: • “tout ce qui peut se produire peut trouver des consommateurs” (Say 1820, 29) [“whatever is produced will find consumers” (Say 1821, 50)] • “production can only be purchased with production … it is production which opens a market to production” (Say 1821, 24). • “the super-​abundance of productions create [sic] a demand for it, for the purpose of consumption” (Say 1821, 25). • “things are only sold to those who produce” (Say 1821, 31). • “As each of us can only purchase the productions of others with his own productions –​as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase”; “that if certain goods remain unsold, it is because other goods are not produced; and that it is production alone which opens markets to produce” (Say 1821, 3; these statements were presented in quotation marks in Richter’s 1821 translation, and were preceded by the words “I had said”, which suggests that they had previously appeared in some publication by Say, or in some communication from Say to Malthus, but the source in which they previously appeared was not given.)

Correspondence between Malthus and Say on Say’s Law Following the publication of Say’s Letters to Malthus, 1821, four letters (in the normal sense of “letters”) passed between Malthus and Say –​two from Malthus and two from Say. They appear to hold an essential place in attempts to understand their debate on the meaning of Say’s Law, or the Doctrine des Débouchés. Letter from Malthus to Say, 26 April 1821 Malthus’s letter of 26 April 1821, presumably written in response to Say’s Letters to Malthus, 1821, contains a brief but important statement of Malthus’s view of the role of the supply of capital in the progress of wealth and employment. He had been informed that in Philadelphia capital was abundant, yet there was great distress; he regarded this as a striking refutation of Ricardo’s doctrine that capital and labour cannot possibly be abundant at the same time. Malthus thus seems to have been asserting that capital alone does not guarantee production and growth, which must come as a surprise to commentators who have interpreted Malthus as saying that savings are always invested. It implies that

Say’s Law  139 growth of capital does not itself necessarily guarantee growth of production and growth of employment of labour, and as such is a rejection of the notion that production or supply creates its own demand. Malthus and Say were members of the Political Economy Club, but there is no record of their ever having met at meetings of the Club. In the meeting of 30 April 1821, Malthus proposed the following question for discussion: “Can there be a general glut of commodities?” It was discussed at the meeting of 25 June 1821 and again discussed at the meeting of 3 December 1821 –​when Malthus was in the Chair –​but Say did not attend; he was not elected to membership of the Club until 4 March 1822. As a foreigner, he was elected as an Honorary Member. He attended the meeting of 3 February 1823, where two questions he proposed were discussed, but neither referred specifically to gluts or Say’s Law. In the published Proceedings of the Club there is no record of the members present that day (Political Economy Club,Volume IV, [1882] 1980). In 1827 the following three letters passed between them –​two from Say (24 February 1827 and July 1827), and one from Malthus (about June 1827). They were later published as part of a book (Say 1833). Their importance in the Say–​Malthus debate cannot be overstressed, but they have not always been sufficiently recognised in the secondary literature, which often relies mainly on Malthus’s Principles and Say’s Letters to Malthus. Letter from Say to Malthus, 24 February 1827 Early in 1827 Malthus sent a copy of his Definitions in Political Economy, 1827a, to Say. A copy of the Definitions held in the library of Hitosubashi University, Tokyo bears an inscription in Malthus’s hand: “M. Say with the Author’s respectful comps”. On 24 February 1827 Say wrote to Malthus thanking and complimenting him. Say’s letter was concerned with a number of topics –​for example, value, wealth, utility, and interest –​and he also admitted that his doctrine des débouchés was subject to the restrictions he had added in the fifth (1826) edition of his Traité d’économie politique (tome I, 194 and following). Je confessorai… que ma doctrine des débouchés…est en effet sujette à quelques restrictions. (Say 1833, 290) The nature of these restrictions was not mentioned by Say in this letter of 24 February 1827, but it was probably the statement by Say in the fifth edition of his Traité that, when the sale of a product at the current price does not pay for the services employed in its production, and the price falls below its cost of production, it does not merit the name “product”, and it does not fulfil the essential condition of a product, which is to be at least equal in value to its costs of production.

140  Say’s Law Alors on peut bien créer une chose utile, mais son utilité ne vaut pas ce qu’elle coûte, et elle ne remplit pas la condition essentielle d’un produit, qui est d’égaler tout au moins en valeur ses frais de production. (Say 1826, 195) [“Something useful could be created, but if its usefulness is not worth its cost, it does not fulfil the essential property of a product, which is to be at least equal in value to its costs of production”. Translated by current author.] Maurice Monjean, translator of Malthus’s Principles, confirmed (Say 1846, 442n) that this is the limitation that Say and Malthus were referring to. Also, in the fifth edition of the Traité, Say introduced a distinction between production and real production; products whose price does not cover their costs of production are said to be not real products. Il faut prendre garde que la production n’est réelle qu’autant que la valeur des produits est égale pour le moins aux frais qu’ils ont occasionés. (Say 1826, 281) [“It should be noted that production is real only in so far as the value of the products is at least equal to the costs they have occasioned”. Translated by current author.] Say referred in this letter of 24 February 1827 to the fact that Malthus had attacked the doctrine des débouchés in his other works, including on page 65 of his Definitions, 1827. The relevant passage on page 65 of Malthus’s Definitions was presumably: we see with our own eyes … that a very large mass of commodities does at times fall below the costs of production, whether these costs be estimated in money or labour, without the slightest shadow of pretence for saying that any other equally large mass is raised proportionally above the costs of production. This statement is clear evidence of Malthus’s belief in the possibility of large-​scale depressions; it was not countermanded by Say in his reply of 24 February 1827. In the same reply Say said that Ricardo, Mill, and McCulloch had adopted his doctrine des debouches, but he also warmly praised Malthus. He said that Malthus’s Definitions will contribute greatly to the progress of political economy, and that the places he admired in Malthus’s Definitions were too numerous to mention. He commented: “I assure you that in your attacks against Macculloch (sic) and Ricardo, experience and reason appear to me to be entirely on your side” (Say 1833, 286–​287; translated by current author). This suggests some fundamental analytical disagreement or discontinuity between Say and Ricardo, but

Say’s Law  141 unfortunately no details were mentioned by Say in this letter. The intellectual connections between Say and Ricardo have been explored in detail in Hollander 2005, 226–​261, 266–​276. There is no evidence of Malthus’s reaction to that comment from Say, but we would be fairly safe in assuming he was pleased with it. However, this expression by Say in 1827 of his support for Malthus contrasts with a statement in 1818 by Malthus in which he expresses the view that Say, and Mill, are on Ricardo’s side: “I am inclined to think that where we shall most essentially differ in our practical conclusions is on the point where Say and Mill are distinctly with you” (Malthus, Letter to Ricardo, 21 October 1818, in Ricardo 1973,VII, 312). Letter from Malthus to Say, about June 1827 Malthus replied to Say later in 1827, the context suggesting that it was probably written about June. Presumably written by Malthus in English, it was published (Say 1833, 295–​306) in French, presumably translated by Say; no other letters by Malthus written in French have been found. This letter is extremely important in the Malthus–​Say debate, but is not always noted in the secondary literature. It was concerned mainly with the definitions of value, utility, and wealth, and with the relation between rent and price, but it also contained remarks on Say’s doctrine des débouchés. Malthus said he was very happy to see that Say had acknowledged that some limitation must be admitted to the doctrine. In his letter of June 1827, Malthus said he had been unable to admit Say’s doctrine des débouchés as it had been at first presented, but now that Say had clarified his definitions of production and product, the question had entirely changed. Malthus now saw that, according to Say’s definition of production, ce qui est produit par la terre, le travail et le capital, n’est pas un produit quand la vente qu’on en peut faire ne paie pas les services employés dans cette production suivant leur prix courant. (Malthus, in Say 1833,VII, 298) [“What is produced by land, labour, and capital is not a product unless it can pay for the services employed in its production according to their current price”. Translated by current author.] Malthus concluded that, if product is defined in this way, there could not be a glut (or overproduction or “superfétation”) because, as Say himself recognised, it implies that there is an effective demand for it: il ne saurait y avoir une superfétation de produits de cette espèce; car … la proposition ainsi conçue implique qu’il y a une demande effective pour le produit. (in Say 1833,VII, 298).

142  Say’s Law [“There could not be overproduction because this definition of a product implies that there is an effective demand for it”. Translated by current author.] Malthus objected to Say’s use of “product” in that way: il est contraire à l’usage (et même à votre propre définition du mot produit: L’utilité créée constitue le produit) de dire que lorsque, par suite d’une superfétation, les produits tombent au-​dessous de leurs frais de production, ils ne méritent plus le nom de products. (in Say 1833, 298–​299; italics in original) [“It is contrary to current usage and even to your own definition of “product”–​namely,“utility constitutes products” –​to say that when because of overproduction the price of products falls below the cost of production they do not merit the name of product.” Translated by current author] Malthus added that he could not see how Say could refuse the name “product” to objects which are the result of human industry, and which have utility and value, and which satisfy the same needs as before: je ne vois pas comment nous pourrions leur refuser le nom de produits. (in Say 1833, 299) [“I do not see how we can refuse them the name of product”. Translated by current author.] Malthus concluded his discussion in this letter of the meaning of “product” by declaring: that Say himself would have to admit that there can be overproduction of objects having utility and value: vous convenez vous-​meme que l’on peut en trop produire. [“You yourself admit that overproduction of such objects is possible”.] In effect, Malthus had performed an incisive deconstruction of Say’s concept of production, and had politely but clearly argued that Say had contradicted himself. Say’s notion of production was referred to by himself and Malthus as a limitation, but it is such a severe limitation that it could be interpreted as a negation of Say’s Law. Letter from Say to Malthus, July 1827 Say did not accept the criticism by Malthus of his definition of production. In a letter to Malthus dated July 1827 (Say 1833,VII, 309–​310), he responded by stressing that the basis of his doctrine of production is that production is not

Say’s Law  143 complete, and an object cannot be called a product, until the object has been sold at a profitable price: le fond de ma doctrine de production établit clairement qu’il n’y a de production complète qu’autant que tous les services nécessaires pour cette oeuvre sont payés par la value du produit. [Translated in Forget 2003, 53: “if a commodity is created but cannot be sold at a cost-​covering price, it would not, by definition, be regarded as a ‘product’, and so would not violate the law of markets”.] If the Law of Markets asserts that things produced will always be sold because production creates its own demand, then the Law of Markets would be violated and would be shown to be invalid if a product could not find a buyer at a cost-​covering price. Say attempted to counter this objection by introducing a distinction between complete production and incomplete production, and by arguing that an unsaleable product is not a complete product. It was Say’s view that there would be no overproduction, and that therefore the Law of Markets remains intact, because any goods which remain unsold are not complete products and not real products, and therefore cannot be defined as “products”. In his letter of July 1827, Say maintained that everything that is truly produced finds its place, and that anything which does not find its place has been an inconsidered expense that produces nothing. He concluded that his doctrine des débouchés remains intact: Je crois donc être autorisé à dire que tout qui ést véritablement produit trouve à se placer; que tout ce qui ne se place pas a été une dépense faite inconsidérément sans rien produire; et ma doctrine des débouchés demeure entière. (Say 1833, 310; original emphasis) Another version by Say of this argument states: “I believe, therefore, that I am entitled to say that all that is truly produced will find a market; that all which is not sold was an expense made thoughtlessly without producing anything” (translated in Forget 2003, 59). This response by Say drew a trenchant rebuke from Paul Lambert: “Intact perhaps –​but at the cost of losing all meaning, intact, but demolished –​… Rarely does scientific controversy yield such a clear-​cut conclusion … Say admits defeat, while raising the flag of victory”. In Lambert’s view, Malthus won the day and Say’s Law was “finally reduced to a tautology” and “the objections advanced by Malthus proved decisive” (Lambert [1952] 1956, 17, 19–​21). In Say’s view, production is complete only when the goods are in the hands of purchasers; goods which are unable to be sold and are waiting to be sold, and are being held in factories, or warehouses, or by wholesalers and retailers, have been completely produced in a physical sense, but not in an economic sense, according to Say. If the meaning of “product” is stretched to include the idea

144  Say’s Law that a product which does not defray its cost of production is not a product –​ because it will become a product only when there is an effective demand for it and when it is sold –​then Malthus agreed that, by that definition of “product”, there will never be an excess of products. A dispute about words? In his reply to Malthus in July 1827, Say maintained that their discussion was nothing more than a dispute about words: “Notre discussion sur les débouchés commence à n’être plus qu’une dispute de mots” (in Say 1833,VII, 309). It has been said that Say, in arguing thus, “simply claimed victory over Malthus by resort to tautology” (Baumol 1997, 229). Malthus would have recognised that their dispute involved a dispute about words, in particular the word “production”, but it is doubtful that he would have been prepared to accept it merely as a dispute about words. He would have been concerned about its failure to recognise the importance of demand as well as supply, and might have feared it would lead to policies designed to foster supply and production without the necessary attention to policies designed to foster demand –​fears that prove to be well-​founded when we see Say’s Law being used to advocate wage reductions designed to reduce costs of production, rather than wage rises designed to boost effective demand. In describing the difference between himself and Malthus on Say’s Law as merely a verbal difference, was Say admitting or recognising that his theory of gluts was in fact the same as Malthus’s, or did he believe that he had converted Malthus to his position? In asserting that their difference was merely verbal, Say appears to have been claiming that there was no serious theoretical difference between them on this issue. Say’s view that their difference on Say’s Law was merely a dispute about words was similar to Senior’s view that his difference from Malthus on the meaning of “tendency” –​in “population tends to exceed the means of subsistence” –​was merely a dispute about words (Senior 1829, 55–​90). In both cases Malthus saw the difference as one of principles, not merely words. He did not regard these disputes as word games. Say insisted on maintaining and justifying his doctrine des débouchés, but in response to Malthus’s criticisms Say seems subsequently to have presented its main doctrine in a wider sense with more emphasis on a range of other issues, and less on “supply creates its own demand”. Are commentators who continue to support Say’s Law, in the sense of “supply creates its own demand”, attempting to resuscitate a theory that Say either never held or abandoned?

Say’s definition of production and his implicit recognition of demand Malthus had intended at one stage to write a further reply to Say, but changed his mind. On 5 October 1827 he wrote to his publisher, John Murray:

Say’s Law  145 I wished to say that I have given up the idea of writing a Review on M. Say’s Work as compared with that of Adam Smith. I could not do it well without offending M. Say, and under all the circumstances, I think it would not be adviseable, particularly as he has been very civil and complimentary in his last letter to me. If Malthus had replied to Say’s letter of July 1827, it seems unlikely that he would have responded positively to what appears to have been an attempted reconciliation. It is regrettable that the intended reply did not eventuate. It might have included further critical comments on Say’s Law and on Say’s definition of production; it might have provided more insights into their respective positions, and shown whether Malthus would have believed that the concept “supply creates its own demand” is a correct definition of Say’s Law. Equally regrettable is it that there is no record of Malthus having published a review of Mill’s Elements of Political Economy in response to what seems to have been a request from William Gifford, editor of the Quarterly Review. In a letter to John Murray on 15 September 1824 Malthus wrote: “I should like to make a few remarks on Mill’s Elements of Political Economy”; but the review of Mill never eventuated. Malthus also declined what seems to have been an invitation from Gifford to become a regular reviewer. In the same letter Malthus referred to a “note” which he had sent to Gifford but which was not published. Malthus said “it was a matter of little consequence whether the note was inserted or not”, but from our point of view it is yet another matter of regret. Malthus would surely have agreed with Say that there will be a glut or surplus or superfluity of products if there is no effective demand for them, but he did not agree with Say’s view that if the selling prices of the products fall below the cost of production, they do not merit the name “product”. Malthus gave the following definition of glut: “A glut is said to be general, when, either from superabundance of supply or diminution of demand, a considerable mass of commodities falls below the elementary costs of production” (Malthus 1827a, 247). Say in these letters did not seem to have recognised that his use of the word “product” in this special idiosyncratic sense would lead to Say’s Law being interpreted by some commentators as a mere truism, devoid of any intellectual or practical significance. The definitional change has been the subject of a number of criticisms. For example: “Say points out that the making of something which is not wanted is not part of production. In using this argument, Say’s law runs the risk of becoming merely a semantic statement, without empirical content” (Heertje 2004, 47); and James Mill, Say, and Ricardo proved to their satisfaction that there is no such thing as general overproduction, but only partial overproduction, due to errors of judgment by businessmen, which would be swiftly rectified … Say, in his later writings, wriggled out of his untenable position by defining ‘production’ as ‘produce which is demanded’. (Walker 1933, 64–​65)

146  Say’s Law Say’s critics confront him with rhetorical questions: Is a product really a product if it has not been sold? Is an unsold product a contradiction in terms? Can there be any such thing as an unsold product? It has been argued that Say “lived to repent having propounded ‘Say’s law’ ” (Rashid 1977, 390); that there is palpable textual evidence of “Say’s recantation regarding Say’s Law” (Rashid 1981, 290); and that “the continuance of Say’s Law is an unfortunate anomaly” (Rashid 1987, 290). Say’s distinction between what is produced and what is truly produced might be seen by some critics as rather tenuous. The principle that supply creates its own demand has generally been interpreted to mean that products will always sell, but, with the introduction of the distinction between a product and a true product, it becomes converted into the truism that products will always sell except when they are not products. The idea that supply creates its own demand, and that products will always sell, is defended by saying that any unsold products cease to exist as products, and do not deserve to be called products. By changing the definition of production, Say transformed redundant products into non-​existent products. If, as Say argued, an object cannot be called a “product” until it has been sold, and if it cannot be sold unless there has been an effective demand, then production presupposes effective demand; an effective demand, together with an effective supply, is an essential cause in the creation of a real and complete product. Thus, Say’s Law implicitly and logically requires a causal input from demand in the creation of production, even though the statement “supply creates its own demand” appears at first sight to deny, and is often interpreted as denying, the role of demand in the production process. Say recognised that a buyer will be an effective buyer only if the buyer has the money to buy, and the buyer will have the money to buy only by means of the products the buyer has created. Say further added that it is production which favours outlets: “c’est la production qui favorise des débouchés” (Say 1826, 281). It is interesting that in this instance he chose to refer to “favours” rather than “creates”. Could he have added that demand also favours outlets? When he said that a buyer will be an effective buyer only if he has the money to buy, he was in effect introducing the concept of effective demand, even though in other places he rejected or downplayed the role of demand. If the role of demand had been admitted, it would not have been logically possible to claim that production or supply is the sole cause of growth.

Possibility of redundant capital Say’s Law is often said to involve the impossibility of a deficiency of aggregate demand, and the impossibility of a redundancy of capital. However, Say’s recognition of the possibility of redundant capital seems to be implicit in his reference to the situation in 1813 when the errors of Government ruined all commerce, and when the interest of money fell very low, for want of good opportunities of employing it …

Say’s Law  147 [and in] our present circumstances, when capitals are quietly sleeping in the coffers of their proprietors. (Say 1821, 49n) This concept of sleeping capital appears to be identical to Malthus’s concept of redundant capital or floating capital (see Chapter 2). As Baumol observed, at this point “Say virtually gave way the entire position”, and it was probably to this point that Ricardo was referring when he wrote to Malthus that Say “yields points to you, which may almost be considered as giving up the question, and affording you a triumph” (Letter of 24 November 1820, Ricardo 1973, VIII, 302; quoted in Baumol 1997, 223–​224). Say’s recognition of the possibility of redundant capital also seems to be implicit in the statement: Il y a au contraire beaucoup d’ épargnes qui ne se placent pas lorsque les emplois sont difficiles, ou qui, étant placées, se dissipent dans une production mal calculée. (Say 1820, 101i) [“On the contrary, many savings are not invested, when it is difficult to find employment for them, and many which are employed are dissipated in ill-​ calculated undertakings” (Say 1821, 49).] Malthus declared that in these words Say “fully concedes all that I contend for” (Malthus, in Ricardo 1973, VIII, 260). But Malthus had perhaps misinterpreted Say’s comment. Say did not in this statement explicitly attribute general recessions to an endogenous deficiency of aggregate demand; he recognised that they might be caused by the miscalculations of producers or the errors of government. The principle “supply creates its own demand” could be alternatively expressed as “demand will always be sufficient to purchase whatever is supplied”, or “whatever is supplied will never be redundant”. If that principle is acceptable, it would follow that supply redundancy is impossible.This general principle was maintained by Ricardo, subject to one temporary concession, namely, when capital increases faster than population, leading to a situation where “a quantity of necessaries might be produced for which there could not be any immediate consumption”; however, Ricardo added: “This admission does not impugn the general principle” (Ricardo 1973, I, 293; quoted in Malthus 1989b, I, 357). Malthus in the first edition of his Principles responded: “In this remark I cannot quite agree with him”, which was more forcibly expressed when altered in the second edition of the Principles to: “In this last remark I can by no means agree with him. It appears to me most completely to impugn the general principle”. Malthus saw Ricardo’s admission as a verification of the possibility of capital redundancy and of a “universal glut”. Malthus said that when Ricardo i Cited by Malthus in a letter to Ricardo on 25 September 1820, with some minor differences, as in Ricardo 1973, VIII, 260.

148  Say’s Law acknowledged that there may be a temporary glut of commodities, he was in fact “allowing that capital may be often redundant” (Malthus 1989b, I, 570). Malthus seems to have been arguing that if a partial redundancy can occur in one situation, there is no reason why it could not occur “often” in other ­situations, resulting in a general glut. Ricardo’s admission of an exception to the general principle that capital will never be redundant shows his willingness to recognise exceptions to principles, but also his unwillingness to modify general principles, even in the face of compelling exceptions. Malthus’s view that it is possible for savings and capital to become redundant –​or spare, or vacant, or floating –​may appear at first sight to have been contradicted by a statement that capital will not remain idle: If capital increases so as to become redundant in those departments where it has been usually employed with a certain rate of profits, it will not remain idle, but will seek employment either in the same or other departments of industry, although with inferior returns, and this will tend to push it upon less fertile soils. (Malthus 1989b, I, 161ii) However, his reference to different “departments” of industry suggests that in this statement he was referring to partial depressions, rather than to widespread and aggregate depression.

A truism Say’s questionable method of defining production, his unique way of distinguishing between production and non-​production, and his opinion that the best way to open markets for existing goods is to produce more goods, have inspired a number of pejorative comments. It has been variously described as a truism, or an ingenious position, or a pompous paradox, or the most insignificant of tautologies, or a palpably insignificant tautology, or a very futile proposition. The designation “truism” was used by Malthus in criticising James Mill’s definition of demand as the quantity consumed. In Malthus’s opinion, Mill’s definition of demand converts Mill’s principle into “a truism equally obvious and futile” (Malthus 1827a, 47; a French translation of that statement was “tout simplement une banalité” (in Malthus 1846, 433). More recently it has been said “ Say’s débouchés (vent or market opening) arguments were based on the simple truism that trade is bilateral” (Jonsson 1997, 205). In a letter to Ricardo on 11 September 1814 Malthus described Mill’s argument as “an ingenious position”: “I cannot agree with Mr. Mill in an ingenious position which he lays down in his answer to Mr. Spence, that in reference to a nation, supply can never exceed demand” (in Ricardo 1973, VI, 132). It is ii Slightly altered in the second edition of the Principles.

Say’s Law  149 not clear whether he intended “ingenious” in a complimentary or deprecatory sense. The Oxford English Dictionary defines “ingenious” as “cleverly contrived”, as used with reference to a machine, explanation, or theory. The following selection provides examples of others who have agreed with Malthus in dissenting from Say’s Law. A contemporary, Charles Ganilh, described Say’s Law as a “pompous paradox” which “gives to political economy a mysterious and transcendent appearance” (Ganilh 1812, 452). It was said by H. Herkner in 1849 referring to Say’s Law of Markets: It is today, difficult to understand how a theory, which was reduced by its originator himself to the most insignificant of tautologies, nevertheless has been able to maintain such a highly respectable reputation among economists. Yet we find a whole series of people hailing this ‘theory of markets’ as one of the most valuable items in the whole of economic theory. (Quoted in Hutchison 1953, 357–​358) William Whewell referred to “Say’s extreme opinion of which the fallacy appeared so very obvious”, and Whewell added: “If I recollect, Malthus has well disposed of this fallacy” (quoted in Hutchison 1953, 66n). Say’s statement of his theory of markets has been described as “a palpably insignificant tautology” (Hutchison 1953, 348). In his review of Thomas Tooke’s Thoughts and Details (1823), Malthus criticised Tooke, and by implication Say, for professing to believe that “the aggregate of demand must always be equal to the aggregate supply”, which was described by Malthus as an “inadvertent declaration”, and as “the very futile proposition, that all which is produced will sooner or later be consumed” (Malthus 1823, 232). Baumol (1977, 159) referred to “the rather curious tautological version” of Say’s Law that Say enunciated in his letter to Malthus of July 1827. It could be argued, however, that this tautological version is “rather curious” only by comparison with some of the variant versions concocted by subsequent commentators, but that in fact this tautological version is what Say actually enunciated and meant. Malthus’s harshest criticism of Say can be found in his comment on Say’s statement: “un produit consommé ou détruit est un débouché fermé”. To this, Malthus responded: “Of all the opinions advanced by able and ingenious men, which I have ever met with, [this] appears to me to be the most directly opposed to just theory, and the most uniformly contradicted by experience” (Malthus 1989b, I, 363–​364; omitted from the second edition of the Principles, see II, 257). In a later comment on Say’s statement, Malthus added: if, upon the principle laid down by M. Say, that the consumption of a commodity is a diminution of demand, the society were greatly and generally to slacken their consumption, and add to their capitals … the profits of

150  Say’s Law capitalists would soon be reduced to nothing … and the population would be thrown out of work and would be starving. (Malthus 1989b, I, 497iii) It is doubtful whether Malthus’s interpretation of Say on this point was justified. Say seems to have been merely making the obvious point that, when a product is consumed, it is no longer marketable, and therefore it is true that its débouché is closed. Some criticisms of Say by Malthus have been described as confused. For example, Malthus’s criticism of Say’s Law … suffered from confused formulation and was, moreover, hitched to the defense of an unpopular cause: no theory which pleaded the case of the landed aristocracy and warned of the dangers of rapid industrialization could hope to succeed in an era dominated by the vision of unbounded economic expansion. (Blaug [1958] 1973, 221) One of the conclusions of this chapter is that Malthus’s criticism of Say’s Law was far from confused. In response to these criticisms by Blaug, and in support of Malthus’s position, it could be argued: (1) As noted in Chapter 4, Malthus was a staunch advocate of mechanisation and industrialisation, although in accord with his habitual “doctrine of proportions” he would surely have been concerned if it had proceeded either too rapidly or too extensively in proportion to other sectors of the economy. (2) The case most strongly pleaded by Malthus was the case for the middle classes, not the case for the landed aristocracy (see Pullen 2019b and Chapter 13). (3) The commonly stated idea that Malthus advocated the unproductive expenditure of the rich appears to have emanated from a misunderstanding of Malthus’s terms “productive” and “unproductive” (see Chapter 11). Malthus’s analysis of Say’s Law has also been criticised because it failed to consider the problem of diminishing returns to capital –​a problem which is said to be “the very essence of the problem of effective demand”; it has been said that “time and time again Malthus denied the need to consider this connection” (Blaug [1958] 1973, 93). It is true that Malthus did not devote as many words as Ricardo to the problem of diminishing returns, and that diminishing returns did not play such an important role in his theory of growth as in Ricardo’s, but as argued in Chapter 4 it is not true that he ignored it or denied its importance. He saw it as an essential element of his theory of growth, although he did not regard it as the only essential element, and would probably not have agreed that it was “the very essence of effective demand”, if the phrase “very essence” is intended to mean the necessary and sufficient essence. To claim that it is the only essential element in Malthus’s theory of growth would be to engage in Ricardo’s penchant for monocausality. iii In the second edition of the Principles “reduced to nothing” was altered to “greatly reduced”.

Say’s Law  151 In a letter to James Mill on 27 July 1820, Ricardo wrote: “The attack [by Malthus] on Say’s and your doctrine of accumulation, is supported by the weakest arguments, inconsistent with many of his own declared opinions, and so palpably fallacious that one’s wonder is he could have deliberately written it” (Ricardo 1973,VIII, 212). In the opinion of Blaug, “Malthus himself never produced a logical refutation of the Law of Markets, probably because he did not really understand the theory at the back of it” (Blaug 1968, 164). Blaug also thought that Malthus’s opposition to Say’s Law was deficient because it did not recognise that effective demand is generated by investment as well as by consumption: “Malthus’ attack upon Say’s Law failed owing to his insistence that vanishing investment incentives can be explained solely by insufficient consumers’ demand”; Malthus should have stressed “consumers’-​plus-​investors’ demand” (Blaug [1958]1973, 93). However, this criticism by Blaug appears to have been based on an anachronistic interpretation of Malthus’s concept of consumption. As explained in Chapter 2, Malthus sometimes used “consumption” in the sense of what is now called expenditure on consumer goods, as distinct from expenditure on investment goods, but he did not limit “consumption” to that sense; he also used it in the broader sense of the use of, or using up of, commodities in general, whether consumption goods or investment goods. His theory of economic growth and his answer to the problem of general recessions were based as much on investment as on the consumption of consumer goods. These vigorous defences by Blaug and others against Malthus’s criticisms of Say’s Law stand in stark contrast to Malthus’s confident assertion of opposition to Say’s Law: “It has been thought by some able writers that a glut of commodities cannot be general; but this doctrine seems to be unfounded” (Malthus 1989b, I, 570).

Origin and meaning of the expression “supply creates its own demand” Keynes used the expression “supply creates its own demand” (1936, 18) when referring to Say’s Law, and presumably thought it conveys Say’s view. As Keynes used it in referring to Malthus’s ideas, Keynes might have thought that Malthus also thought it truly expressed Say’s position. The following examples show that Malthus used a similar expression when arguing that an increase in the production of food will enable more people to survive, and will thus create an increased demand for food. In his letter to Ricardo on 29 December 1814 Malthus said, in comparing “the necessaries of life and other commodities”, that “the former create their own demand the latter not” (in Ricardo 1973, VI, 168). In his Principles he said that one of the causes of rent is “That quality peculiar to the necessaries of life of being able, when properly distributed, to create their own demand” (Malthus, 1989b, I, 139–​140; slightly altered in the second edition of the Principles). In his chapter “Of the Rent of Land” he said, “the increased production, occasioned by the

152  Say’s Law improvement in cultivation, is found to create a demand proportionate to the supply” (Malthus 1989b, I, 143–​144; in the second edition of the Principles, “when properly distributed” was added after “cultivation”); and “the peculiar quality belonging for the necessaries of life, when properly distributed, tends strongly and constantly” to raise up a population to demand it. (Malthus 1989b, I, 144). Later he referred (twice) to “the power of the necessaries of life, when properly distributed, to create their own demand” (Malthus 1989b, I, 164, 165). The repeated use of the expression “when properly distributed” in these examples illustrates the emphasis given in Malthus’s macroeconomics to the role of distribution, as discussed in Chapter 13. The expression is also implicit in the statement: “facility of production in necessaries, unlike facility of production in all other commodities, is never attended with a permanent fall of price” (Malthus 1989b, I, 161–​162; in the second edition of the Principles, “never” was altered to “rarely or never”, and “price” to “their value”). These examples of Malthus’s repeated use of “supply creates its own demand”, or something similar, suggest that it is not impossible that Keynes might have seen and remembered these words of Malthus and applied them in his own way. Malthus used them to refer to food production. Keynes used them as a shorthand summary of Say’s Law. An early similar but not exact use of the phrase was made by Thomas Joplin: “the agriculturist … always finds a demand equal to the supply which he is enabled to produce. It is therefore, the supply which creates the demand, and not the demand as with other commodities, which creates the supply”; with other commodities “it is the supply which accommodates itself to the demand” (Joplin [1828]1970, 75). The expression “supply creates its own demand” might have possibly been borrowed by Keynes from James Bonar (1852–​1941), who might have borrowed it from Malthus. Bonar was described in the Dictionary of National Biography as the “unrivalled expert on Malthus”. Bonar’s library in the University of Glasgow has original editions of eighteen of Malthus’s works, together with some French translations, as well as works by others on Malthus. Bonar published Malthus and His Work, 1885 (second edition, 1924), and a number of articles on Malthus. He left an unfinished biography of Malthus. He corresponded extensively with Keynes, and in 1935 combined with Keynes and C. J. Fay in a commemoration of the death of Malthus on 29 December 1834. Bonar was actively working on Malthus around the time that Keynes was working on his essay on Malthus. Keynes referred to Bonar’s book a number of times in his essay on Malthus. Bonar seems to have had a very detailed knowledge of Malthus’s life and writings. It is not at all unlikely that with their detailed knowledge of Malthus’s writings both Keynes and Bonar would have been familiar with Malthus’s use of the expression in connection with food production. As Richard Kent has noted, the following three versions of the expression “supply creates its own demand” were used by Bonar in Malthus and His Work, second edition:

Say’s Law  153 1 “the peculiarity belonging to agricultural land, [is] that the demand increases with the supply; in other cases the demand is external to the supply, but in this case the supply creates its demand. Where there is food there will be mouths. In the supply of food no over-​production is possible … . the farmer makes his customers by simply making his wares”. 2 “the Essay on Population showed that it was only in the lower stages of existence that increase of mere food involved increase of population; and so the tendency of the supply to create its own demand was … nothing more than a tendency”. 3 Malthus “regards rent as depending largely on the ability of the agricultural supply to create its own demand” (Kent 2005, 69). In addition to these three explicit references by Bonar to the expression “supply creates its own demand”, the expression is also implicit in Bonar’s statement: “Malthus had allowed that in one case, the case of food, there could be no over-​production” (Bonar [1885] 1924, 232, 233, 244, 294). But Bonar’s frequent use of the expression was limited to food production, and does not appear to have been a direct precursor of Keynes’s use of the expression in relation to production in general, or in connection with Say’s Law. As Steven Kates has noted (2005 and 2010, 43–​44), the expression “supply creates its own demand” was used by Harlan Linneus McCracken in his Value Theory and Business Cycles, 1933, a copy of which he sent to Keynes and was acknowledged by Keynes. Both Kates and Kent believe that it is almost certain that Keynes’s use of the expression in the General Theory was influenced by McCracken, rather than by Bonar. However, it remains unclear whether McCracken invented the expression, or borrowed it from some other source –​Malthus? Bonar? My own view is that, because of the number of times Malthus himself used It, even though only in connection with the production of food, and because of Keynes’s familiarity with Malthus’s writings, the most likely source of Keynes’s use of the expression “supply creates its own demand” was either Malthus’s writings directly, or Malthus’s writings indirectly through Bonar’s quotations from Malthus in his Malthus and His Work. Keynes extended the application of the expression from its use by Malthus, in relation to food production, to production in general. It is also conceivable that Keynes himself invented the expression without help from anyone else. Application of Say’s Law to food and to other commodities Malthus agreed with the principle “supply creates its own demand” when it is applied to the supply of the necessaries of life, but denied that self-​creating demand occurs in areas other than food production. In a letter to Ricardo on 29 December 1814 he expressed this criticism of Say: “I think the source of his error is, that he does not properly distinguish between the necessaries of

154  Say’s Law life and other commodities, –​the former create their own demand the latter not” (in Ricardo 1973, VI, 168). Ricardo said that Say has “most satisfactorily shewn” that “demand is only limited by production” (Ricardo 1973, I, 290); but Malthus said that the view of Ricardo and Say on this matter is “utterly unfounded” (Malthus 1989b, I, 353). It is also significant that Malthus said that for food to create its own supply it had to be properly distributed, by which he probably meant it had to be in the hands or mouths of those who needed it for nourishment. In this context, the principle of “supply creates its own demand” was a biological principle, not an economic principle, and could not be interpreted as a version of Say’s Law. It did not explain the process by which the food would be “properly distributed”. It might be applicable in a self-​sufficient family situation where food would be shared, but not in a commercial exchange situation. Malthus in this context did not make use of the idea that production generates for the factors of production a revenue equal to the costs of production –​an essential element of Say’s Law.

Say’s Law as a grammatical construct, and Malthus’s deconstruction Malthus’s incisive deconstruction of Say’s concept of production could be applied to an argument frequently used in the secondary literature in support of Say’s Law –​an argument which could be described as a grammatical construct, involving the meaning of the words “supply” and “demand” as used in the expression “supply creates its own demand”. When a supplier (A) of a particular product supplies it in exchange for a product supplied by another supplier (B), then (A) is making a demand for the product of (B); and when supplier (B) supplies a product in exchange for the product of (A), then (B) is making a demand for the product of (A).Thus, a supplier of apples who is offering to exchange them for pears is making a demand for pears; and a supplier of pears who is offering to exchange them for apples, is making a demand for apples. Each of the two parties to the exchange is simultaneously fulfilling the double roles of supplier and demander. The supplier (A) of apples is also a demander of pears, and the supplier (B) of pears is also a demander of apples. In that sense, all sellers are buyers and all buyers are sellers, and it could be said that supply is creating demand, although strictly speaking it would be more correct to say not that the supply is creating the demand, but that the supply is the demand, or that a supply constitutes a demand, and a demand constitutes a supply. Each party to an exchange is a supplier and a demander; each is creating a supply and a demand. The terms “supply” and “demand” can therefore be used interchangeably; they are two ways of describing the same exchange phenomenon. In this literary or grammatical sense, supply and demand are equal, and there can never be a deficiency of demand. The secondary literature abounds with clever and ingenious ways of expressing this interchangeability of the terms “supply” and “demand” when referring to an exchange situation; for example, “the more men can produce,

Say’s Law  155 the more they will purchase”; “production can only be purchased by production” (Ahiakpor 2003, 109–​10). Steven Horwitz (2003, 84–​85) provides several concise expressions of this grammatical phenomenon: “whatever is sold by one person gets bought by another”; “production is the source of demand”; “where there are more sellers there will be more buyers”; and “Where producers are numerous, there will be more demand for other products”. Such statements are merely expressions of a semantic phenomenon from which nothing can be logically deduced about economic policies in the real world. In this sense, “supply creates its own demand” amounts an unremarkable linguistic fact, perhaps of interest to grammarians, but devoid of any practical economic significance. But proponents of Say’s Law sometimes seem to be elevating this simple fact of grammar into a fundamental economic principle or law, and seem to endow it with profound macroeconomic implications, as if it were an announcement of some world-​shattering mystery. From this simple grammatical fact they conclude that for aggregate product there can never be a deficiency of demand, that for every increase in aggregate supply there will be an equal increase in aggregate demand, and that there will never be recessions, apart from temporary and self-​correcting ones caused by errors of judgement by businessmen or government, and never any need for government intervention to overcome depressions. In every completed exchange, the value that the supplier has received is equal to the value that the demander has given, but this is merely a description of what has taken place. Proponents of Say’s Law seem to interpret it as a prediction that aggregate offers by potential suppliers will be met in aggregate by mutually acceptable demands from potential purchasers, leading to a situation where aggregate demand is always equal to aggregate supply, apart from temporary miscalculations by individuals or unwise decisions by government. To base Say’s Law merely on the fact that in an exchange situation events that are called a “supply” can also be called a “demand” is to reduce it to the status of a trite truism, or an inconsequential phenomenon of grammar, or a word-​play masquerading as a theory. If Say’s Law is interpreted in this sense as a grammatical phenomenon, and if it is thus used to conclude that economic growth can be assured by production or supply without any help, or with miniscule help, from demand, then it most surely be an hyperbole –​a deliberate exaggeration not meant to be taken literally –​even though some of its proponents seem to take it literally. It is a good example of the way in which we political economists like to utter platitudinous remarks, and then proceed to glorify them with the name of “Laws”, perhaps in the hope that we thus endow them with Newtonian rigour.

The revenue-​generating basis of Say’s Law Another attempt in the secondary literature to justify Say’s Law is based on the fact that revenue generated in the production process will be available in the

156  Say’s Law form of purchasing power when distributed into the hands of the factors of production, and will exactly equal the costs of production: “the income generated by sales will always be sufficient to purchase the quantity of goods available to buy” (Horwitz 2003, 84). A producer who supplies and sells a product will receive a price that covers the costs of production including an acceptable profit; unless that cost-​covering price is received, or is expected to be received, the production will not take place. The revenue received in the form of the cost-​covering price will be shared between the factors of production, and the recipients of the revenue could use their shares to generate an effective demand, either for some of this particular product or for some of the products of other producers, and could also spend their revenues on investments, so that collectively throughout the economy the total amount of revenue generated in the production of all the products will equal the total costs, including profit, of all the products. In this sense, supply appears to have created its own demand. This revenue-​generating proposition is more intellectually respectable than the grammatical-​construct interpretation as a basis for Say’s Law, but when analysed it also amounts to nothing more than another truism. It merely states that the costs incurred by the producer and paid to the factors of production as a return for their services are equal to the revenues received by the factors of production as returns for their services. What one party sees as a cost, the other party sees as a revenue As in every completed exchange transaction, by the very definition of exchange, the monetary exchange value of the goods and services demanded equals the monetary exchange value of the goods and services supplied. But this revenue-​generating proposition overlooks the significance of the pattern of distribution of the revenue, and the effects of its distribution on future expenditure and production, as discussed more fully in Chapter 13. The revenue generated in one production or sale can become the purchasing power available to finance another production or sale, but its effect in generating effective demand will depend on the pattern of expenditure by the recipients of the revenue, and on their propensities to consume, save, and invest. Will the pattern of expenditure be one that is most conducive to maintaining and augmenting the aggregate level of effective demand? Would it alter the balance of aggregate expenditure between consumption, saving, and investment, or between labour and capital? Propensities to consume, save and invest will vary between individuals and between the various economic classes –​higher, middle, and lower –​with consequences for the aggregate level of effective demand. The distribution of income raises doubts about the extent to which the generated revenue will stimulate effective demand. Unless this issue is dealt with, Say’s Law does not provide a satisfactory explanation of depressions and gluts, nor an adequate remedy.

Exogenous and endogenous causes of depression Say believed that exogenous factors, such as business miscalculations and government mismanagement, could cause general depressions if they became

Say’s Law  157 widespread and persistent. He argued that depressions can be caused by individuals or firms due to misjudgements, miscalculations, co-​ordination failure, disproportionality, or cumulative errors in the production process, and that depressions are usually partial, short-​lived, and self-​correcting through normal market forces without government intervention (see Kates 1997, 198). Say also recognised that general gluts could be caused by other exogenous factors besides business miscalculations, such as political uncertainties, political disturbances, unwise government interference, and poor administration, leading entrepreneurs and capitalists to hoard money rather than invest it, as noted for example in Forget (2003, 58–​59). Malthus did not deny the possibility that partial gluts could occur because of business miscalculations (see Malthus 1989b, I, 461), and because of political instability and maladministration by government. In this and some other respects, notably the importance of production, his views were similar to Say’s, but Say did not give as much attention to distributional implications, and did not recognise the endogenous factor which seems to have been the main concern of Malthus, namely, the decline in aggregate effective demand for consumption and investment resulting from an excessive distribution of income from the poor to the rich, or from those with a high propensity to consume to those with a low propensity to consume. It has been argued that, if Say’s Law is valid, there should never be overproduction, or depressions, or gluts, because whenever goods are produced, the production process will create an adequate demand for them. But it has also been argued fatalistically that depressions are an inevitable part of our economic system; for example: “The apparent contradiction between the Law of Markets and the recurrence of gluts was resolved as soon as it was recognised that business cycles are a regular feature of an industrial economy” (Blaug [1958] 1973, 221). If that is the case, then it would seem that the validity or invalidity of Say’s Law is irrelevant to the problem of preventing or curing depressions. Say knew that financial difficulties or bankruptcies of major businesses could have wider repercussions on other businesses, and could lead to partial gluts, but Malthus did not believe that the severe, prolonged and widespread depressions that they witnessed in their lifetimes (Malthus 1766–​1834, Say 1767–​1832) could have been attributed to business miscalculations by individuals and firms, or to bad laws of government, although he recognised the effects of bad government; an alteration in the second edition of the Principles referred to “the want of power or will to save, arising from bad government” (Malthus 1989b, II, 162). Some modern followers of Say are prepared to attribute later depressions, including the Great Depression of the 1930s, entirely to business miscalculations or government mismanagement, and to maintain that deficiencies of aggregate demand were in no way responsible. Unlike Say and Say’s modern counterparts, Malthus did not write extensively on the role of business miscalculations as possible causes of depressions or gluts, preferring to emphasise the failure of aggregate effective demand, but he did not deny the possibility of the adverse effects of human miscalculation.

158  Say’s Law His analysis of depressions and gluts noted the occurrence of “the failure of demand in some large branches of trade”, which could have serious consequences (Malthus 1989b, II, 281; altered from “the failure of some branches of trade” in Malthus 1989b, I, 491–​492). He gave the following explanation of how a failure of demand in one large sector of the economy could spread to other sectors: The remaining capitalists would be in no respect benefited by events which had diminished demand in a still greater proportion than they had diminished supply. Commodities would be every where cheap. Capital would be seeking employment, but would not easily find it; and the profits of stock would be low.There would be no pressing and immediate demand for capital, because there would be no pressing and immediate demand for commodities; and, under these circumstances, the saving from revenue to add to capital, instead of affording the remedy required, would only aggravate the distresses of the capitalists, and fill the stream of capital which was flowing out of the country. (Malthus 1989b, I, 492) He believed these failures in some large branches of trade would be short-​ lived partial gluts: “The doctrine of the equality of profits teaches us that partial gluts cannot be of long duration” (Malthus 1824a, 330). Malthus attributed these widespread and distressing events not solely to business miscalculations, but also to something more fundamental –​a failure of aggregate effective demand. Say did not accept that aggregate demand failure could be another cause of depressions. For Say and modern supporters of Say’s Law, miscalculations and maladministration are the only possible causes: the Law of Markets denies “that failure of effective demand was a cause of recession and unemployment” (Kates 2003, 41). Malthus agreed that miscalculations, or maladministration, or both, can be contributory causes of gluts, but in opposition to Say he argued that, even if there are no miscalculations or maladministrations or other exogenous causes, gluts can occur, because of redistributive forces which arise endogenously from within the economy in the pursuit of economic initiatives, or which exist in the infrastructure of social and political institutions.These endogenous causes could occur independently of, and simultaneously with, partial depressions due to exogenous causes. As discussed in Chapter 13 he identified excessive inequality of income as one such endogenous cause. Say’s explanation of depressions relied mainly on private sector miscalculations and public sector mismanagement. It implied a belief that the economy in which he lived was basically and structurally sound, and did not contain within itself the seeds of its own destruction. His view of the world was that, if private miscalculations and public mismanagement can be avoided, there is no reason for the economy not to proceed along the path of perpetual growth, and there is no need for major structural or institutional reforms. A similar optimistic, or

Say’s Law  159 one might say utopian, position appears to be held by some supporters of Say’s Law today. Deficiency of aggregate demand: impossible or possible? A common characteristic of advocates for Say’s Law is their insistence in asserting, often with a tone of passionate conviction, that aggregate demand deficiency is impossible. They are not content to concede, in a spirit of moderation and compromise, that an aggregate demand deficiency might in certain circumstances be possible. If asked, what is the source of this uncompromising certitude of impossibility, they invariably resort to the defences of Say’s Law based on the grammatical-​construction argument or to the revenue-​generating argument, as discussed above, without recognising that they are merely truisms from which no real-​world consequences can be logically drawn. An attempt to prove the impossibility of aggregate demand deficiency has been based on the idea that aggregate demand is equal to consumption expenditure plus investment expenditure, and therefore, it is argued, there can be no persistent gap between supply and demand. However, as mentioned above, that attempted proof has not recognised two counter-​arguments: (1) Although expenditures on consumption and investment pass in the form of revenue and purchasing power into the hands of those involved in the supply process, they will not necessarily take the form of effective demand; and (2) It does not sufficiently consider the question of the distribution of income in the creation of effective demand. If the validity of these two counter arguments is accepted, they establish the logical possibility of a deficiency of aggregate demand, and show there is no logical justification for asserting that a deficiency of the demand is impossible. Proponents of Say’s Law do not appear to have provided a logical and valid proof of its impossibility. Attempts to prove its impossibility remain unconvincing. If the impossibility of aggregate demand deficiency cannot be proved, or has not been proved, can its possibility be proved? As argued above, Malthus argued that a redundancy of savings and capital can occur because of a lack of suitable investment opportunities, and can trigger a general and prolonged downturn. His argument constitutes a logical and plausible theory of the genesis of deficiencies of aggregate effective demand; it substantiates the possibility of aggregate demand deficiency, and refutes its impossibility. In Chapter 13 it is argued that, according to Malthus’s theory of gluts, a general deficiency of demand is theoretically possible, and can be generated by a shift in the distribution of income. The distinction between demand deficiency and miscalculation is somewhat exaggerated; it does not recognise that miscalculations could occur because of the onset of an aggregate demand deficiency, and a situation described as a deficiency of aggregate demand could also be described as a situation involving widespread miscalculations of expected aggregate demand. An alternative and preferable distinction might be between miscalculations where an individual

160  Say’s Law person or business is responsible for the error, and which will readily be rectified by normal market processes, and miscalculations which arise from a general decline of business activity, and which will be long-​lasting and more difficult to rectify. At the onset of a downturn in trading, stockpiles of unsold goods are seen to be building up in warehouses and shops. At first glance it would seem that the problem has been caused by overproduction due to miscalculations, but it could equally be blamed on underconsumption due to deficiency of aggregate demand. If the downturn continues and widens, production will be cut back, and it becomes logically difficult to continue to blame the downturn on overproduction. Faced with apparent overproduction, the anti-​depression theory advocated by Say and others, such as James Mill, would seem paradoxical, by insisting that overproduction could be cured by more production, rather than by measures to increase consumption and demand. Also, although they rejected the idea that depressions are caused by a deficiency of aggregate effective demand, the pro-​ production remedies advocated by Say and Mill did in fact have recourse to the role of effective demand by arguing that true, real, and complete production will occur only if and when there is a sale, but a sale will not occur unless there is an effective demand. They argue that the increased production of saleable products by some firms would generate incomes and expenditures for its factors of production, which would become effective demands for the non-​selling products of firms facing difficulties. Is the Say–​Mill theory a miscalculation theory or a demand-​deficit theory? The differences between miscalculation theories of depression and demand-​deficit theories of depression are not easy to identify.

Policy implications of Say’s Law: an argument for wage reductions? Say’s Law can have significant implications for economic policy. Depending on how it is defined, it can lead, for example, to a rigorous version of laissez-​faire. On the assumption that gluts and depressions will not occur unless there are mistakes by producers or mismanagement by governments, it concludes that there is no need for government intervention in the free market in order to prevent or remedy depressions. It can also mean that if the government finds it does need to encourage output, or employment, or purchasing power, or growth, it should act in the first instance to boost production rather than to promote consumption. Production is given primacy over consumption as the cause of growth and the remedy for depression; the growth of consumption is seen as an effect, not a cause, of the growth of production; economic policy should therefore be supply-​led, rather than demand-​led; and economic growth will be retarded by wage increases and enhanced by wage reductions. Under Say’s Law, economic progress will occur by a trickle-​down process rather than a trickle-​up process. By contrast, if Malthus was correct in thinking that a general depression can occur because of a deficiency of aggregate effective

Say’s Law  161 demand, then it would be appropriate to introduce policies designed to stimulate demand, not instead of production stimulants, but in an appropriate mix of demand and supply stimulants. The political significance of Say’s Law has been stressed by Ronald Meek: “Ricardo’s advocacy of a rigid version of Say’s Law seems to have been associated with his desire to defend certain political conclusions suggested by his theory” (Meek 1950, 51). In its interpretation by William Hutt, Say’s Law becomes an apologia for an extreme version of laissez-​faire, involving a condemnation of wage promotion activities by trade unions, and an indictment of government policies to stimulate effective demand. According to Hutt, depression is caused only by an interruption or restriction of supply, not by underconsumption or insufficient demand: “depression can emerge only through an interruption of the stream of ‘supplies’ ”; with “any interruption of the ‘stream of spending’ being an effect –​not a cause” (Hutt 1974, 73; original emphasis). However, this emphasis by Hutt on the initiating role of supply appears to contradict his statements that Say’s Law exposes “the automatic tendency to depression”. According to Hutt, Say’s Law clearly explains that this tendency is “inevitable”, and that this tendency “could hardly be wholly eliminated”, even if “institutions were deliberately designed to bring private duress in the pricing process to an end” (Hutt 1974, 41, 146; original emphasis). In Hutt’s view, the path to recovery as suggested by Say’s Law consists of “institutional reforms to release, encourage or permit incentives for market-​ selected adjustments, (a) of ‘unduly’ high wage-​rates, or (b) of other input prices which exceed market-​clearing values”. Hutt added that this path to recovery “may appear to some as a cruel remedy”, but he seems to justify this “little wage-​rate reasonableness” by comparing it with the harmful effects of inflation following government intervention. (Hutt 1974, 145–​146).Trade union officials are to be held responsible for the occurrence or persistence of depression: If the labor union officials as a body really wanted to avoid cyclical layoffs and chronic unemployment, they would exercise leadership and habitually persuade members of their unions not only to renounce the “wage-​push” pressures which have for so long been repressing the wages-​flow, but at appropriate times to accept the temporary sacrifices needed to preserve or restore labor’s earnings: Strikes and government enactments “suppress the social discipline of market pressures” (Hutt 1974, 146). The economic policies recommended by Say were clearly directed to promoting the interests of business. He was in the happy position of having no conflict between his theories and his profits. He argued that business was being impeded by the high cost of productive services, by which he would presumably have been referring to labour as well as materials: “permit me to point out that the only difficulty we find in creating productions worth the costs of production, arises from the high demands of the vendors of productive services”

162  Say’s Law (Say 1821, 31). He appeared not to consider that impediments to business might have been occurring because of a low level of effective demand from consumers, due to a low level of wages. Say’s Law, laissez-​faire economics, and supply-​side economics Say’s Law is therefore particularly popular among those economists and economic institutions whose economic policy recommendations could be categorised as laissez-​ faire, supply-​ side, conservative, reactionary, or right-​ wing. Its implications for current economic policy in those directions help to show why the controversy over Say’s Law carries much more than antiquarian interest, even for those who have neither familiarity with nor interest in Say or his Law. In contrast, a dominant theme of Malthus’s economics is that producers will not produce unless they have both the power and the will, or the means and the motives, to produce. The power to produce supposes access to the resources of land, labour, and capital. The motive or will to produce may vary according to the individual producer; for some, it could be personal prestige; for others, it could be a hobby or pastime. But if it is the usual commercial motive, it would presume not only the existence or expectation of an adequate effective demand for the product, covering costs and aspired profit; but also, in the case of proposed investment expenditures, an acceptable degree of security and reward for investment capital. The existence of an effective demand for the product, and the existence of security and reward for capital, are surely just as important as the existence of the means of production. The status of Say’s Law as an important economic principle would be severely diminished, and its influence on economic policy severely weakened, if the essential causal role of effective demand were to be acknowledged, alongside supply considerations. Say’s Law has been seen as a major theoretical endorsement of the laissez-​faire economics associated with the Austrian concept of markets as “spontaneous ordering processes”, in contrast to what Hayek described as “organisations”, or “top-​down” structures and institutions, set up human beings: “Say’s Law of Markets … is one of the principles by which the complex phenomenon of the market operates”; “Say’s Law is an explanatory principle of the spontaneous order of the market” (Horwitz 2003, 88, 89, 96). The association of Say’s Law with laissez-​faire, and indirectly with Adam Smith, gives it an aura of academic respectability and contributes to its popularity in some academic and political circles. But to criticise and abandon Say’s Law does not necessarily amount to a complete abandonment of laissez-​faire and Adam Smith, or a total rejection of Say’s views on matters other than Say’s law. Despite Malthus’s criticisms, Say strongly reaffirmed his support for his “Doctrine des débouchés”. Some commentators interpret this reaffirmation as continued support by Say for the principle of “supply creates its own demand”. Others argue that Say never made use of that principle.They redefine Say’s Law

Say’s Law  163 without it, thus constructing a version of Say’s Law devoid of this controversial theme, but retaining the title “Say’s Law”. Malthus and Say: their mutual respect In a letter to Ricardo on 19 July 1821, Say was very complimentary with regard to Malthus’s Essay on Population, and wanted Malthus to be assured that the discussions between Malthus and himself on questions of political economy had not altered his admiration for the doctrine, the book, and its author (in Ricardo 1973, IX, 36). In asking whether Say’s admiration for Malthus’s Essay extended to Malthus’s Principles, we should not forget the remarkable testimony by Say, quoted above but rarely mentioned in modern secondary literature that supports Say against Malthus: “I assure you that in your attacks against Macculloch (sic) and Ricardo, experience and reason seem to be entirely on your side” (Letter to Malthus, 24 February 1827, in Say 1833, 287). In concluding his letter to Malthus of 27 July 1827, Say expressed his happiness at sharing ideas with Malthus, and assured Malthus of his “haute considération” and his “respectueux dévouement”. The respect shown by Say to Malthus was reciprocated. Malthus referred to Say’s Traité as a “valuable” work which “explained with great clearness many points not sufficiently developed by Adam Smith” (Malthus 1989b, I, 136), and he described Say’s new edition as “much improved” and “highly worthy the attention of all those who take an interest in these subjects” (Malthus 1989b, I, 136), although this latter comment was replaced in the second edition of Malthus’s Principles by a criticism of Say’s views on rent (Malthus 1989b, II, 148).

Malthus, Say, and Keynes Much of the modern secondary literature in support of Say appears to be motivated by a desire to discredit Keynes and his criticism of Say’s Law, and has consequently been directed also against Malthus because of his perceived influence on Keynes’s thinking on the role of deficits of aggregate effective demand as causes of depression and slow growth. The discrediting of Malthus’s macroeconomics is being used to discredit Keynes’s views on the importance of effective demand. Because Keynes spoke favourably of Malthus, anti-​ Keynesians believe that by denigrating Malthus they are denouncing Keynes. Those who wish to criticise and reject Keynes feel obliged to criticise anyone who is thought to be pro-​Keynes and to have had a positive influence on Keynes, especially anyone praised by Keynes, such as Malthus; and also feel obliged to support anyone criticised by Keynes, such as Say. Critics intent on undermining Keynes seem to find it imperative to condemn those whose ideas Keynes liked (Malthus), and glorify those whose ideas Keynes disliked (Say). Those who like Say and dislike Malthus face an anomaly when it is realised that Say admired Malthus.

164  Say’s Law Some devotees of Say’s Law and some critics of Malthus seem to be motivated, less by love of Say, and more by phobic fear of Keynes and fear of distributionist policies thought to be implicit in Keynes’s writings –​such as, higher wages, more welfare benefits for lower income groups, higher taxes for upper income groups, wealth taxes, and death duties. Say’s recognition of aggregate demand deficits At one point, Say would appear to have agreed with Malthus on the possibility of aggregate demand deficits: “many savings are not invested, when it is difficult to find employment for them”, and Mr. Ricardo is completely refuted, not only by what happened to us in 1813, when the errors of Government ruined all commerce, and when the interest of money fell very low, for want of good opportunities of employing it; but by our present circumstances, when capitals are quietly sleeping in the coffers of their proprietors. (Say 1821, 49) This refutation of Ricardo by Say is noted by some modern commentators –​ for example, Lambert ([1952] 1956, 25) and Thweatt (1979, 92), as reported in Forget (2003, 53). This appears to be a recognition by Say that depressions can occur because of demand deficiencies, and as an acknowledgement by Say that supply will not necessarily create its own demand. However, this raises the question: what precisely is the Law of Markets? If it is not violated by a situation where goods supplied on the market do not create their own demand, the concept of “supply creates its own demand” cannot be essential to the Law of Markets. Is it therefore merely a bland and innocuous statement that every time something is sold, something is bought; or in every completed exchange the value of the goods supplied equals the money or the value of the goods demanded, or that the price that one party is able and willing to pay equals the price the other party is able and willing to charge –​which amounts to nothing more than a truism: “all that is ‘truly produced’ will find a market” (Say 1846, 648).

An extended Say’s Law Keynes appears to have understood Say’s Law to mean “supply creates its own demand”, although whether he thought those five words constitute a formal definition or full summary of Say’s Law is debatable. That concept of Say’s Law has been adopted by some commentators and rejected by others. An alternative view, found for example in the writings of William Baumol, insists that “supply creates its own demand” is a very narrow interpretation of Say’s Law, that there is much more to Say’s Law, and that “supply creates its own demand” is a “mere misrepresentation” and “a bad caricature of Say’s Law” (in Kates 2003, 35); it is

Say’s Law  165 “an egregious misrepresentation” of Say, and there are “many substantial strands to Say’s Law”. According to Baumol (2003), Keynes took account of only one of the ideas of Say’s Law of Markets, “and represented it as the whole” (in Kates 2003, 44, 46). An extended version of Say’s Doctrine could include, for example, the idea that there is a spontaneous harmony and order in the economic system, and that it can be achieved with minimal or no government intervention. In support of an extended version of Say’s Law, it has been argued that the ascendancy of Say’s Law within the classical school from the early years of the 19th century until 1936 proves “there must have been more to Say’s Law than the obviously erroneous ideas described by Keynes” (Kates 2003, 71). The popularity of Say’s Law during those years could have been partly a response to the popular idea that the recessions and gluts of the time were caused by overproduction –​a theory that seemed to be corroborated by the stockpiles of unsold products in warehouses and on the shelves of retailers and wholesalers. In arguing that overproduction is a theoretical absurdity, Say’s Law could be seen as an attempt to refute the overproduction theory of depression, and to refute the ideas of Malthus who was often interpreted as espousing an overproduction theory. But, as argued below, the theory of depression that Malthus presented was not an overproduction theory; it was a demand-​failure theory, where demand-​failure could involve a failure of consumption demand or a failure of investment demand, or both, and where failure of investment demand is attributed mainly to a lack of suitable investment outlets. Say recognised that there can be times when there is a shortage of suitable investment outlets, but he did not provide an adequate theoretical response. The principle that supply-​creates-​its-​own-​demand does not encompass the breadth and complexity of Say’s ideas. There are other aspects of Say’s writings that deserve attention. The term “Say’s Law” could therefore be defined in many ways, depending on whether it is conceived in the narrow sense of “supply creates its own demand”, or in an extended sense. William Baumol (1977) has established what he believes to be at least eight distinct meanings, but that number could easily be augmented and could be given a spate of separate titles, which would have the advantage of highlighting and publicising the varied nature of Say’s contributions, but would also have the disadvantage of distracting attention from two very controversial themes, namely, “supply creates its own demand”, and the meaning of “production”. Although the extended version might include significant ideas of Say on other matters, has it been shown that they are essentially relevant to the debate about those two controversial themes? Or are the proponents of the extended version needlessly confusing the debate by introducing extraneous considerations and distracting attention from those two themes? Debate in the secondary literature has become confused and inconclusive through failure to specify which version of Say’s Law is in question: Keynes’s supply-​creates-​its-​own-​demand version, or an extended version. Emotive accusations of egregious misrepresentation are not helping to clarify the question.

166  Say’s Law Depressions and gluts: monocausal or multicausal Baumol was critical of those who have a “one-​approach” or “one-​explanation” theory of the causes of depressions and gluts, and implied that when Keynes and his followers attributed gluts to demand deficit, and ignored or discounted the role of miscalculations and maladministration, they were guilty of a “one-​ explanation” approach. If Baumol thought that Malthus was also guilty of a one-​cause approach, then Baumol must have been unaware that, although Malthus regarded demand deficiency as the main cause of general gluts, he acknowledged a possible causative role for miscalculations by business and maladministration by government as contributors to partial gluts, and acknowledged that partial depressions could have wider repercussions; he did not restrict the cause of depression to demand deficiency as the one sole cause. Although Baumol advocated a multicausal approach to the theory of depression, he was not prepared to accept aggregate demand deficiency, as well as miscalculations and maladministration, as a possible cause of depression: “there cannot be a general failure of demand” (Baumol 2003, 41). The debate about “supply creates its own demand” is a good illustration of the futility of monocausal argument in economics. A similar exercise in futility would be a debate on the theme of “demand creates its own supply”. Both are half-​truths. Demand alone would not create a supply or a product; a supply of the materials of production, including capital, is also a prerequisite. Supply alone would not create a product; a supply of the required materials might be available, but there would be no sale without an appropriate level of demand.

The fundamental issue Say’s Law concludes that, although temporary and self-​correcting surpluses or gluts of particular products can occur because of miscalculations by suppliers in the private sector and by maladministration in the public sector, there can never be a general and widespread surplus caused by a deficit of aggregate demand. The concept was neatly expressed by Ricardo in a letter to Malthus on 9 October 1820: “Men err in their productions, there is no deficiency of demand” (Ricardo 1973,VIII, 277). Malthus described a general glut as a situation where “the warehouses are generally full, and there is a sudden and unusual fall of profits in all employments” with the result that “the producer cannot relieve himself ” (Malthus 1824a, 331; original italics). Malthus provided persuasive arguments to show that deficits of aggregate demand are theoretically possible. Say and Say’s supporters assert that aggregate demand deficits are impossible; see for example this statement by McCulloch: “Too much of one commodity may occasionally be produced; but it is quite impossible that there can be too great a supply of every species of commodities” (quoted in Malthus 1824a, 329), but their attempts to provide a persuasive theoretical proof of the impossibility of the occurrence of aggregate demand deficits were opposed by Malthus.

Say’s Law  167 The fundamental issue in the debate between Malthus and Say devolves into two basic questions: can significant deficits of aggregate demand occur independently of miscalculations by business and independently of maladministration by government, and what causes those deficits of aggregate demand? Say’s Law fails to recognise fully the importance of the distinction between purchasing power and effective demand. It asserts that supply creates its own demand, but its arguments lead merely to the conclusion that supply creates its own purchasing power; its arguments seem to assume that the power to purchase is the same as the will to purchase. Malthus constantly emphasised the difference between the power to purchase and the will to purchase. Say appears to assume that the purchasing power received by the factors of production will always and inevitably become transferred into an effective demand for either consumer goods or for investments. Ricardo insisted on the insatiability of human wants, and argued that recipients of purchasing power will readily find opportunities to transfer it into actual purchases. Malthus argued that this transfer either will not necessarily occur immediately or might be deferred for a considerable period. Transitions from the power to purchase to an actual purchase might normally be performed quite readily and easily for transactions involving consumption goods, but they could be slower and more difficult for transactions involving investment goods. It was Malthus’s view that investments could be delayed or prevented because of the problem of finding suitable investment opportunities, and because there might be no confident expectation of an adequate demand for the products of the proposed investment, with the result that some of the purchasing power which the owners seek to invest might remain as redundant or floating capital or cash balances. The rewards received by the factors of production provide them with the power to consume or invest or save, but investment will not occur unless they also have the will to invest. A supply of investment funds in the hands of potential investors does not necessarily of its own accord become an effective supply, and does not necessarily create its own demand for investments. In Malthus’s theory of depression a principal cause of a collapse of aggregate effective demand is, as argued in Chapter 13, a change in the distribution of income and wealth, resulting in an alteration in the balance between consumption and saving, and an alteration in the degree of inequality in the economy. It follows that the differences between Malthus and Say cannot be satisfactorily resolved without recognising the importance of the distribution of income and wealth to the growth of the economy and the avoidance of depression. James Mill appears to have assumed that no such problem would occur; if a merchant cannot employ his capital to advantage in his own business, “he may lend it to some other person who can”, and if he cannot employ what he saves with any advantage, he will not save it. No one thinks of accumulating dead stock … No man saves any part of his income which he has not a prospect of employing with advantage. (Mill 1804, 13; quoted in Thweatt 1980, 467)

168  Say’s Law Mill’s suggestion that the merchant may lend his surplus capital to some other person might be useful if the investment difficulty is only partial and temporary, but would be of little avail in a general and prolonged recession. If redundant or dead capital were to persist in an appreciable quantity for an appreciable time, the concept of Say’s Law, or the idea that supply creates its own demand, would be severely threatened. Production and consumption: reciprocal causation A major difference between the theories of Say and Malthus on general depression was that Say made little use of the concept of reciprocal causation, which was a central and essential theme of Malthus’s macroeconomics (see Pullen 2016b, 353). Say insisted that production or supply is the cause, and the only cause, of consumption and demand. Malthus agreed that production is a cause of consumption, but also insisted that consumption is a cause of production. In Malthus’s methodology, there is no inconsistency in maintaining the principle that effects can become causes, and causes can become effects. He believed that the complexities of the economic system cannot be comprehended without recourse to the notion of causal reciprocity. Persistence of belief in Say’s Law Many economists in the 19th century persisted, and many today persist, in proclaiming Say’s victory in his battle with Malthus over Say’s Law. It has been suggested that one particular reason for this persistence has been the “moral repugnance” associated with Malthus’s defence of unproductive consumption by a leisured class, which has been interpreted as support for a dominant caste of landed proprietors. In Lambert’s view, “here we have in fact an instance of a theory whose rejection can almost wholly be attributed to its ideological overtones” (Lambert [1952] 1956, 22). The persistence of the belief in Say’s victory might also be ascribed to the support it gives to production-​oriented economic policies, as opposed to or in preference to consumption-​oriented policies. If it is true that production creates its own demand, there is no need to foster consumption and demand by means of policies designed to redistribute purchasing power from those with a lower propensity to consume to those with a higher; it is then sufficient and desirable merely to introduce policies that favour production, either by reducing costs, for example, by reducing wages, or by increasing net profits, or by reducing business taxes.

Conclusion on Malthus on Say’s Law There is no doubt that the “law of markets had been one of the pillars of economic thought before the publication of the General Theory”, and that “its disappearance has made the most profound difference to the way in which

Say’s Law  169 economic issues are conceived and how the economies today are managed”. But not everyone would agree with the view that “its disappearance has damaged economic theory and policy beyond recognition” (Kates 2003, 79–​80). Some would rather argue that its disappearance has benefited economic theory and policy beyond recognition, and has removed a serious error that had retarded economic theory, and rendered it incapable of preventing or remedying the hardships caused by general recessions. It is difficult to avoid the conclusion that Say’s Law, if seen merely as a grammatical curiosity, is simply an argument by definition, and a truism. It rests gratuitously on the premise or definition that a product is not truly a product until it has been sold, and sold at a price sufficient to cover costs with an acceptable level of profit. It needlessly restates that for every time there is a sale, there is a purchase; and that whenever an exchange occurs in a market, the exchange value of the goods supplied will be equal to the exchange value of the goods demanded; or, in other words, in every completed exchange transaction, there will be an effective demand equal to the effective supply. Say’s Law incorporates the notion that the production process generates purchasing power equal to the cost of production, and this notion is often expressed as if it were of profound macroeconomic significance, but when analysed is seen to be merely a truism. Moreover, because its focus is on production, it fails to take into consideration the possible adverse effects on aggregate effective demand that could arise from alterations in the pattern of distribution of income between different economic classes. As a truism, it has become imbued by its proponents with an aura of certainty and infallibility, distracting attention from its failure to distinguish between the generation of purchasing power and the generation of effective demand. Say’s Law continues to give rise to diametrically opposed reactions between disciples and detractors. The former see it as a fundamental law of economics, as a guiding principle for economic policy, and as a self-​evident truth.The latter see it as a truism pretending to be a theory, and they are critical of the failure of Say and his followers to give adequate consideration to the fact that, although markets and débouchés are an essential part of the production process, they are also capable of generating adverse inequalities between social classes to the detriment of aggregate effective demand and the overall production process. The role of a wider distribution of income and wealth in stimulating growth and curing depression has not been a prominent feature of discussions on Say’s Law in the secondary literature. For example, in a collection (Kates 2003) of 12 essays on Say’s Law, there is no explicit discussion of how changes in the pattern of distribution of income might affect production by altering the relative strengths of the propensities to consume, save, and invest. Malthus believed in the possibility of a general glut of necessaries, but he also believed that it would be cured by self-​correction; he agreed that a state of things could occur in which there would be “more necessaries produced than would be sufficient for the existing demand”, but he argued this “state of things could not, however, continue; since, owing to the fall which would take place,

170  Say’s Law cultivation would be checked, and accumulation be arrested in its progress” (Malthus 1989b, II, 256, 436). However, this reference to the self-​correcting nature of gluts of food was not extended to a general glut of things other than food. He gave the following definition of a general glut: “A glut is said to be general, when, either from superabundance of supply or diminution of demand, a considerable mass of commodities falls below the elementary costs of production” (Malthus 1827a, 247). He opposed the view of Say and others that supply would create its own demand and that general gluts would be impossible. He believed that the economy possesses self-​correcting tendencies, but he also believed that, in order to stimulate effective demand and overcome gluts, it would be necessary to implement, not merely economic measures such as public works and the growth of the middle classes, but also political reforms, such as a wider distribution of property and wealth. Malthus said the conclusion of James Mill against the existence of a general glut “seems to be utterly without foundation” (Malthus 1827a, 67).

10  Laissez-​faire and government intervention Private sector and public sector

The voluminous secondary literature on Malthus deals extensively with four main themes –​population, Poor Laws, Corn Laws, and effective demand –​ but Malthus’s views on laissez-​faire and government intervention, although mentioned in passing and as background to the main themes, are rarely given explicit and extensive attention.The purpose of this chapter is to draw attention to the extent and complexity of his views on this theme. It is well-​known that his arguments in favour of protection from imports of corn were remarkable and controversial departures from the principle of laissez-​faire, despite his expressions of ardent support for that principle. It will be argued here that his opposition to laissez-​faire in the case of the Corn Laws was not a rare exception, and that his arguments in favour of government intervention were much more significant than has been generally appreciated, and were perhaps more interventionist than he himself realised or was prepared to admit. Commentators on Malthus seem to prefer concentrating their attention on the four main themes mentioned above. As a consequence, contributions to the secondary literature usually convey neither the full extent and force of his case for laissez-​faire, nor the full extent and force of his case for government intervention. It is not a theme which is the subject of an ongoing stream of debate. The assumption seems to have been that the subject had been adequately dealt with by Adam Smith, and that Malthus had nothing important to add. This chapter attempts to present a more systematic and comprehensive account of his arguments, and contends that they constitute a sizeable and worthwhile theoretical contribution. On the question of the most appropriate balance between laissez-​faire and government intervention, neoclassical economics appears to have listened to Adam Smith, and, although admitting the possibility of some exceptions, has acquired an overriding preference, or one might say bias, in favour of laissez-​ faire; but, paraphrasing Keynes (1961, 120) on Malthus and Ricardo, one would have to ask: Would the world be “a much wiser and richer place” if it had listened to Malthus rather than Adam Smith on this question, and had arrived at a more balanced position? His views on the theme of laissez-​faire and government intervention merit as much attention as his views on population and effective demand, and to ignore them diminishes his status as a macroeconomist.

172  Laissez-faire and government intervention

Malthus’s arguments for laissez-​faire and against government intervention Malthus’s treatment of the public-​ private question provided critics with a splendid opportunity to accuse him of confusion and contradiction. He supported in very strong statements the principle of natural liberty, or laissez-​ faire, but also insisted on its limitations and exceptions. Principle of laissez-​faire His support for the principle was strongly asserted several times: “it is … one of the most general rules in political economy, that governments should not interfere in the direction of capital and industry, but leave every person, so long as he obeys the laws of justice, to pursue his own interest in his own way, as the best security for the constant and equable supply of the national wants” (Malthus 1989b, I, 13–​14); and again: “that great principle of political economy laid down by Adam Smith … teaches us a general maxim, liable to very few exceptions, that the wealth of nations is best secured by allowing every person, as long as he adheres to the rules of justice, to pursue his own interest in his own way” (Malthus 1989b, I, 518). In similar terms he said that one of the “great principles which lead to the most important practical conclusions” is “the freedom of trade, and the leaving every person, while he adheres to the rules of justice, to pursue his own interest in his own way” (Malthus 1989b, I, 2–​3); and “It is generally dangerous and impolitic in a government to take upon itself to regulate the supply of any commodity in request” (Malthus 1989a, II, 224). The mantra-​like repetition of the expression “to pursue his own interest in his own way” signifies the intensity of his commitment to laissez-​faire. In addition to presenting these statements of the general principle, Malthus developed the case for laissez-​faire in discussion of particular issues, such as the following: High price of provisions Malthus’s belief in the efficiency of laissez-​faire, and his opposition to government intervention in the market, were forcefully expressed in his pamphlet, An Investigation of the Cause of the Present High Price of Provisions, 1800, where he objected to attempts to impose regulations or restrictions on the price of corn during the scarcity of 1800. Pamphlets had been circulated with allegations that farmers and dealers –​forestallers, engrossers, and regraters –​sought to benefit from the scarcity by deliberately manipulating supplies in order to force prices up. Following Adam Smith, Malthus argued that the activities of the farmers and dealers would benefit consumers because the scarce food would be distributed more slowly, and severe general starvation would be avoided. His confidence

Laissez-faire and government intervention   173 in the free market is succinctly expressed in the statement: “if we attend to the great laws of demand and supply, they will generally direct us into the right course” (Malthus 1989b, I, 516). In supporting his argument, he quoted the view of William Eden on the effects of famine on the depopulation in Turkey, but, as Patricia James pointed out, Malthus omitted to quote Eden’s view that one of the principal causes of the famine in Turkey was “the avarice and villainy of the pashas, who generally endeavour to profit by this dreadful calamity” (in Malthus 1989a, II, 284). Malthus did not say that avarice and villainy were responsible for the high price of corn in England in 1800. His opposition in 1800 to government interference in the price of provisions in the domestic market was in contrast with his later support for government intervention in the price of provisions imported from abroad. Government support for Ireland His reluctance to condone government intervention was evident in his opposition to the proposal by Thomas Newenham for government advances to overcome the depressed situation in Ireland. Malthus said that the duty of government is “to stand by and see fair play, and not to be actively assisting –​first one party, and then another, as its caprices may direct”. He accused Newenham of being “much too fond of public grants and bounties”. Malthus also feared the jobbing that occurs in the expenditure of public money (Malthus 1809, 160). In a paragraph added to the second edition of the Principles, Malthus approved of some moderate assistance by the government in the case of Ireland: “A certain definite assistance in particular establishments, or in facilitating the communications between one part of the country and another, may be given by government with advantage”; but this partial endorsement of a moderate amount of government expenditure as a contribution towards overcoming the problems of unemployment or underdevelopment was immediately followed by a rejection of a general policy of Keynesian-​style pump-​priming or anti-​ cyclical budgeting: anything approaching to a forced supply of capital with a view to the general employment of the people in the extension of cultivation, would infallibly create an unnatural demand for labour which could not be maintained, would tend to paralyse individual efforts, and terminate in increased poverty and distress among the labouring classes. (Malthus 1989b, II, 260) England’s restrictions on Irish manufactures As another example of the bad effects of government he cited the “great checks” to Irish manufactures that had resulted from “the unjust and impolitic restrictions imposed by England which prevented, or circumscribed, the

174  Laissez-faire and government intervention demand for them” (Malthus 1989b, I, 400).This provided another stark contrast with the good effects he attributed to the restrictions imposed by Britain on the import of corn. Saving As Samuel Hollander has remarked, Malthus refused to countenance governmental interference with the savings rate; he adopted a “hands-​off attitude” towards social control of savings. For readers looking for a specific policy on savings, Malthus’s laissez-​faire rule would be an “anti-​climax” (Hollander 1997, 615, 983, 1003). Malthus said that saving “is, in numerous instances, a most secret private duty”, but there is no reason for “giving an additional sanction to it, by calling it a public duty”. He acknowledged that the amount of saving that occurs might not be consistent with “the most effective encouragement to the growth of public wealth”, but argued that “whether this tendency, if left alone, be ever too great or not, no one could think of interfering with it, even in its caprices”, and the question of saving should be left to the “uninfluenced operation of individual interest and individual feelings”. On the question of arriving at the right balance between production, consumption, and saving, he believed that “individual interest needs no extraneous assistance” and that the natural tendencies of individuals will “direct them towards the just mean, which they would more frequently attain if they were not interrupted by bad laws or unwise exhortations” (Malthus 1989b, I, 516–​517). He thought that the “market for national capital will be supplied, like other markets, without the aid of patriotism” (Malthus 1989b, I, 517). This objection to patriotic calls for saving was presumably not intended to apply to saving for reasons of national security in times of war. Also, it should be noted that by calling saving a private duty, by encouraging saving through his active participation in Provident Societies, and by encouraging young people to save to provide for their future, he himself did not leave saving to the uninfluenced operation of individual interests and individual feelings. He seems to have approved of attempts to alter the course of public affairs if made by individuals such as himself, but not if made by individuals acting collectively as governments. He also warned that harm can be done to savings by bad government. In the first edition of the Principles he said that capital might be prevented from increasing “by the want of will to save”. This was altered in the second edition to “by the want of power or will to save, arising from bad government” (Malthus 1989b, I, 166; II, 162). Extension of markets In another addition to the second edition of the Principles, he expressed doubts about the ability of governments to extend markets:

Laissez-faire and government intervention   175 We may know, that the opening of new channels of trade, and the extension of markets both at home and abroad will give us what we want; but these are objects which it is rarely in the power of a people or a government to accomplish at will. (Malthus 1989b, II, 267–​268) Menial servants He stressed the importance of having the right balance between the number of persons engaged in menial service and the number engaged in the production of material products, but he was confident that the right balance would usually be achieved by relying on the decisions of individuals, without government intervention. He argued that “the employment of a certain number of persons in menial service is in every respect desirable”, but he believed that we may “for the most part trust to the inclinations of individuals in this respect”, rather than rely “on any positive rules” (Malthus 1989b, I, 479. These quoted comments were the subject of several alterations in the second edition of the Principles, including “for the most part” altered to “safely”, and “rules” altered to “rule”). Hours of work, and working conditions Malthus’s comments on the desirability and feasibility of legislative attempts to reduce the hours of work of labourers provide an illustration of his attempt to define a balance between laissez-​faire and government intervention. As noted in Chapter 7, he expressed concern over the hard working conditions of labourers, but he was reluctant to recommend government intervention: To interfere generally with persons who are arrived at years of discretion in the command of the main property which they possess, namely their labour, would be an act of gross injustice; and the attempt to legislate directly in the teeth of one of the most general principles by which the business of society is carried on, namely, the principle of competition, must inevitably and necessarily fail. (Malthus 1989b, I, 474) These arguments against legislative attempts to reduce working hours were omitted from the second edition of the Principles.The reason for the omission must largely be a matter of conjecture. Were they omitted by Malthus or by the anonymous editor of the second edition? If by Malthus, does the omission represent a change of view on this theme? Did he become in later years more prepared to accept the need for legislative action to reduce the hours of work? It is possible that the omission was influenced by the Ten Hours Movement which contributed to the pressure that produced the Factory Act of 1833.

176  Laissez-faire and government intervention Combination Laws Malthus’s evidence before the Select Committee on Artizans and Machinery in 1824 provides support for the principle of laissez-​f aire. When asked about his views on the Combination Laws designed to prevent combinations of workmen, he replied that they appear to be “unjust to the men, because it is understood that the masters combine, without being liable to punishment; and that the men, when they combine, are liable to very severe punishment”. He favoured the repeal of the Laws, provided that in combining to raise wages workmen refrained from using force and intimidation (Malthus 1824b, 601). But his evidence to the Committee also shows that his concept of laissez-​ faire was not as extreme as some modern versions. It shows that he was not opposed in principle to combinations of workmen, and apparently regarded such combinations as an expression, not a denial, of the concept of laissez-​faire, in contrast to a commonly held view, then and now, that trade unions are a restrictive practice and are in opposition to that concept. Inefficiency of government His reluctance to admit a positive role for government in the economy seems to have been motivated at least in part by a belief that government operations are inefficient, by comparison with the private sector: in all business conducted with a view to the profit of individuals, it may fairly be presumed that there are no more clerks or labourers of any kind employed, or with higher salaries, than necessary. But the same presumption cannot be justly entertained with regard to the business of government. (Malthus 1989b, I, 47) A similar view of the inefficiency of government was expressed in his discussion of provision for the poor: “It is not probable that public money should be more economically managed than the income of individuals. Consequently, the cost of rearing a family cannot be supposed to be diminished by parish assistance” (Malthus 1989b, I, 77). Governing too much or too little The first edition of the Principles contained the statement: “more evil is likely to arise from governing too much, than from a tendency to the other extreme” (Malthus 1989b, I, 14). This statement was omitted from the second edition, probably not because he had changed his mind on this point, but rather because he had expressed the same idea elsewhere in slightly different language. The following warning against excessive intervention appeared in both editions:

Laissez-faire and government intervention   177 a propensity to govern too much is a certain indication of ignorance and rashness. The ablest physicians are the most sparing in the use of medicine, and the most inclined to trust to the healing power of nature. The statesman, in like manner, who knows the most of his business, will be the most unwilling to interrupt the natural direction of industry and capital. But both are occasionally called upon to interfere. (Malthus 1989b, I, 20–​21) He warned that the danger from the “officious meddling of governments is so much greater than any which could arise from the neglect of such exceptions” (Malthus 1989b, I, 14). He recognised that some sovereigns have pushed their rights over the soil to an extreme extent, charging rents and levying taxes that have reduced profits and wages, resulting in reduced cultivation with good land remaining unused (Malthus 1989b, I, 156–​157). His concern with excessive government was also evident in his reluctance to support government-​funded public housing projects: any general plan for building cottages at the public expence, unless confined to the accommodation of a particular class of persons, or in some other way most strictly limited, is so liable to abuse, that I should be greatly afraid of seeing it attempted. (Malthus 1807, 32) It can also be seen in his criticism of Sismondi: “I can by no means go with him … in the opinion which he holds respecting the necessity of a frequent interference on the part of government to protect individuals, and classes, from the consequences of competition” (Malthus 1989b, I, 420). Unemployment relief Writing in 1817 in a period of great public agitation for Parliamentary reform, when a considerable number of labourers, able and willing to work, were unemployed, Malthus said: That this state of things is one of the most afflicting events that can occur in civilized life, that it is a natural and pardonable cause of discontent among the lower classes of society, and that every effort should be made by the higher classes to mitigate it, consistently with a proper care not to render it permanent, no man of humanity can doubt. But despite this expression of understanding and sympathy, he argued that there are limits to the power of government to prevent such widespread distress: that such a state of things may occur in the best-​conducted and most economical government that ever existed is as certain as that governments have

178  Laissez-faire and government intervention not the power of commanding, with effect, the resources of the country to be progressive, when they are naturally stationary or declining. (Malthus 1989a, II, 133) Malthus did not write a chapter or section specifically designated as the case for laissez-​faire and against government intervention, but when the above scattered remarks are assembled in one place, they constitute a most persuasive argument in favour of laissez-​faire, comparable to anything written by Adam Smith or Friedrich Hayek or Milton Friedman. However, much to the consternation of laissez-​faire purists, past and present, he added some dissenting reservations.

Malthus’s arguments for government intervention, and against laissez-​faire: limitations and exceptions to laissez-​faire Laissez-​faire: an unrealisable vision Although Malthus strongly supported the principle of laissez-​faire, he also regarded it as an ideal which would be difficult to achieve, which would not be a panacea, which could require exceptions or deviations, and which would be an unrealisable vision: A perfect freedom of trade therefore is a vision which it is to be feared can never be realized. But still it should be our object to make as near approaches to it as we can. It should always be considered as the great general rule. And when any deviations from it are proposed, those who propose them are bound clearly to make out the exception. (Malthus 1989a, II, 74) Textbooks and general histories of economic thought often provide two or three examples of areas of government intervention recommended by Malthus. The number of examples presented here might appear to be excessive, but I believe it is fully warranted, as it is only by bringing so many examples together that the full impact of his interventionist preferences can be recognised. Land ownership He recognised the powerful influence of free trade and self-​interest, but he also recognised that self-​interest might not be sufficient. He argued that a population might be thrown out of work and might be starving even though there were no restrictions on trade (Malthus 1989b, I, 497). He recognised that the beneficial effects of free trade might be overcome by contrary influences, such as the maldistribution of land. Quoting Alexander von Humboldt, with apparent approval, Malthus wrote that land in New Mexico was being left uncultivated

Laissez-faire and government intervention   179 because “a vicious division of territory prevents the motive of interest operating so strongly as it ought to do in the extension of cultivation” (Malthus 1989b, I, 390). Excessive self-​interest He also recognised that it is possible for self-​interest or self-​love to be carried to excess: “a passion so strong and general as self-​love could not prevail without producing much partial evil”.To ensure that the passion of self-​interest does not generate into “the odious vice of selfishness”, it is necessary that it be combined with the virtue of benevolence. Selfishness is described as self-​love “pushed to excess, when it becomes useless and disgusting, and consequently vicious” (Malthus 1989a, II, 214). Possible harsh effects of self-​interest As well as saying that laissez-​faire by itself may not always be sufficient, he acknowledged that the results of a policy of laissez-​faire might not always be beneficent, and might need to be rectified. His statement that the self-​interests of merchants and manufacturers “do not always prepare them to give the most salutary advice” to governments, seems to be saying that their pursuit of their self-​interest will not always be conducive to the common good (Malthus 1989b, I, 438–​439). This criticism of merchants could be contrasted with his view, as mentioned above, that in the scarcity of 1800 the actions of the corn merchants were beneficial to society. But Malthus’s justification for exceptions to general laws did not mean that he wished to reject all general laws: “There are not many laws either human or divine, which in particular instances do not appear harsh and unequal; but if on that account we were to be deprived of the guide of general rules, we should lose at once the best security of order, virtue, and happiness among men”; and “I would never wish, as I have before repeatedly stated, to push general principles too far, though I think they should always be kept in view” (Malthus 1807, 10, 24). Government aid to the private sector He held that good government can have a powerful effect on the productivity of the private sector: “Indirectly indeed and remotely there cannot be a doubt” that the supply of our physical wants “is most powerfully promoted by the labours of the moralist, the legislator, and those who have exerted themselves to obtain a good government” (Malthus 1989b, I, 48). Taxation Malthus was aware of the dangers of taxation –​taxes “are not only a great evil on the first imposition, but … the attempt to get rid of them afterwards,

180  Laissez-faire and government intervention is often attended with fresh suffering” (Malthus 1989b, I, 521), but he argued that “the necessity of taxation … absolutely impels the government to action and puts an end to the possibility of letting things alone” (Malthus 1989b, I, 19). He concluded: “It is obviously, therefore, impossible for a government strictly to let things take their natural course; and to recommend such a line of conduct, without limitations and exceptions, could not fail to bring disgrace upon general principles, as totally inapplicable to practice” (Malthus 1989b, I, 20); “The principle of non-​interference [is] necessarily limited in practice” (Malthus 1989b, I, 525). The Principles contains numerous references to taxation, but there is no chapter or section specifically devoted to taxation. On 14 October 1819 Malthus wrote to Ricardo expressing regret that the forthcoming Principles would not include taxation. Ricardo replied on 9 November 1819 stating: “I regret that the most important part of the conclusions from the principles which you endeavour to elucidate, will not be included in it, I mean taxation” (see Malthus 1989b, II, 430–​431). In a letter to John Murray on 5 October 1827 Malthus expressed his intention of publishing a second edition of the Principles, stating “There will be much new matter relating to Taxation” and other subjects. To my knowledge this proposed new material on taxation has not been found. Export of machinery In evidence before the Select Committee in 1824, when asked for his views on the export of machinery, he was not willing to give unqualified support to freedom to export machinery. He agreed that in the actual state of things no evil would result from the exportation of machinery, and that the laws prohibiting the export of machinery were “perhaps” injurious to the public interest, but he added that there might be special circumstances under which the prohibition would not be injurious (Malthus 1824b, 599). His replies might not have been deemed very satisfactory by the Select Committee, which had been set up with a view to abolishing laws that restricted commerce (see, Introduction, in Malthus 1989b, I, l–​li). Reform of bad legislation Active involvement by government will be required because of “the almost universal prevalence of bad regulations, which require to be amended or removed” (Malthus 1989b, I, 592). Interference by good government is necessary in order to correct harmful interferences by bad government: “every actual government has to administer a body of laws relating to agriculture, manufactures, and commerce, which was formed at a period comparatively unenlightened, and many of which, therefore, it must be desirable to repeal” (Malthus 1989b, I, 19; “desirable” was altered to “very desirable” in the second edition of the Principles). He added that to remain inactive under such circumstances would be justified only if a contemplated change is judged to produce a greater evil, and

Laissez-faire and government intervention   181 he warned that a “rigid application of general principles without any reference to the difficulties created by the existing laws of the country, and its actual situation and circumstances” might cause distress and indignation (Malthus 1989b, II, 14) National debt Malthus’s support for the national debt, and his opposition to a total abolition of the national debt, represent major departures from strict adherence to laissez-​ faire. He argued that “in many respects, [the national debt] may be a useful instrument of distribution”, “its past effects had been favourable to wealth”, and “the advantageous distribution of produce which it had occasioned, had, under the actual circumstances, more than counterbalanced the obstructions which it might have given to commerce”. On the other hand, he recognised “the evils of a great national debt”, describing it as “a very cumbersome and very dangerous instrument”: the revenue necessary to pay the interest of such a debt can only be raised by taxation; and, as this taxation, if pushed to any considerable extent, can hardly fail of interfering with the powers of production, there is always a danger of impairing one element of wealth, while we are improving another. He believed “it might be desirable slowly to diminish the debt, and to discourage the growth of it in future”, but he did not argue for its abolition, and thus appears to have moderately endorsed this particular form of government intervention (Malthus 1989b, I, 484–​485; slightly altered in the second edition). Duties of government His acknowledgement of the principle of freedom of trade was accompanied by reservations about its universality. For example, he said: “It may perhaps be thought that, if the great principle so ably maintained by Adam Smith be true, namely, that the best way of advancing a people towards wealth and prosperity is not to interfere with them, the business of government, in matters relating to political economy, must be most simple and easy”; but he added that there is “a class of duties … which, it is universally acknowledged, belongs to the Sovereign” (Malthus 1989b, I, 18; original emphasis). In this context, he referred to education; the support of the poor; the construction and maintenance of roads, canals, and public docks; colonisation and emigration; and the support of forts and establishments in foreign countries. The sovereign and the ministers will be required to make decisions on such matters. It is clear that Malthus believed the government should adopt an active role in the formation and implementation of social policy.

182  Laissez-faire and government intervention Corn Laws, and the benefits of home and foreign trade Malthus quoted a passage from Ricardo’s Principles in which the benefits from foreign trade are said to conflict with the benefits from home trade: “in all cases the demand for foreign and home commodities together, as far as regards value, is limited by the revenue and capital of the country. If one increases, the other must diminish” (Ricardo 1973, I, 130). Malthus commented that he “distinctly” differed from Ricardo on this point (Malthus 1989b, I, 453). In the second edition of the Principles Malthus changed “distinctly” to “most distinctly”, and affirmed his belief in the mutuality and interdependence of foreign trade and home trade: It appears to me that in almost every case of successful foreign trade, it is a matter of unquestionable fact that the demand for foreign and home commodities taken together decidedly increases; and that the increase in the value of foreign produce does not occasion a proportionate diminution in the value of home produce. He agreed that the demand for foreign and home commodities together is limited by the revenue and capital of the country, but he argued that the national revenue is “decidedly increased by the increased profits of the foreign merchants without a proportionate diminution of revenue in any other quarter” (Malthus 1989b, I, 454, with some minor alterations in the second edition of the Principles). Ricardo’s assertion of an inverse relation between the benefits of foreign trade and the benefits of home trade can be compared with his assertion of an inverse relation between profits and wages, a position on which Malthus also distinctly differed, as discussed in Chapter 8. In his Notes on Malthus, Ricardo defended his assertion of an inverse relation between foreign and home trade by arguing: “If four men have a thousand a year each they cannot spend more than £4000 year.The more value they expend on foreign commodities, the less they will have to expend on home commodities” (Ricardo 1973, II, 406, Note 273). In the second edition of his Principles, Malthus did not refer to this reply by Ricardo. Although Malthus saw great benefits in foreign trade, he also acknowledged that foreign competition could have adverse effects. He recognised that if some foreign nations were to excel Britain in machinery, the individual interests of British manufacturers of woollen, silk, linen, or cotton goods could be injured. Also, the importation of a large body of labourers would tend to reduce wages. The interests of farmers and landlords could also be adversely affected by imports: “The only conceivable doubt which can arise respecting the strictest union between the interest of the landlord and that of the state, is in the question of importation”. In a passage in the first edition of the Principles, but omitted from the second edition, he said with regard to the effects of the importation

Laissez-faire and government intervention   183 of corn: “the landlord cannot be placed in a worse situation than others”. In the second edition of the Principles this was altered to “the landlord cannot be considered as placed in a more invidious situation than other producers”. In the first edition he said “by some of the warmest friends of the freedom of trade, [the landlord] has justly been considered as placed in a much better [situation]”, but this passage was omitted from the second edition (Malthus 1989b, I, 217; II, 206). In his view “Under the most unfavourable view, therefore, that we can take of the subject, the case of the landlord with regard to importation is not separated from that of the other classes of society” (Malthus 1989b, I, 217; in the second edition “with regard to importation” was omitted, and “of the other classes of society” was altered to “other producers”). He criticised Adam Smith’s statement that the freest importation of corn and raw produce cannot injure the farmers and landlords: The statement of Adam Smith is unquestionably too strong … It must be acknowledged, that the individual interests of landlords may suffer from importation, though not nearly so much as the interests of some of the other classes of society. (Malthus 1989b, I, 217–​218) This criticism of Adam Smith was omitted from the second edition of the Principles; it occurred at the commencement of a major omission of fifteen paragraphs. It would seem as if Malthus had become very dissatisfied with the position he had adopted on this question in the first edition and was obliged to rethink and rewrite it extensively. The most dramatic and controversial departure by Malthus from laissez-​faire orthodoxy was his support for the Corn Laws restricting the import of corn into Britain.This apostasy from free-​market faith was announced in his 1815 publication, The Grounds of an Opinion on the Policy of Restricting the Importation of Foreign Corn. As Patricia James said (1979, 259), the Grounds produced “astonishment and consternation” around Malthus’s Whig friends, who regarded it as “outrageous heresy and disloyalty”. Malthus himself seems to have had misgivings about his departure from orthodoxy on this issue. According to his colleague at the East India College,William Empson, Malthus knew well that nothing he had ever written had injured his reputation so much, and he was not on this occasion as sure as usual of the soundness of the judgment which he had pronounced. His general principle in favour of freedom of trade was so absolute that, at times, doubts came over him whether any exception ought to be admitted. (Empson 1837, 496–​497) It has been argued (Hollander 1992, 1995) that Malthus in his later years changed his mind on agricultural protection, and adopted a free-​trade position

184  Laissez-faire and government intervention with regard to the importation of corn; but it has been counter-​argued (Pullen 1995) that the available textual evidence does not support this alleged recantation, and shows that he continued to maintain the Corn Laws as an exception to his generally held principle of laissez-​faire. These arguments could not be repeated or satisfactorily summarised in the limited space available in this work, but the following statement, which appears to imply an endorsement of the Corn Laws, should not be overlooked; it occurred in the final pages of the first edition (1820) of the Principles, and was not altered by Malthus in the manuscript revisions he made in preparation for the second edition, and was repeated in the posthumous second edition (1836): “I have already stated, in more places than one, why, under all the circumstances of the case, I think it desirable that we should permanently grow nearly our own consumption of corn” (Malthus 1989b, I, 508). Bounties on corn exports If in fact he abandoned his protectionist argument in the case of the import of corn into England, it is difficult to understand why he did not also abandon his protectionist argument in the case of the bounties on the export of corn from England. He began Chapter XI, “Of Bounties on the Exportation of Corn” in the second and later editions of the Essay with a reiteration of support for the principle of laissez-​ faire: “According to the general principles of political economy, it cannot be doubted that it is for the interest of the civilized world that each nation should purchase its commodities wherever they can be had the cheapest”; but he then argued that in the production of corn an exception to laissez-​faire is justified: It is evident, however, that local interests and political relations may modify the application of these general principles; and in a country with a territory fit for the production of corn, an independent, and at the same time a more equable supply of this necessary of life, may be an object of such importance as to warrant a deviation from them. He regarded a bounty on the exportation of corn from England as a justifiable exception, and as one “which, in so important a point, may tend to soften the harsh corrections of general laws” (Malthus 1989a, I, 410–​411). He justified a similar exception in the case of Ireland; he argued that “in the circumstances in which Ireland was placed”, bounties on the exportation of corn had given a beneficial stimulus to its agriculture (Malthus 1809, 160). In arguing for government intervention in the form of bounties on the exportation of corn, he acknowledged that free trade might have harsh effects: It is undoubtedly true, that every thing will ultimately find its level, but this level is sometimes effected in a very harsh manner (Malthus 1989a, I, 410–​411)

Laissez-faire and government intervention   185 As Denis O’Brien has observed (2007, 125): Malthus sensed [that] reliance on long-​run equilibrium did not rule out disequilibria between successive equilibria. A further departure from strict adherence to the principle of free trade in corn can be seen in the statement: “It is … a just and general rule in political economy, that the wealth of a particular nation is increased by the increasing wealth and prosperity of surrounding states”, and their increasing wealth must tend to increase the demand for the products of the particular nation. But he added the proviso: “if these states are not successful competitors in those branches of trade in which the particular nation had excelled” (Malthus 1989b, II, 13). If this proviso is interpreted to mean that if a surrounding state is more successful than a particular nation in a branch of trade, free trade would not be successful for that particular nation in that branch of trade, and therefore free trade would be undesirable. Malthus did not develop this point in this context, and therefore it would probably not be wise to regard it as a formal and complete expression of his views on free trade, but as it stands it suggests a preference by Malthus for some degree of protectionism.

Restrictions on trade: customs duties Malthus was not entirely opposed to restrictions on foreign commerce. He thought it possible for a country to be prosperous even though there were some restrictions on its foreign commerce, or even if it was surrounded by an impassable wall. “If a large country, of considerable fertility, and sufficient inland communications, were surrounded by an impassable wall, we all agree that it might be tolerably rich, though not so rich as if it enjoyed the benefit of foreign commerce” (Malthus 1989b, I, 497). But in saying that a country could be wealthy despite restrictions, and that restrictions would not necessarily constitute an insurmountable obstacle, he was not arguing that all restrictions would be desirable: “I am very far from meaning to infer … that restrictions upon commerce are likely in general to be beneficial to a country” (Malthus 1989b, I, 496, slightly altered in the second edition of the Principles). He was not opposed in principle to restrictions, but was opposed to “unnecessary restraints”:“there can be little doubt that our commerce has been much impaired by unnecessary restraints, and that much benefit might be derived from the removal of them” (Malthus 1989b, I, 508). A justification of customs duties Modern textbooks on economics often regard customs duties as inconsistent with the concept of free trade, but this does not appear to have been Malthus’s view of free trade: While it is necessary to raise a large sum by taxation for the expenses of the government and the payment of the interest of the national debt, it would

186  Laissez-faire and government intervention by no means be advisable to neglect so fair and fruitful a resource as the customs. He argued that “a much greater freedom might be given to foreign commerce, at the same time that a greater revenue might be derived from the customs” (Malthus 1989b, I, 508), and “without diminishing the revenue of the customs” (Malthus 1989b, I, 591). It would be quite unusual to find a modern economics textbook that describes customs duties as a “fair and fruitful resource”. Malthus justified customs duties for compensation and other reasons: it is also natural that those foreign commodities should be taxed the highest, which are either of the same kind as the native commodities which have been taxed, or such as, for special reasons of health, happiness, or safety, it is desirable to grow largely at home. (Malthus 1989b, I, 508) He did not in this context provide examples of these “special reasons”, but they could obviously be interpreted in a way that justifies a wide variety of applications, and show that Malthus did not subscribe to a philosophy of free-​ trade absolutism. However, despite allowing some customs duties as a departure from absolute free trade, he did not endorse absolute prohibition: “there seems to be no reason for the absolute prohibition of any commodities whatever” (Malthus 1989b, I, 508). Malthus’s departures from strict adherence to the principle of free trade, and his recognition of a limited but legitimate and necessary role for protection, would, in the eyes of many economists, disqualify him as a serious macroeconomist.

Trade-​induced structural change In advocating the retention of the Corn Laws, Malthus argued that, in the normal process of trade, without government intervention, a corn-​exporting and manufactures-​importing country like Poland would begin to develop its own manufacturing capabilities and would reduce its exporting of corn, with the result that a country like Britain which was predominantly an exporter of manufactures and an importer of corn would suffer from food shortages, and therefore it was essential for Britain to develop its own food production by means of the Corn Laws. This was one of the arguments used by Malthus for the retention of the Corn Laws. It has been argued that Malthus ignored the possibility that Britain could develop self-​sufficiency in food by means of a trade-​induced structural change, without the need for Corn Laws. Malthus has been criticised on the grounds that “the weak point of Malthus’s reasoning lies in his inability to perceive the structural change process at work both in agricultural and manufacturing countries” (Freni et al. 2019, 1), and that there was no need for Malthus to advocate

Laissez-faire and government intervention   187 agricultural protection: “a food protectionist policy such as that advocated by Malthus is not required in order for a manufacturing and large-​landed country to shift towards a balanced growth path”. His argument has been described as asymmetrical, and his proposal for food protectionism is said to be “vitiated by his inability to follow his own chain of reasoning to its extreme logical consequences”. His critics concede that “at best, a timely and appropriately fine-​tuned trade policy may speed up the structural change process but not determine whether it takes place or not”, although the reference to “speed up” seems to recognise and justify Malthus’s support for a continuation of the Corn Laws at that time. However, that particular criticism of Malthus appears not to have adequately recognised Malthus’s view that manufacturing will tend to encourage agriculture without recourse to agricultural protection (see Malthus 1989b, I, 170–​ 171). He argued that the growth of manufactures would encourage agriculture by inspiring landholders with the desire “either to divide their great estates by sale, or to take care that they were well cultivated” (Malthus 1989b, I, 409; slightly altered in the second edition of the Principles). He also argued that “no great surplus produce of agriculture could exist without [manufactures], and if it did exist, it would be comparatively of very little value” (Malthus 1989a I, 430). He recognised that there would be difficulties in switching resources from manufacturing to agriculture, but his aim in adjusting the balance between agriculture and manufacturing in Britain at that time seems to have been not to reduce manufacturing but to encourage co-​development of agriculture and manufacturing. The textual evidence shows that he was quite well aware of the possibility of trade-​induced structural change in the balance between agriculture and manufacturing. He was aware that these restructuring tendencies are inherent in free markets if allowed to operate freely, that they will operate without government legislative support, and will operate symmetrically from manufacturing to agriculture and from agriculture to manufacturing. Why then did he deem it necessary to support the Corn Laws? The answer, I believe, was not because he had forgotten or denied the structural balancing effect of market forces, and not because he had contradicted himself on the theoretical advantages of free trade, but because in his empirical view –​possibly correct, possibly incorrect –​in Britain at that time there was a relative overdevelopment of manufacturing by comparison with agriculture, and it had occurred not because of free-​market forces, but because of non-​market forces arising from political and military events, and these non-​market forces would have to be remedied by some recourse to non-​market forces. I believe his support for continuation of the Corn Laws would have been also motivated by fear of the social unrest and general hardship that would have occurred at that time if employment in Britain’s manufacturing sector had been curtailed, and because he realised that the necessary structural change would not occur quickly enough through market forces alone. The following statement, already quoted with reference to the granting of bounties on the exportation of corn,

188  Laissez-faire and government intervention would seem to be equally applicable to his case for a continuation of the Corn Laws at that time: “It is undoubtedly true, that every thing will ultimately find its level, but this level is sometimes effected in a very harsh manner” (Malthus 1989a, I, 410–​411). It has been noted (Freni et al. 2019) that both Torrens in 1815 and Ricardo in 1822 had recognised that structural change in manufacturing and agriculture could be induced by international trade, and it has been said that their arguments had been “ignored by Malthus in the two final editions (1817 and 1826) of his Essay”. If the term “ignored” is intended to have the disparaging imputation that Malthus had deliberately sought to avoid their arguments, then I would suggest that it lacks textual evidence. There could be a number of reasons for Malthus not having responded to this particular argument from Torrens and Ricardo, one of which might have been his belief that his Principles (1820) had already provided an adequate explanation of how trade-​induced changes in the pattern of international trade can occur symmetrically, an explanation that Torrens and Ricardo seem to have ignored.

Fluctuations in trade Malthus thought that current patterns of foreign trade might not be immutable. One nation might currently enjoy trading dominance in a branch of trade, but could lose that dominance through the normal forces of competition: the present possession of particular channels of commerce, cannot in their nature be permanent.We know how difficult it is to confine improvements in machinery to a single spot; we know … from the past history of commercial states, that the channels of trade are not unfrequently taking a different direction. It is unreasonable therefore to expect that any one country … should remain in possession of markets uninterrupted by foreign competition. (Malthus 1989a, II, 32) As discussed in Chapter 4 on manufacturing, Malthus recognised that Britain’s current dominance in manufacturing could disappear when other countries developed their own manufacturing capabilities and reduced their demand for British manufactures. Britain’s reduced income from its manufactured exports would reduce its power of purchasing food from other countries. Also, as the population of other countries increased, they would need more food for their own people, and less of their food would be available for export. Britain would therefore become obliged to produce more of its own food. Malthus thus foresaw that the international distribution and pattern of industrialisation could alter over time, following changes in corn prices, with agricultural nations switching to manufacturing and vice versa. He recognised that the manufacturing superiority of one nation might be accidental and temporary, rather than natural and permanent, and he believed that in the natural progress of wealth

Laissez-faire and government intervention   189 in the long run, most landed nations would develop their own manufacturing capacity, and reduce their manufacturing imports. Referring to Britain’s situation in 1803, Malthus feared that its current great commercial prosperity would be only temporary. By comparison with the states of Europe, whose commerce and manufacturing had been destroyed by the war, “this fortunate island” may be said to have the monopoly of the trade of Europe, but when Europe recovers he doubted whether Britain would be able to stand the competition. He said the “worst feature” of Britain’s current commercial system was its “rising by the depression of others” (Malthus 1989a, I, 401). These statements were omitted from the third edition (1806) of the Essay without comment. Switching from manufacturing and commerce to agriculture, and from agriculture to manufacturing would not be easy. On switching from manufacturing and commerce to agriculture, he said: “Those who have been in the habit of employing their stock in mercantile concerns do not readily turn it into the channel of agriculture” (Malthus 1989a, II, 57). On switching from agriculture to manufacturing and commerce, he said: “it is a still more difficult and slower operation to withdraw capital from the soil, to employ it in commerce”, and he referred to the “natural obstacles to the moving of capital from the land”, and to “the difficulty of finding a profitable employment” for capital previously employed in agriculture (Malthus 1989a, II, 58). He added: “The establishment of the finer manufactures has always been found to be work of time and difficulty” (Malthus 1989b, I, 573). However, these considerations seem to have been presented by Malthus mainly as acknowledgements of the impediments to the structural-​adjustment process; he did not seem to be saying that they would nullify or negate the process. He was merely saying that structural adjustments could occur because of the normal and inevitable oscillatory nature of economic activity in a free enterprise system, as part of the normal competitive processes of action and reaction as each party endeavoured to achieve and preserve an optimum position. A serious deficiency and a questionable aspect of his case for the Corn Laws, must surely be his view of the difference between the rate of increase of the price of manufactures, and the rate of increase of wages. In his view, when corn prices rise, the prices of manufactured products will not rise as fast as the prices of agricultural products and the rate of wages, so that labourers would be able to purchase other products besides food, and would therefore be better off in a regime of high corn prices. This seems to have overlooked the fact that when wages are at or near subsistence level, wages must increase quickly in proportion to food prices; otherwise, within a short period of time, there would be no more workers left alive. Whether and how quickly higher wage costs cause manufacturers to raise prices of manufactured goods would depend on whether they could meet the higher wage costs without causing their profits to fall to unacceptable levels, and on whether the elasticity of demand for manufactured products would permit price increases without a more than proportionate loss of sales.

190  Laissez-faire and government intervention Malthus’s opinion, that prices of manufactured goods would not rise quickly and proportionately with increases in food prices and wages, thus depends on a number of contingencies, and is not as compelling as he seems to have believed. Bounties for new undertakings/​infant industries A similar response was made to the question about the employment effects of bounties used to promote new undertakings, such as fisheries. He replied that the employment so created might benefit a particular part of the labouring class for a time, but “in all probability, not … the whole class or permanently”. Asked whether the money spent in employing labour in such subsidised undertakings would be merely a transfer from one employment to another, he replied: “It would chiefly, but perhaps not wholly” (Malthus 1827b, 321–​322). The reply acknowledges that the benefits of such public intervention would be limited in scope and time, but the phrase “but perhaps not wholly” seems to be a recognition that public expenditure to support infant industries could to some extent create a net increase in employment.

Combined system of agriculture, manufacturing, and trade A feature of Malthus’s post-​1798 writings was his emphasis on the need for a balance between agriculture, commerce, and manufactures with the different sectors being interdependent and mutually supportive. This was vigorously asserted in additions to the 1817 Essay where he spoke of the peculiar advantages of a system in which agriculture and commerce are “united and flourish together”, as opposed to the “peculiar disadvantages” of a system either “almost exclusively agricultural or exclusively commercial” (Malthus 1989a, II, 62). He added that, with a view to the structure of society most favourable to the happiness of the society, and an adequate stimulus to the production of wealth from the soil, “a very considerable admixture of commercial and manufacturing population with the agricultural is absolutely necessary”, and “in a large landed nation, the evils which belong to the manufacturing and commercial system are much more than counterbalanced by its advantages, as long as it is supported by agriculture” (Malthus 1989a, II, 70). He believed that if we compare a society consisting of a strong manufacturing sector as well as a strong agricultural sector, with a society that is purely agricultural, “the general superiority of the former is incontestable” (Malthus 1815a, 31). As well as encouraging overall growth, a balance between agriculture, manufacturing, and commerce would benefit each of them: “All the peculiar disadvantages therefore of a purely agricultural country are avoided by the growth and prosperity of manufactures and commerce”, and the “peculiar disadvantages attending states merely manufacturing and commercial will be avoided by the possession of resources in land” (Malthus 1989a, II, 41).

Laissez-faire and government intervention   191 Malthus said it would not be advisable for a country to devote itself chiefly to commerce: “in a country which applied itself chiefly to commerce, the benefit for the poor would be comparatively little, and population would either be stationary or increase very slowly”; whereas “in a country which applied itself chiefly to agriculture the poor would live in greater plenty, and the population would increase rapidly” (Malthus 1989a, I, 388), but the situation he most recommended was one where the various sectors –​agriculture, trade, manufacturing, and services –​are combined. Malthus argued that, instead of being predominantly an exporter of manufactures and importer of food, it would be better for Britain to achieve a more balanced system. In arguing for a combined system of agriculture, manufacturing, and commerce, he said: “According to all general principles, it will finally answer to most landed nations, both to manufacture for themselves, and to conduct their own commerce” (Malthus 1989a, II, 43). He added: The countries which thus unite great landed resources with a prosperous state of commerce and manufactures, and in which the commercial part of the population never essentially exceeds the agricultural part, are eminently secure from sudden reverses … and there is no reason to say that they might not go on increasing in riches and population for hundreds, nay, almost thousands of years. (Malthus 1989a, II, 43) He concluded: “It appears then, that it is the union of the agricultural and commercial systems, and not either of them taken separately, that is calculated to produce the greatest national prosperity” (Malthus 1989a, II, 48). Malthus’s perception of the instability of foreign trade patterns, and his belief in the benefits of sectoral balance between the agricultural, manufacturing, and commercial sectors of the economy were important reasons for his support of the Corn Laws. If, as Malthus argued, competitive forces tend towards a more balanced pattern between agriculture, commerce, and manufacturing naturally, without government intervention, then why did Malthus insist upon a policy of major government intervention in the form of the Corn Laws? Was Malthus’s interventionist policy not only redundant, but also a contradiction of principle? The answer, I believe, might lie in the time factor. His contribution to the debate on the Corn Laws was made at a time when they were being publicly debated with a view to imminent legislative action in an atmosphere of immediacy and urgency, but the structural evolution required on a national scale could occur only after a period, during which food shortages would prevail with consequent possibilities of violent public unrest. Whether Malthus was correct in these dire forebodings is debatable, but they would seem to be an obvious reason for his position at that time. This is not to say that the need for action in the short-​term was his only motivation. As discussed in Chapter 1, Malthus

192  Laissez-faire and government intervention was also deeply concerned for the long-​term future, over hundreds of years, of Britain’s production and trading pattern. Emigration He agreed with the proposal that government should provide some relief for unemployment by facilitating emigration. He said that “during the period that the supply of labour is increasing faster than the demand, the labouring classes are subject to the most severe distress”, and that under these circumstances “emigration is most useful as a temporary relief ”, and “is well worthy of the attention of the government, both as a matter of humanity and policy” (Malthus 1989a, I, 347). Malthus advocated emigration, not because it would result in a net increase in the demand for labour (Hollander 1969, 330n), but because it would provide some relief for the distress of unemployment. Education Malthus believed that government has an important role in educating the people, and has the power and the duty to do it: “no government can approach to perfection that does not provide for the instruction of the people”. He proposed “a system of national education”, which would be “a system of parochial education upon a plan similar to that proposed by Dr. Smith” (Malthus 1989a, II, 151, 154, 155). Adam Smith’s plan involved schools in every parish or district; they would be established by the public authorities, with the masters paid mainly, but not wholly, by the public authorities, and with a co-​payment at a level “so moderate, that even a common labourer may afford it”. In Smith’s plan students would be taught “to read, write, and account”, and the elementary parts of geometry and mechanics (Smith 1976, II, v. i. f. 54, 55; “account” was presumably used in the sense of “counting” and “calculation”). In Smith’s system, education should develop “the martial spirit of the great body of the people”, but Malthus did not comment on this. According to Malthus, the school curriculum would cover those “usual subjects of instruction”, as well as “a few of the simplest principles of political economy”, including “the common principles by which markets are regulated” (Malthus 1989a, II, 151, 152, 152). It would counter the ignorance of “the gentlemen and clergymen” who had been “inflaming the minds of the common people against the farmers and corn-​dealers” on the causes of the scarcity of grain. Malthus’s educational system would have a practical, as well as a cultural, purpose: “no small portion” of the expense of education is employed in “acquiring the skill necessary to the production and distribution of material objects, as in the case of most apprenticeships” (Malthus 1989b, II, 27). Poor Laws and relief for the poor Malthus’s arguments for the abolition of the existing Poor Laws might be taken as evidence of his opposition to government intervention, but they did

Laissez-faire and government intervention   193 not amount to a denial of all government support for the poor. He advocated support for families with more than six children, and recommended the establishment of county workhouses for cases of severe distress. They would not be “comfortable asylums” and the “fare should be hard, and those that were able obliged to work”, but “any person whether native or foreigner, might do a day’s work at all times, and receive the market price for it” (Malthus [1798] 1926, 97–​98). Robbins (1967, 257) said that Malthus’s “attitude to the Poor Laws was, to put it mildly, unsubtle”. Some critics have described it as decidedly harsh, but other contemporaries were harsher. Archbishop Whately wrote to Nassau Senior in July 1832: Pray suggest in your report on paupers that any female receiving relief should have her hair cut off: it may seem trifling, but a good head of hair will fetch from five to ten shillings which would be perhaps a fortnight’s maintenance … The number who would exert themselves [for?] their hair is beyond belief. In 1833 Whately asked Senior: What do [you] think of Foundling Hospitals and what of lying-​in hospitals, such I mean as the chief (and most grand) one here, which receives any drab out of the streets, on the sole certificate of destitution? … surely we encourage people to procreate like brutes … We do not indeed encourage improvidence; for we make the neglect of exertion and reliance on charity, to be Providence in them.i Malthus did not object to all plans for employing the poor, “some of which, at certain times and with proper restrictions, may be useful as temporary measures”. He thought that “it is certainly desirable, on many accounts, to employ the poor when it is practicable”, and “it is probable that the poor might be employed more than they have hitherto been, in a way to be advantageous to their habits and morals, without being prejudicial in other respects” (added to the fifth edition of the Essay, 1817, see Malthus 1989a, II, 181). Malthus was in fact advocating a form of public provision for the poor; in other words, a form of poor law, though distinct from the Poor Laws. The workhouses would be “supported by rates upon the whole kingdom, and free for persons of all counties, and indeed of all nations”. His plan could be seen as an elementary unemployment program, or as a government-​sponsored work-​ for-​the-​dole program. It is true that Malthus spoke of “total abolition” of the Poor Laws and seemed to occupy “a position of extreme laissez-​faire” (Huzel 1969, 432–​433), but it could be argued that his actual position amounted to administrative reform i Published with permission of the Keeper of the Department of Manuscripts and Records, the National Library of Wales, Aberystwyth, Dyfed.

194  Laissez-faire and government intervention and modification rather than total abolition, and as such was another deviation from strict adherence to the principle of laissez-​faire. As Donald Winch (1987, 38) observed, “Malthus’s views on the Poor laws are a good deal more complex than his long-​term aim of abolition suggests”. Malthus seems to have been convinced, and was trying to convince others, that his policies for curing and preventing depressions, and for stimulating economic growth, by means of stimulating effective demand and production, and by generating a wider distribution of income and a reduction of economic inequality, would do more for the relief of the poor than the Poor Laws had ever done or ever could do. Tax-​and-​transfer In a brief but significant statement Malthus appears to have recognised that consumption and national wealth could be increased by a policy now described as tax-​ and-​ transfer: “I feel very little doubt that instances have practically occurred of national wealth being greatly stimulated by the consumption of those who have been supported by taxes”. However, this apparent endorsement of government-​sponsored growth was immediately followed by the warning that “taxation is a stimulus so liable in every way to abuse”, and, as quoted above, “one should be extremely cautious of trusting to any government the means of making a different distribution of wealth, with a view to the general good” (Malthus 1989b, I, 481). Harmful effect of tax reduction Malthus disagreed with the view that a reduction in taxes would be a remedy for unemployment and glut. As summarised in Corry (1962, 160): Put in modern terminology, what Malthus was saying was this: the average propensity to consume of the recipients was higher than that of the income group from which government revenue was raised, hence a transfer backwards in the form of the tax reduction meant a decline in the average propensity to consume. Dangers of excessive government borrowing Despite these arguments in favour of government intervention, Malthus warned that the possible benefits of government borrowing could be associated with dangers: yet, as the greatest powers of production must finally be overcome by excessive borrowing, and as increased misery among the labouring classes must be the consequence, whether we go on or attempt to return, it would surely have been much better for the society if such wealth had never

Laissez-faire and government intervention   195 existed … it is obviously the duty of all governments, if they have any regard for the happiness of the subjects, to avoid all wars and excessive expenditure as far as it is possible. He reinforced this counter-​argument with the aid of a physiological metaphor: “It is like the unnatural strength occasioned by some violent stimulant, which, if not absolutely necessary, should be by all means avoided, on account of the exhaustion which is sure to follow it”. In the same context, he argued: “every effort should be made, consistently with national honour and security, to prevent a scale of expenditure so great that it cannot proceed without ruin, and cannot be stopped without distress” (Malthus 1989b, I, 519, 520) –​a statement that neatly expresses his doctrine of proportions and his middle-​away methodology. This double argument for and against government expenditure was conducted in terms of “prodigious” expenditure, “excessive” borrowing, and “violent” stimulants. It would have been more theoretically interesting if the argument had been extended to include consideration of moderate increases in borrowing and expenditure. In this instance, Malthus appears to have departed from his customary concern for balance and proportion. The defect has been remedied by his loyal disciple, John Maynard Keynes.

Public works Malthus saw state-​funded public works as a net benefit for employment –​ because the results do not come for sale in the market, and do not compete with existing supplies of products unable to find buyers in a glutted market –​ but he also saw that, if taxes are needed to fund such works, they would tend to have the negative effect of depressing employment in the production of the material goods that come for sale in the market. His implied judgement seems to have been that in the circumstances of his time the positive effects would outweigh the negative. His adamant critics prefer to see his position as one of blatant self-​contradiction. Malthus’s position on public works could be seen as another example of his awareness of the prevalence in economics of counteracting causes. Malthus’s views on whether government funds should be spent on public works to promote employment and economic growth have been discussed in considerable length in the secondary literature, with some commentators saying, and others denying, that he advocated public works as a remedy for depression. The following is an interpretation which sees him as a supporter of public works: “Perhaps, of all major classical economists, Malthus was the only thinker who was courageous enough to suggest a public works policy as a remedy for the abnormal conditions prevailing during a depression”; it was “a brave stroke of genius on the part of Malthus to have enunciated this remedy which was to find favour with economists of later generations” (Ambirijan 1959, 173–​174). A similar interpretation has been given in O’Brien ([1975]

196  Laissez-faire and government intervention 2004, 277), where it has been argued that Malthus was “quite unequivocal” in recommending public works, as well as expenditure by persons of property on menial servants and domestic workers, as the best means to remedy the imbalance of production and consumption due to the sudden conversion of soldiers into productive labour; and where it has been argued that Malthus “envisaged a role for public works”, and “an expanded public sector and its employees –​ to maintain a sufficient level of aggregate demand and to keep some resources away from production” (O’Brien 2007, 125). But, in contrast, Malthus has been seen as an opponent of public works: Malthus did not “recommend increased government expenditure as a policy to escape from depression”, and for Malthus government expenditure was like a violent stimulant that produces subsequent exhaustion. One would never recommend its use, but if used perforce, the best policy was to wean the economy off it slowly … This is clearly at a considerable distance from Keynes’s view that government spending should be used in a depression for pump-​priming purposes. (Toye 2000, 194–​195) This reference by Malthus to a “violent stimulant” occurred in relation to a situation of excessive government expenditure, but whether Malthus intended it to be an argument against all government anti-​depression expenditure is not clear in the context. At one stage Malthus appears to have doubted the benefits of public works. He expressed agreement with what has later been termed the “Treasury View”, namely, that government expenditure on employment-​creating projects would have no net effect on employment, because the employment created would be counterbalanced by the decline in capital and employment in the private sector when the government raised revenue from the private sector by loans or taxes. He was in agreement with Ricardo on this. Ricardo had written to Malthus on 3 January 1817: I am not one of those who think that the raising of funds for the purpose of employing the poor is a very efficacious mode of relief, as it diverts those funds from other employments which would be equally if not more productive to the community. That part of the capital which employs the poor on the roads for example cannot fail to employ men somewhere and I believe every interference is prejudicial. (Ricardo 1973,VII, 116) In his reply, postmarked 11 January 1817, to Ricardo, Malthus wrote: “I quite agree with you thinking that the funds raised for the support of the poor (though perhaps necessary at the moment) essentially interfere with other employments” (in Sraffa 1955, 543, and in Ricardo 1973, XI, x–​xi). In commenting on this reply by Malthus, Sraffa wrote that Malthus here “agrees

Laissez-faire and government intervention   197 with Ricardo’s conclusion and indeed claims it as peculiarly his own” (Sraffa 1955, 543; original italics). A Treasury View is also expressed in the following statements relating to expenditure on the Poor Laws, which first appeared in the second edition (1803) of the Essay on Population and were carried forward unchanged into later editions: When a fund for the maintenance of labour is raised by assessment, the greatest part of it is not a new capital brought into trade, but an old one, which before was much more profitably employed, turned into a new channel … And this obvious tendency of assessments for the employment of the poor to decrease the real funds for the maintenance of labour in any country, aggravates the absurdity of supposing that it is in the power of the government to find employment for all its subjects, however fast they may increase. (Malthus 1989a, I, 365) However, before taking those statements as proof of Malthus’s opposition to a program of public works intended as an economic stimulus, the words “the greatest part of it” should not be ignored. Malthus did not elaborate. Are those words a recognition that at least some public-​works programs are capable of providing a net stimulus to employment? The preceding quotation from Malthus which seems to endorse the Treasury View was followed by another which seems to justify public works to some extent: It is not intended that these reasonings should be applied against every mode of employing the poor on a limited scale, and with such restrictions, as may not encourage, at the same time, their increase. I would never wish to push general principles too far, though I think that they ought to be kept in view. (Malthus 1989a, I, 365) He was obviously aware that, if the funds for public works are withdrawn from existing employment-​creating enterprises, there will be negative as well as positive effects on employment. The net effect would be “to spread the evil over a larger surface”, but he regarded this spreading as charitable, because the distress “may be so mitigated as to be made bearable by all” (Malthus 1989a, I, 370); the burden of suffering would be distributed more evenly. Malthus clearly believed that benefits might be achieved through public works, but did he believe they would stimulate economic growth in a pump-​priming or Keynesian manner? The question is of some concern for commentators who either seek to prove, or seek to deny, the closeness of the connection between Malthus and Keynes. In the Principles 1820 he was much more favourably disposed towards public works. The following statement shows his belief in their potential

198  Laissez-faire and government intervention employment-​ generating and income-​ generating effects: “the employment of the poor in roads and public works, and a tendency among landlords and persons of property to build, to improve and beautify their grounds, and to employ workmen and menial servants, are the means most within our power and most directly calculated to remedy the evils arising from that disturbance in the balance of produce and consumption, which has been occasioned by the sudden conversion of soldiers, sailors, and various other classes which the war employed, into productive labourers” (Malthus 1989b, I, 512); and “in our endeavours to assist the working classes in a period like the present, it is desirable to employ them in unproductive labour, or at least in labour, the results of which do not come for sale into the market, such as roads and public works” (Malthus 1989b, I, 511). In the Essay he supported a proposal to raise by subscription a fund for setting the unemployed to work, on condition that the funds are spent in certain ways: the kinds of employment which ought to be chosen are those the results of which will not interfere with existing capital. Such are public works of all descriptions, the making and repairing of roads, bridges, railways, canals, etc.; and now perhaps, since the great loss of agricultural capital, almost every sort of labour upon the land, which could be carried on by public subscription. (Malthus 1989a, I, 369–​370) In recommending public works as a remedy for unemployment, Malthus was aware of the dangers of excess, and once again applied his doctrine of proportions. He recognised the Treasury View objections –​namely, higher taxation and a crowding-​out of private enterprise –​and therefore would surely have been prepared to object if he had perceived a currently excessive degree of expenditure by government on public works, and would have argued for a reduction, but it would be reasonable to assume that the increase in expenditure on public works he had in mind would not have been excessive in his estimation in the circumstances. When interviewed before the Select Committee on Emigration, 1827, Malthus was not so enthusiastic about public works as a cure for unemployment. He agreed that they could have some short-​term benefits, but thought there would be harmful consequences when they were withdrawn. He was asked: “What is your opinion of the effect on the lower orders, on employing them on public works with public money?” He replied: I think it relieves them for a short time, but leaves them afterwards in a condition worse than before. … It has a tendency to induce them to marry earlier, and it enables them at first to support their children; but when the work ceases, they are left in a more destitute condition than before. It is always an unfavourable thing for the labouring classes to have

Laissez-faire and government intervention   199 a great stimulus applied to them for a time, and then to have that stimulus withdrawn. He was then asked:“Would not the money expended in employing it, be merely a transfer from one occupation and employment to another?” He replied: “It would chiefly, but perhaps not wholly”. He was further asked: “Are not all those forced modes of employment, stimuli to population?” He replied: “I think they are partial and temporary stimulants, and on that account they are prejudicial” (Malthus 1827b, 321–​322, questions 3343, 3344, 3347, 3348). According to Bernard Corry, Malthus in this statement “tended to assume that public works schemes would add to the population rather than improve real incomes” (Corry 1962, 160). However, Malthus here seems not to deny the employment-​creating power of public works, but to regret the absence of prudential restraint on the part of the workers. The same argument would be used by Malthus against other proposed reforms –​for example, extension of the suffrage, the potential benefits of which could be curtailed or nullified without restraint of procreation. In other contexts, Malthus stressed the powerful influence of the “desire of bettering our condition” (see Pullen 2019a), and expressed the hope that, with the practice of prudential restraint, increases in employment and income would not be spent entirely on propagating and supporting children, but would also lead to a higher standard of living. Also, before these comments at the Select Committee are taken as proof of Malthus’s opposition to public works in general, it should be recognised that he was referring to public works of a short-​term, temporary nature. He was not responding to a question about the desirability of an ongoing program of public works. Malthus did not advocate a full-​scale, Keynesian-​style program of government management of macroeconomic variables –​saving, investment, employment, etc. He opposed any attempt by government to keep wages up by “creating an artificial demand by public subscriptions or advances from the government”, and he warned that government expenditure would not provide a permanent remedy if population continued to exceed the means of subsistence: “the permanent remedy which we are seeking cannot possibly come from this quarter”. He also said we would fall “into the grossest error” if we were to suppose that there can be “any possible scheme for giving work to all who are out of employment”. In his view “there is only one class of causes from which any approaches towards a remedy can be rationally expected; and that consists of whatever has a tendency to increase the prudence and foresight of the labouring classes” (Malthus 1989a, II, 181). The following statement appears to suggest that public expenditure could have economic, as well as humanitarian, benefits: the excitement of a prodigious public expenditure, and of the taxation necessary to support this, operating upon extraordinary powers of

200  Laissez-faire and government intervention production, might, under peculiar circumstances, increase the wealth of the country in a greater degree than it otherwise would have increased. (Malthus 1989b, I, 519) A need for government expenditure as a stimulus to growth was expressed in his discussion of remedies for the distresses of the labouring classes in 1815: Without a large expenditure on the part of government, and a frequent conversion of capital into revenue, the great powers of production acquired by the capitalists, operating on the diminished power of purchasing by the owners of fixed incomes, could not fail to occasion a still greater glut of commodities than is felt at present. (Malthus 1989b, I, 514) This statement occurred in his refutation of the case for an increase in the money supply as a cure for depression, not in the context of a general analysis of the role of government expenditure, but it appears to provide strong support for government expenditure as a net stimulus to economic growth. It seems to be asserting, in opposition to the Treasury View, that it is possible for government expenditure to have a net positive effect on economic growth. Further support for government expenditure as a way of creating employment following the Napoleonic Wars can be seen in the statement: If some of the principal governments concerned spent the taxes which they raised in a manner to create a greater and more certain demand for labour and commodities, particularly the former, than the present owners of them, and if this difference of expenditure be of a nature to last for some time, we cannot be surprised at the duration of the effects arising from the transition from war to peace. (Malthus 1989b, I, 500) The context suggests that Malthus’s intended meaning was that the economic distress experienced during the transition from war to peace would have been of shorter duration if governments had spent the taxes in ways that created a demand for labour and commodities. Bernard Corry appears to have interpreted Malthus’s statement in that way: “On the face of it this seems to be a clear-​cut case for government expenditure and general opposition to the ‘Treasury View’ ”. However, in adding: “But Malthus was no such general advocate” (Corry 1962, 160), Corry might have underestimated the extent to which Malthus was prepared to advocate public works in stimulating growth as an exception to the Treasury View.

Malthus and Keynes on public works The question of whether Malthus’s proposals for public works can be described as Keynesian is debatable. His recommendations for government intervention

Laissez-faire and government intervention   201 did not involve practical and detailed plans of action, with costings and dates of implementation and completion; as Hollander (1997a, 884) has noted, Malthus did not “carry through with a far-​reaching interventionist program”. Was his response to the large-​scale unemployment after the Napoleonic wars in 1815 similar to, and a precursor of, the response of Keynes to the depression of the 1930s? Bronfenbrenner (1983, 133) believed that Malthus had not recognised sufficiently the employment possibilities of greater expenditure by the public sector, and contrasted the relatively limited range of public works suggested by Malthus with the views of Keynes, who saw the public sector as a major source of employment. Bronfenbrenner was thus stressing the difference between the policy programs of Malthus and Keynes, and downplaying the extent of Malthus’s influence on Keynes, or the extent of the similarities between Malthus and Keynes. It has been argued that the two programs differed because Malthus did not see public works as a stimulus to growth: “the case made out by Malthus for public works turns on the prospective stimulus afforded by a transfer from ‘productive’ to ‘unproductive’ expenditure –​not, as it was for Keynes, by a net injection of purchasing power” (Hollander 1997, 629). An alternative view is that Malthus’s program would implicitly and logically have involved a net injection of funds, and therefore on this score did not differ significantly from Keynes’s program. In so far as public works are financed by raising loans from private-​sector funds that were idle, unemployed, or underemployed, and by transferring these funds as wages to workers involved in public works, the government would be effecting a net injection of purchasing power into the economy: “The loans to government convert capital into revenue, and increase demand at the same time that they at first diminish the means of supply … Capital is withdrawn only from those employments where it can best be spared” (Malthus 1989b, I, 373–​374). If the expenditure on public works is sourced from idle or redundant capital, as Malthus proposed, and not merely transferred from existing uses, then his proposal would amount to Keynesian pump-​priming. In Malthus’s view, the depression or glut occurring after 1815 was characterised by a superfluity savings and capital. His remedy for gluts centred on the need to convert this idle capital into employment-​creating capital, or in other words, to convert a potential supply of unused savings into an effective supply of used capital. He was obviously aware that further expenditure of capital on the production of material goods for sale in the market would be useless if the market was already glutted, and that it would be preferable for capital to be directed towards expenditure on things which do not enter the market, such as public works which do not compete with existing profitable enterprises. According to his definition of “productive”, as explained in the next chapter, expenditure on public works would be classified as “unproductive”, because it does not enter into the market, whereas in modern terminology, because its purpose is to generate employment and incomes, it would be classified as “productive”.

202  Laissez-faire and government intervention His proposal that expenditure should be switched from productive to unproductive activities would appear to have been eminently sensible when the term “unproductive” is understood in the way he seems to have intended. As noted in Hollander 1969, 330–​331, in the Principles … the argument that there would be no net increase in the demand for labour was rejected. Funds diverted from private capital outlays to be spent on public works … would generate an increase in effectual demand for produce and accordingly stimulate an increase in the profit rate and ultimately in the demand for labour. Malthus stated that if money is raised by taxes and spent on public works its tendency would be “to diminish the capital employed in productive labour”, and “this, to a certain extent, is exactly what is wanted” (Malthus 1989b, I, 511). From this it has been argued that, in Malthus’s view, depressions were caused by an overproduction or excess supply, and that his solution to depression was to curtail the production of material goods. It has been concluded that the Malthusian remedy for depression was radically different from the Keynesian remedy because of their different effects on production: “Whereas with Keynes public works have the object of stimulating production by making net additions to purchasing power, for Malthus they serve the aim of contracting productive investment by taxing available capital. Malthus’ whole argument is rooted in the belief that further industrialization of the British economy is undesirable”; and that “Malthus must be charged with a myopic exaggeration of the difficulties experienced after the Napoleonic Wars, difficulties for which he offered exactly the wrong remedy” (Blaug [1958] 1973, 239). A non-​Keynesian interpretation of Malthus on public works was also put forward by Bernard Corry who understood Malthus to say that “expenditure on public works would worsen any tendency to excess supply operative in the economy” (Corry 1962, 161); and by Boyd Hilton who has argued that Malthus advocated public works, “not because he thought they would trigger the multiplier, as maintained by Keynesians a century later”, but because “they would have the opposite effect by diverting resources from more productive private enterprise” (Hilton 2006, 344). However, Malthus’s statement that “what is wanted” in a situation of glut and unemployment is a reduction in productive expenditure would be misunderstood if interpreted to mean a reduction in total expenditure on employment-​ creating activities. Malthus was clearly advocating, not a reduction, but a redirection of employment, with employment being switched from the glutted markets for material goods to the provision of public works or other goods and services which do not enter glutted markets, such as roads “which do not come for sale in the market” (Malthus 1989b, I, 50), and which “will not Interfere with existing capitals” (Malthus 1989a, I, 369, original emphasis). Malthus

Laissez-faire and government intervention   203 said that this sort of expenditure is “exactly what is wanted” because it would stimulate employment without flooding the already glutted markets with more material goods. Malthus’s remedy for mass unemployment has sometimes been interpreted in the secondary literature as being merely an encouragement for expenditure by landowners on menial servants and beautifying their estates, and are thus seen as being directed more at the welfare of the wealthy, and as having minimal impact on the welfare of the poor. He categorised expenditure on public works as unproductive, but, as discussed in the next chapter, Malthus’s term “unproductive” had a special significance. In the terminology that Malthus chose to adopt, expenditure is “productive” when it results in the provision of goods into the market, and is “unproductive” if the goods or services do not enter into the market and do not add to the existing oversupply of goods unable to find buyers. Public works, such as roads and bridges, would thus be described, in Malthus’s terminology, as “unproductive”, even though their provision would be considered “productive” in a wider, modern sense. According to this interpretation of Malthus’s concept of unproductive labour, his argument in favour of unproductive labour leads logically to an argument for public works. Malthus’s proposals for public works were limited in extent, and could not justifiably be seen as an early form of anti-​cyclical budgeting, but they were affirmative statements of things to be done, and insistent arguments for goals to be aimed at; they were a serious attempt to counter retrograde macroeconomic movements in the economy. In referring to the letter in 1817 from Malthus to Ricardo, and referring to the plan for relief of the poor by employing them on public works, Piero Sraffa observed that Malthus “did not think it a very efficacious mode of relief, as it diverted funds from other employments” (in Ricardo 1973, XI, x). However, the textual evidence assembled here seems to suggest a more positive attitude by Malthus to the benefits of public works.The argument that Malthus differed from Keynes on this issue would be more convincing if it were accompanied by an explanation of why Keynes himself did not refer to the difference. Despite his high praise from Malthus on effective demand, he was not loath to criticise Malthus on other issues, such as interest rates. If the term “investment” were interpreted in a broader sense which includes public investment in infrastructure, it could be said quite rightly that when Malthus’s proposed remedy for depression involved government infrastructure expenditure on public works, such as roads and bridges, that are not brought to the market, he was in effect advocating an attempt by the government to invest its way out of a general glut. According to that interpretation, there would seem to be no great distance between Malthus’s recommendation of government expenditure as a cure for depression, and Keynes’s view that government spending should be used as a remedy for depression.

204  Laissez-faire and government intervention

Conclusion on laissez-​faire and government intervention These arguments for government intervention, and these examples of the limitations of laissez-​faire, show that although Malthus strongly supported the principle of laissez-​faire, his support was neither absolute nor extreme. He could not be accused of laissez-​faire fanaticism, or free-​market fantasy, or natural-​law naivete. But at the same time, although his love of laissez-​faire was neither absolute nor extreme, and although he recognised the need for government intervention in some circumstances, his interventionism was also neither absolute nor extreme. On the general question of the role of government, one would have to agree with the view that Malthus’s approach was “well-​balanced”. Although he maintained laissez-​faire as a basic principle, he “explicitly and conspicuously” admitted a number of exceptions or allowances, some of which were “surprisingly ‘liberal’ ” (Hollander 1997, 915). In the phrase “laissez-​faire and government intervention”, the word “intervention” is sometimes given a pejorative implication; laissez-​faire is regarded as the norm, and the actions of government as abnormal, or unnatural, or exceptions, or in some way in contravention of the natural order of the universe. Although the role given by Malthus to government in promoting economic growth was limited, he seems to have regarded it to be as normal and natural as the role he gave to laissez-​faire. He appears to have been advocating a policy of complementarity between government and the private sector. The exceptions he attached to the principle of laissez-​faire were as significant in his macroeconomic theory of growth as the principle itself. Malthus’s repeated insistence on the need to recognise limitations and exceptions to principles is such a dominant element of his thinking that it deserves to be regarded in itself as a law, or doctrine, or principle. It could be called his “principle of limitations and exceptions”, and could be accorded equal status with his “principle of laissez-​faire”, his “principle of population”, his “principle of effective demand”, and his “doctrine of proportions”. In criticising Ricardo’s labour-​ employed theory of value, Malthus said that Ricardo “admits of considerable exceptions to the rule”, and added that Ricardo’s exceptions “are so numerous, that the rule may be considered as the exception, and the exception the rule” (Malthus 1827a, 27). A similar comment could be applied to Malthus’s view of the relation between the rule of laissez-​faire and the exceptions to the rule. He also said: “there is no truth of which I feel a stronger conviction than that there are many important propositions in political economy which absolutely require limitations and exceptions” (Malthus 1989b, I, 8). One might even go further, and suggest that the exceptions could be described more strongly as recommendations, rather than merely as exceptions or allowances. His many proposals for government intervention –​for education, emigration, provision for the poor, public works, Corn Laws, a wider distribution of income, and a growth of the middle classes, etc. –​amount to a radical program of economic and social reform.

Laissez-faire and government intervention   205 When he said, as quoted above: “It is undoubtedly true, that every thing will ultimately find its level, but this level is sometimes effected in a very harsh manner” (Malthus 1989a, I, 410–​411), he seems to have been attempting to provide an answer to the argument that the forces of the free market will always produce an optimum outcome, without the need for exceptions in the form of government intervention. His love of laissez-​faire did not mean that he believed an economy’s optimum economic potential could be achieved by laissez-​faire alone, independently of government involvement. From the logic of his argument it might even be concluded that an unrestricted policy of laissez-​faire could be economically harmful. Hollander (1997, 916) has interpreted Malthus’s ideas for government intervention as “rather of a remedial nature”. I would suggest that they could be described as preventative, as well as remedial.The nature and extent of Malthus’s exceptions to laissez-​faire are such that for Malthus the role for government was not merely to intervene in order to correct faults and weaknesses in the laissez-​ faire system, but also to initiate and promote desirable functions of government that would pre-​empt and prevent free-​market failures. His advocacy of a wider distribution of income, as discussed in Chapter 13, seems to have been intended not only as a cure for gluts, but also as a means of preventing gluts, and as a plan for the expansion of effective demand and for continued economic growth. In advocating, for example, bounties for the export of corn and restrictions or tariffs on the import of corn, he seems to have conceived an active or preventative or entrepreneurial role for government, rather than merely seeking to cure problems that have already occurred. The unifying theme of this chapter has been Malthus’s search for a balance between laissez-​faire and government intervention, both of which he saw as essential for economic growth. The balance he sought was a synthesis of their complementary roles, involving a departure from a strictly non-​interventionist orthodoxy, but retaining the economic benefits of individual enterprise –​a balance without which, in his view, no economy could expect to reach its economic potential. Government as a factor of production Malthus’s concept of the role of government in its relationship with the private sector and the laissez-​faire system could be described, not as one of government intervention or interference or intrusion, but as one of government involvement, or cooperation, or participation. As James Bonar said, Malthus’s approach led him in some important points away from laissez faire to doctrines of our own day, in which society acting through its Government is allowed an originative and not merely a regulative action in the matter of industry and wealth. (Bonar [1885] 1924, 302; original emphasis)

206  Laissez-faire and government intervention In Malthus’s macroeconomic system the government is a player and a pro-​ active participant in national production, along with the private sector, not merely a referee or umpire ensuring fair play, not merely a protector of last resort, and not merely a reserve to be brought into the field of play in an emergency or as a substitute. He appears to have regarded government as a normal part of the production process, not as an outsider, or interloper, and not as something impeding economic growth. He probably would have agreed with the following statement adopted as one of the principles of the American Economic Association founded in 1885: “We regard the State as an agency whose positive assistance is one of the indispensable conditions of human progress” (quoted in Hutchison 1953, 252). Malthus was saying in effect that the government should be recognised as a factor of production, and was advocating a role for government that goes far beyond a “law and order” function. It is almost as if he was saying that the traditional threefold classification of the factors of production –​land, labour, and capital –​should be expanded to include government as an additional factor of production, and was attempting to escape from the confines of the traditional categories. He seems to have been suggesting that economic growth will be retarded if the essential productive role of government is not mobilised. He did not see government as an alien force or as a threat to the free enterprise system. He did not suffer from a paranoid fear of government.

11  Unproductive labour and unproductive consumption

Malthus’s expressions “unproductive labour” and “unproductive consumption” are often treated in the secondary literature as if they were synonyms, and in the first edition of the Principles Malthus did not always clearly distinguish them. In this work the two expressions are treated separately. The concepts of productive and unproductive labour and their significance in macroeconomic theories have been discussed for many years by many contributors to the history of economics –​see, for example, the exhaustive treatment provided in Perrotta 2018.The concepts occupied a substantive place in Malthus’s thought, and have become targets for spirited criticisms.

Productive and unproductive labour Malthus regarded the distinction between productive and unproductive labour as one of the fundamental doctrines of his political economy: “There can hardly be a more important enquiry in political economy than that which traces the effects of different proportions of productive labour, and personal services in society” (Malthus 1989b, II, 31). He believed that economic growth would be affected by those proportions. Malthus’s definitions of productive and unproductive labour When labour is said to be “unproductive”, the term is usually understood in common usage today in a number of derogatory senses, such as, inefficient or unprofitable or wasteful, and when Malthus spoke of the advantages of unproductive labour and actively recommended a greater use of unproductive labour, his policies were understandably interpreted as irrational and incomprehensible, and his status as a macroeconomist was irreparably damaged. His concept of unproductive labour has also been interpreted as an argument for greater use of menial servants, and as evidence of a bias in favour of the upper economic classes. However, a close analysis of his use of the expressions reveals a quite different interpretation. It shows that his definitions of productive and unproductive labour must be understood in relation to his concept of wealth. In Malthus

208  Unproductive labour and unproductive consumption (1989b, I, 29) he stated: “The question of productive labour is closely connected with the definition of wealth”. This connection is made obvious in the title of the first chapter of the Principles: Chapter I, “On the Definitions of Wealth and Productive Labour”, with its two sections –​Section I, “On the Definitions of Wealth”, and Section II, “On Productive and Unproductive Labour”. In his Definitions in Political Economy he said: “The terms productive and unproductive are always used by political economists in a restricted and technical sense exclusively applicable to the direct production or non-​production of wealth”. He defined “productive labour” as “The labour which is so directly productive of wealth as to be capable of estimation in the quantity or value of the products obtained”, and he defined “unproductive labour” as “all labour which is not directly productive of wealth” (Malthus 1827a, 236, 237). He also described unproductive labour as “labour the results of which do not come for sale into the market, such as roads and public works” (Malthus 1989b, I, 511; repeated in the second edition). Malthus defined “production” as “The creation of objects which constitute wealth” and he defined “wealth” as “The material objects necessary, useful or agreeable to man, which have required some portion of human exertion to appropriate or produce” (1827a, 234). From these definitions it is clear that his use of “unproductive” did not involve any implications of wastefulness or distributive injustice. Malthus’s use of “unproductive” was merely a logical consequence of his definitions of “wealth” and “production”. This connection between Malthus’s concept of productive and his concept of wealth was recognised in Rashid (1987, 289) where Malthus’s concept of unproductive persons is described as “individuals who had incomes but did not produce market-​oriented outputs” or as “a group who contributed to the aggregate demand without adding to the market supply”. This connection has not been widely emphasised in the secondary literature, another exception being Jean Ferricelli (1966, 59): “the class to which Malthus refers is not a class of idlers … but a class … whose activity does not consist of the fabrication of material goods that have exchange value”. It is obvious that Malthus’s definition of unproductive labour does not, per se, carry implications of class bias. Malthus seems to have made use of several criteria in deciding whether particular kinds of labour are productive labour, rather than unproductive labour or personal services: 1 The labour must contribute to the provision of a material object, not an immaterial service. 2 The labour must directly contribute to the exchange value of the object, and the object must be brought to market and receive a valuation. 3 The labour must be paid out of capital, not out of revenue. He appears to say that each of these criteria has to be met; failure to meet any one of them would prevent qualification as productive. However, as discussed

Unproductive labour and unproductive consumption   209 below, his rationale for including the use of “paid out of capital” as the third criterion is difficult to substantiate. Alteration from “unproductive labour” to “personal services” In later years, when Malthus appears to have recognised that the term unproductive labour could give rise to unintended implications of class bias, and could be misinterpreted as synonymous with useless, unnecessary, inefficient, wasteful, etc., he changed “unproductive labour” to “personal services”. For example, “the productive and unproductive classes of the society” was changed to “the productive labourers and those engaged in personal services” (Malthus 1989b, I, 464; II, 276); and “proportion of the productive to the productive classes” was altered to a “proportion of consumers directly productive to those not directly productive” (Malthus 1989b, I, 464; II, 276). In an addition to the second edition of the Principles, he said that because of objections raised against his classification of productive and unproductive labour, “it might be desirable to substitute the term personal services for unproductive labour”. He offered the following reason for the change: Labour may then be distinguished into two kinds, productive labour, and personal services, meaning by productive labour that labour which is so directly productive of material wealth as to be capable of estimation in the quantity or value of the object produced, which object is capable of being transferred without the presence of the producer; and meaning by personal services that kind of labour or industry, which however highly useful and important some of it may be, and however much it may conduce indirectly to the production and security of material wealth, does not realize itself on any object which can be valued and transferred without the presence of the person performing such service, and cannot therefore be made to enter into an estimate of national wealth. (Malthus 1989b, II, 26; original emphasis) Personal services are excluded from his definition of wealth, but there is no suggestion that he denied or underestimated the importance of services. He strenuously emphasised the economic importance of a class of persons engaged in providing unproductive labour; for example, it “is not only necessary to the government, protection, health, and instruction of a country, but is also necessary to call forth those exertions which are required to give full play to its physical resources” (Malthus 1989b, I, 478). He said that “the employment of a certain number of persons in menial service is in every respect desirable” (Malthus 1989b, I, 479; in the second edition of the Principles “varying with the neat revenue of the society” was added after “menial service”); and the employment of the poor in roads and public works, and a tendency among landlords and persons of property to build, to improve and beautify

210  Unproductive labour and unproductive consumption their grounds, and to employ workmen and menial servants, are the means most directly calculated to remedy the evils resulting from that disturbance in the balance of production and consumption, which has been occasioned by the sudden conversion of soldiers, sailors, and various other classes which the war employed, into productive labourers. (Malthus 1989b, I, 512) Malthus advocated the construction of railways, canals, harbours, and other public works as sources of employment, but he defined such workers as unproductive because, although they were producing material goods rather than immaterial services, their material products would not be brought into the market place, and would not be contributing to the existing glut of goods in the markets. In financing public works the government would be engaging in “unproductive” expenditure, in Malthus’s terminology, and the workers it employed would be “unproductive” labourers. It is difficult for the modern reader to accept the term “unproductive” to describe public works that are generating a net increase in employment, but if we are prepared to accept Malthus’s choice of language, his use of the expression “unproductive labour” to describe public works was quite appropriate. Malthus admitted that “the resources of political economy are unequal to determine” the proportion between productive and unproductive labour that would afford the greatest encouragement to wealth, because “it must depend upon a great variety of circumstances, particularly upon fertility of soil and the progress of invention in machinery” (Malthus 1989b, I, 464), but this recognition of the difficulties of ascertaining the right proportion did not diminish his insistence on the need to attain it. In a large addition to the second edition of the Principles he argued that the distinction between productive and unproductive labour is essential because it involves the distinction between capital and revenue, and emphasises that capital has such a “powerful influence on the progress of national wealth”. Malthus argued that productive labour requires capital, but unproductive labour does not require capital, and therefore those two kinds of labour should be distinguished. He argued that productive labour requires a considerable amount of capital for its continued employment. He further argued that where productive labour abounds, capital and wealth abound; where personal services dominate, capital and wealth are deficient (Malthus 1989b, I, 29–​50; II, 32–​49). However, the link he made between productive labour and the use of capital is not entirely convincing. Many kinds of unproductive labour or personal services would also require the use of capital. Examples of unproductive labour Malthus’s precise meaning of unproductive labour would have been made clearer if he had provided a comprehensive list of the occupations in that category. In various locations he gave some specific names of unproductive occupations; for

Unproductive labour and unproductive consumption   211 example, unproductive labour would include, not only menial servants, but also statesmen, soldiers, judges, lawyers, physicians, surgeons, and clergy (Malthus 1989b, I, 477). In other references, unproductive labour was also said to include actors; musicians; physicians; surgeons; lawyers; government employees whose work contributed only indirectly to the value of the product; workmen and menial servants employed by “landlords and persons of property” to maintain buildings and to “improve and beautify their grounds” (Malthus 1989b, I, 512); carriers and others engaged in transport if their work is not paid out of capital; those engaged in retail trade and wholesale trade if their work is not paid out of capital; and education. It would appear therefore that Malthus’s concepts of personal services and unproductive labour were much wider than is generally interpreted. He referred to “the great mass of individuals engaged in personal services” (Malthus 1989b, II, 276; alteration 1.466c). Bronfenbrenner seems to have thought that, in Malthus’s view, those engaged in the provision of productive services would be for the most part domestic servants in households, but would also include “the gamut of white-​collar professionals –​‘the Army, the Navy, the Church, and the Stage’ ”. In expending their earnings they would contribute to an increase in the demand for consumer goods (Bronfenbrenner 1983, 268). In this statement Bronfenbrenner clearly had interpreted Malthus’s concept of personal services to include more than menial servants. This would certainly be true if the gamut included other public servants and the employees of the East India Company. Complexities and unsatisfactory features of the definitions of productive and unproductive labour Although these definitions of productive and unproductive labour were commendable attempts to establish clarity of vocabulary in the early years of political economy, they also created definitional complications, which Malthus addressed but did not completely resolve. How is direct production distinguished from indirect production? Is the value of the product of labour to be considered in defining productive labour? He argued that if there were “plausible cavils” or “a few just exceptions to the complete accuracy of a definition”, the resulting want of precision would be “beyond comparison less in amount and importance than the want of precision which would result from the rejection of it” (Malthus 1989b, 31). One of the “plausible cavils” concerns the third criterion –​the “paid by capital” criterion –​as one of the criteria for distinguishing productive labour from unproductive labour and personal services. Productive labour would include “the labour of carriers, shopmen, and of all those persons who are paid by capital, and give a definite increase of value to material products” (Malthus 1824b, 303–​304). He presumably regarded occupations not “paid by capital” as unproductive labour, but did not provide a clear definition of “paid by capital”. Also, the use of the “paid by capital” criterion in classifying labour as productive or unproductive could conflict with the use of other criteria. On

212  Unproductive labour and unproductive consumption one criterion the labour of a doctor or a musician could be described as unproductive, because it does not create material wealth, but when it requires the use of capital equipment it could be described as productive labour by applying the “paid by capital” criterion. The importance of the “paid by capital” criterion appears to have been adopted by Lionel Robbins, who argued that the distinction between productive labour and unproductive labour, as presented by Adam Smith and taken up by Malthus, was intended not as a distinction between material wealth and non-​material wealth, but as a distinction between capital wealth and non-​ capital wealth, introduced to emphasise the importance of the accumulation of capital, and was simply “another way of saying that development depends on the maintenance and accumulation of capital” (Robbins 1968, 47). There is no doubt that Malthus understood the importance of capital, and believed that effective demand is an important causal influence on investment, but it is doubtful whether the establishment of the distinction between productive and unproductive labour was a necessary element in his case for the importance of capital. Furthermore, there seems to be little justification for his assertion that the provision of personal services does not require capital. Another unsatisfactory feature of his concept of unproductive labour was that it did not distinguish between those persons who are classed as unproductive because they provide services rather than material products, and those who are classed as unproductive because they do nothing and provide neither services nor material goods. A further unsatisfactory aspect of his concept of unproductive labour was his classification of the work of government servants. He said that their categorisation as productive or unproductive would depend on their efficiency, thus adding the complexity of an efficiency criterion to his distinction between productive and unproductive labour. Further complexities arose when he attempted to distinguish between labour directly involved in production and labour indirectly involved in production. The concept “directly productive” was made clearer in Malthus’s Quarterly Review article of 1824, where he described “directly productive labour” as “the labour which is so fixed and realized on these [material] products as to be estimated in their value when they became the subjects of exchange” (Malthus 1824a, 299), but this attempted clarification leaves a number of questions unanswered. The complexities involved in the definition of unproductive labour became particularly evident when applied to labour involved in education and the theatre. Decisions about whether they were productive labour or personal services required intricate analytical distinctions. In the case of the funds employed in education, Malthus argued that “no small portion” of the funds is employed in acquiring the skills necessary to the production and distribution of material objects. This portion, he argued, should be regarded as capital, and the labour involved in this portion should be regarded as productive. The remaining

Unproductive labour and unproductive consumption   213 portion of expenditure on education should, he argued, be considered as being paid from revenue rather than from capital (Malthus 1989b, II, 37), and he seems to have regarded this portion as personal services. In the case of theatrical exhibitions, the actors are supported by what is called capital, but their labour is not productive of material goods. He judged therefore that the work of the actors is unproductive labour. Malthus insisted that his discussion of the distinction between productive and unproductive labour was not introduced “with a view to the establishment of any nice and subtle distinctions without a practical object”; but while recognising and applauding his aim to achieve some practical object, it would also have to be recognised that he had in fact become obliged to establish some “nice and subtle distinctions”, and was candid enough to confess that “we should be satisfied with the best classification which we can get on these subjects, although it may not in all its parts be unobjectionable” (Malthus 1989b, I, 49–​50). Malthus’s attempt to establish a distinction between productive labour and unproductive labour engendered a morass of complications and arguments, some bordering on semantic quibbles. He and his contemporary disputants might be accused of indulging excessively in a semantic word-​game of classification, in which they had temporarily forsaken concern for real-​ world applications. Schumpeter thought that it displayed “the word-​mindedness of economists and their inability to tell a real problem from a spurious one” (1954, 631). Malthus would have most certainly disagreed; despite these classification difficulties, he persisted in asserting the importance of the distinction productive and unproductive labour. Malthus’s use of the term “unproductive labour” was unfortunate, and although the alteration to “personal services” might have mitigated some of the undesired implications, it did not abolish them entirely and was only a partial improvement. It retains derogatory overtones, as can be seen in their persistent repetitions in modern literature; if personal services are contrasted to productive labour, they will implicitly carry the derogatory imputation of being unproductive. His views would have met with far less opposition if he had used the unemotive, though admittedly cumbersome terms: “labour that provides material objects” and “labour that provides personal services”. Critical commentaries from the secondary literature on Malthus on unproductive labour Malthus’s reputation as a macroeconomist has been tarnished by his insistence that unproductive labourers are major causes of economic growth and major remedies for economic depression. The term “unproductive” aroused emotional reactions of moral outrage –​“It irresistibly suggested immorality to his contemporaries” (Rashid 1977, 380) –​and provoked virulent accusations of social injustice. It has been labelled as absurd, and has been interpreted as an

214  Unproductive labour and unproductive consumption attempt to install and justify the existence of a permanent and extensive servant class ministering to the higher classes. When Malthus spoke of the need for unproductive labour, as a way of boosting effective demand and employment, and as a remedy for depression, many commentators thought he was advocating nothing more than an increase in the number of menial servants catering for the landed aristocracy, and was hoping that the many unemployed factory workers could be provided with work as personal servants of the upper classes. In this interpretation Malthus is seen as a propagandist for the upper classes, as a conservative advocate for the maintenance of rigid class distinctions, and as an attempt to justify the existence of a social structure dominated by an idle or parasitic class. Critical comments commenced immediately after the publication of his Principles, and have persisted ever since. In his Notes on Malthus, Ricardo ridiculed Malthus’s argument for unproductive labourers: “A body of unproductive labourers are just as necessary and as useful with a view to future production, as a fire, which should consume in the manufacturers warehouse the goods which those unproductive labourers would otherwise consume” (Ricardo 1973, II, 421). Importance and advantages of the service sector Malthus’s emphasis on the importance of the service sector in stimulating employment and economic growth in general and in encouraging growth in other sectors is a distinctive feature of Malthus’s macroeconomics and one not widely shared among his contemporaries. When Malthus’s concepts of unproductive labour and personal services are re-​interpreted in the light of his definitions of productive and unproductive labour, as this chapter has attempted, his awareness of their growth-​enhancing prospects can be seen as a commendable, distinctive, and farsighted feature of his macroeconomics. He commended reduced expenditure on personal services by owners of large landed estates, but he commended the growth of services among the mercantile and manufacturing classes. This growth would have beneficial effects on the distribution of wealth; it effects, to a considerable extent, the division and alienation of those immense landed properties, which, if the fashion of personal services had continued, might have remained to this time nearly in their former state, and prevented the increase of wealth on the land as well as elsewhere. (Malthus 1989b, I, 35) Malthus’s emphasis on the importance of the service sector has occasionally been noted in the secondary literature. For example: Malthus had the vision to see that the capitalist system … could not be smoothly run on the basis of the development of the primary and secondary sectors only …

Unproductive labour and unproductive consumption   215 [and that] the tertiary sector has to be developed to maintain effective demand for the purpose of realising full employment. (Roy 1978, 152) Roy cited the work of Colin Clark linking higher productivity with tertiary employment, and also cited Alvin Hansen’s acknowledgement of Malthus: All advanced countries would find it difficult to provide full employment if all their productive capacity were to be devoted mainly to the production of material things. A varied and rich standard of consumption, involving an expansion of the service trades and industries, has historically gone hand in hand with increasing productivity. In Malthus’s view, the development of the service sector is a necessary condition for the maintenance of adequate “effectual demand”. (Hansen 1951, 251) Joseph Spengler (1965, 613) observed that the increasing role played by the service sector in advanced modern economies gives empirical support for Malthus’s position, and reinforces the need to achieve an optimum balance between those employed in providing services and those employed in the production of material commodities. Excessive personal services However, in another expression of his doctrine of proportions, Malthus argued that an excessive amount of labour engaged in personal services could be harmful, because a strong demand for material products was essential for the progress of wealth, and “there could hardly be a taste more unfavourable to the progress of wealth than a strong preference of menial service to material products” (Malthus 1989b, I, 479; in the second edition of the Principles “and ill-​accommodated followers” was added after “menial service”). In his article in the Quarterly Review he wrote: a great preference of [sic] the results of unproductive labour or a great demand for menial servants and followers, would destroy more than half of the capitals which are generally employed by a rich and prosperous country in manufactures, and in domestic and foreign commerce, and leave it merely with its landlords surrounded by poor dependants. (Malthus 1824a, 302) Malthus’s fear that there might be an inadequate demand for material goods because of an excessive demand for personal services appears rather strange in the context of our modern consumer-​orientated societies. He was not to know of the vast quantity and variety of material goods that technology would make

216  Unproductive labour and unproductive consumption available, nor of the skills of the advertisers in creating desires. Perhaps he also underestimated the insatiability of human desires for material luxuries. He did not explicitly discuss whether the demand for material products might ever be excessive. Malthus brought together two problems –​excessive indulgence in personal services by the upper economic classes, and their excessive ownership of land. He seems to have implied that if the latter were to be moderated, as he recommended (see Chapter 6), the former would also be curtailed. His arguments against the excessive use of personal services appear to be subsidiary to his arguments on the broader question of the distribution or maldistribution of wealth and property. Unproductive labour and the valuation of services Malthus’s belief that personal services cannot be valued lies at the basis of his decisions to restrict the definition of wealth to material goods, and to insist on the distinction between productive labour and personal services. If he had recognised that personal services could be valued, his distinction between goods and services would have lost a rationale, and there would be less ground for concern about the right proportion or balance between goods and services; the determination of the optimum proportion could have been left to the forces of laissez-​faire. In a letter to Say in June 1827 he wrote: “In restricting the meaning of wealth to material objects I think we are employing the word in its natural and ordinary sense”, and “if the line of demarcation between material and immaterial objects is taken away, the explanation of the causes which determine the wealth of nations, and any method of evaluating it, becomes extremely difficult, if not impossible”. He argued that personal services could be valued only by the salaries paid, but that it would be difficult to distinguish between useful and useless services, and it would be absurd to consider useless services, however well paid, as an augmentation of wealth in proportion to the salaries (Malthus, in Say 1833, 303–​304, translated by current author). He attended theoretical performances in London, where he saw and admired famous actors of the day –​ in letters to his father he referred to Sarah Siddons, Ann Crawford, and David Garrick –​and he presumably regarded their services as useful and capable of valuation (see Malthus 1997, 13, 17). He could never have imagined the size of the incomes enjoyed today by the providers of personal services, such as actors, musicians, writers, entertainers, sports people, etc. and even in his own day he must have realised that the services of the actors he watched and admired in stage productions were capable of being valued. As an example of his belief in the impossibility of evaluating services, he said that to evaluate the discoveries of Newton or the works of Shakespeare and Milton by the price at which their works have sold, “would be but a poor measure of the degree in which they have elevated and enchanted their country” (Malthus 1989b, I, 49); but in this

Unproductive labour and unproductive consumption   217 instance he appears to have been referring to their use value, rather than their market value. Unproductive labour and practical applications Malthus’s concept of wealth and his distinction between productive labour and unproductive labour were linked to his concern for practical applications. His concern for practical applications was a significant feature of his approach to political economy. The index to the Principles (1989b, II, 495) lists about 40 references to practical applications, and more can be seen in the Essay. The full title of his Principles was “Principles of Political Economy Considered with a View to Their Practical Application”. His concern with practical applications was emphasised in a letter from Cambridge University to his father on 11 February 1886 (Malthus 1997, 41). In Malthus’s opinion, if political economy is to have practical applications and to be able to say anything practical about the creation of wealth, wealth must be measurable, otherwise it would be impossible to say whether the wealth of a country is increasing or decreasing, or whether one country is wealthier than another. Because he was convinced that services are incapable of valuation and therefore unmeasurable, he was logically obliged to exclude services from his definition of wealth, and to restrict the definition of wealth to material goods, although in modern economics that restriction might be regarded as unnecessary. He was convinced that in political economy the word “productive” should mean “productive of wealth”. This meant that the expression “productive labour” had to be restricted to the “production of material goods”, and could not logically be applied to labour engaged in the provision of services. It follows therefore that, because of the logic of his definitions, such labour would be termed “unproductive labour”. Commentators and critics attached connotations of worthlessness and uselessness, but these were not present in the concept of unproductive labour as he defined it. Unproductive labour: a necessary but not sufficient cause of growth There can be no doubt that unproductive labour, when understood to include all labour directed toward the provision of personal services or public works, occupied an essential and major role in Malthus’s macroeconomics. It would be a mistake however to go beyond Malthusian moderation, and to argue that for Malthus unproductive labour was the only way in which a general surplus or glut of produce could be remedied. He has been said to have adopted an exclusive reliance on unproductive labour, because he believed that there are no other ways of raising consumption and effective demand to an adequate level. He has been interpreted as arguing (see, for example, Perrotta 2018, 69–​73) that capitalists cannot increase their consumption, because their main aim is to save and invest; workers cannot increase their consumption, because their wages

218  Unproductive labour and unproductive consumption are always at subsistence level, and because higher wages would depress profits; and an increase in landowners’ consumption, although individually extravagant, would collectively not be sufficient to remedy a general glut. If Malthus thought that no significant increases in effective demand can be expected from capitalists or landowners or workers, his theory of growth would be obliged to rely on unproductive labourers for increases in effective demand. But Malthus’s emphasis on the role of unproductive labour must be considered along with his emphasis on other causes of economic growth, notably, the potentially beneficial growth effects of a wider distribution of income and wealth. His discussion of “distribution occasioned by unproductive consumers” occupied only one of the ten sections of Chapter VII, “On the Immediate Causes of the Progress of Wealth” in the first edition of the Principles. Unproductive labour and menial servants As noted above, Malthus warned of the dangers of excess employment of menial servants, and used quite forceful language to express his disapproval and to urge its reduction. His denunciation of the current proliferation of personal services throughout the upper classes is clearly evident in the Principles, even though interspersed between wrangles over the distinction between productive and unproductive labour. For example, in criticising the current division of property he argued that, while personal services continue the predominant taste, they “must necessarily divide the great mass of society into two classes, the proprietors of land and their servants, the rich and the poor, one of which is in a state of abject dependance [sic] upon the other” (Malthus 1989b, I, 35). But although excessive expenditure on menial servants and home improve­ ments might be regarded as morally reprehensible, and as evidence of grave social injustices in the distribution of property and wealth, they could be justified economically because of the initial employment created and the multiplier effects generated more widely, as well as by the productive stimulus given to those who wish to emulate. He was not able to foresee the extent to which desires for consumer goods and personal services would accelerate if purchasing power became more widely distributed. A thousand servants employed by a wealthy landowner would possibly provide as much stimulus to the economy as a thousand workers employed by a factory owner. A frequent objection to the employment of numbers of menial servants is that they are generally restricted to a few households and not available to the many. It is quite remarkable that Malthus’s concept of “unproductive labour” has been alleged to imply wastefulness and social injustice, and that his concept of “personal services” has been regarded as an attempt to justify the profligacy of the upper economic classes in their employment of hordes of menial servants, estate managers, gardeners, landscapers, and hangers-​on, and in the extravagant embellishments of their mansions. Although Malthus’s concept of unproductive labour is often identified in the secondary literature with expenditures on personal servants by landlords and

Unproductive labour and unproductive consumption   219 other members of the upper economic classes, he did not restrict the concept in that way. All who provide marketable services rather than material goods, and all who are involved in the provision of public works that do not enter into the market would be included in Malthus’s definition of unproductive labourers. They are as much a part of Malthus’s unproductive labourers as are the menial servants and gardeners of the landlords. Relation between productive classes and unproductive classes Malthus defined unproductive workers as workers who do not contribute directly to the production of marketable wealth, but he did not regard them as useless parasites. Some workers do not contribute directly to wealth, but by Malthus’s definition of wealth this does not mean that they do not contribute indirectly to welfare; he argued that they contribute indirectly to the production of wealth because they facilitate the production of material goods, and because the incomes received by the providers of services enable them to increase their demand for material goods. He did not see unproductive labour as an impediment to productive labour. This reciprocal and mutually beneficial relationship between unproductive workers and productive workers has not always been recognised by commentators. On the contrary, the relationship has been interpreted as antithetical rather than beneficial; for example, Malthus “regards the incomes of unproductive workers as mere deductions, under various headings, from the distributive shares [of capitalists, landlords, and productive workers]” (Costabile and Rowthorn 1985, 419). Malthus criticised excessive indulgence in personal services, but he also recognised that unproductive workers perform important positive roles in stimulating the production of wealth; he did not see their incomes as deductions from the wealth and welfare generated by productive workers. He saw the relation between the productive classes and the unproductive classes as one of cooperation and mutual benefit. He noted that during the previous 25 years there had been very great additions to the capital of Britain, but few traces of a diminished expenditure in the maintenance of unproductive labour (Malthus 1989b, I, 421–​422). Criticisms of Malthus’s distinction between productive labour and unproductive labour Malthus’s reiteration of the distinction between productive and unproductive labour can be found throughout his Principles, particularly in Chapter I, Section II, “On Productive and Unproductive Labour”, pages 29–​63, and in Chapter VII, Section IX,“Of the Distribution Occasioned by Unproductive Consumers, Considered as the Means of Increasing the Exchangeable Value of the Whole Produce”, pages 463–​490. In offering the following critical comments on his distinction between productive and unproductive as presented in those two sections, it is not meant to suggest that those two sections could be ignored. They are significant, not because of their views on productive and unproductive

220  Unproductive labour and unproductive consumption labour, but in spite of them. Section IX of Chapter VII contains what could be regarded as the most significant and the most radical of all of Malthus’s views on macroeconomics. The laissez-​faire solution Paradoxically, Malthus’s extensive efforts to determine the most suitable proportion between productive labour and personal services were in effect rendered redundant or nugatory when he proposed a laissez-​faire solution, arguing that “We may however, for the most part, trust to the inclinations of individuals in this respect” (Malthus 1989b, I, 479; in the second edition of the Principles “trust” was altered to “safely trust”). This laissez-​faire attitude would appear to be inconsistent with his earlier criticism of the excessive preference for menial servants that occurs in some societies where laissez-​faire prevails. If the division between productive labour and unproductive labour is best left to individual decisions, the matter does not require government action; and the only possible action is moral exhortation, by concerned individuals such as Malthus. Relevance of the distinction between productive and unproductive labour to Malthus’s theory of growth Malthus’s case for distinguishing between productive and unproductive labour involved a distinction between material goods and personal services, but was such a distinction necessary in his theory of growth, and from an economic point of view does it matter whether an increase of society’s wealth takes the form of goods or of services? As quoted at the start of this chapter, Malthus believed that there is no more important distinction in political economy than between productive labour and personal services. Whether that distinction is an essential element of his theory of growth is debatable. A farm labourer digging potatoes is providing a service as well as providing material goods. A chef who is preparing a meal is providing material goods as well as a service. Every production of a material good involves the provision of a personal service, and the provision of a personal service usually involves the production of a material good. In attempting to provide criteria for separating material goods from personal services, Malthus became entangled in a labyrinthine semantic struggle. The causal framework conceived by Malthus for the provision of material goods could have been equally applied to the provision of personal services. The fundamental role attributed by Malthus to effective demand in the provision of material goods would be just as applicable to the provision of personal services. He encouraged the provision of personal services as a way of creating employment opportunities for workers who were unable to find or keep employment in the production of material goods. In a situation where the market for material goods was glutted, it was obviously necessary to encourage

Unproductive labour and unproductive consumption   221 alternative forms of employment. Malthus argued that in the situation of his time the growth of effective demand for material goods would be stimulated by a wider distribution of income and wealth, and the same reasoning could be applied to stimulating effective demand for personal services, which would depend on the purchasing power of those wishing to employ personal services –​such as the services of teachers, doctors, entertainers, gardeners, cooks, household assistants, et cetera. When Malthus spoke of a surplus or a glut of products, his focus was on material products. When he referred to unemployed labourers seeking work in agriculture or manufacturing or commerce, he did not refer to the situation as a “glut” of labourers. He saw them as constituting a desire for work, rather than potential suppliers of a commodity –​namely, their labour –​and he did not specifically refer to the labour market for workers as a glutted or oversupplied market. As part of his solution to the problem of unemployed factory workers, he recommended an expansion of employment opportunities in the service sector, but he did not explicitly consider the possibility that the service sector might also be in a state of glut or depression, with many potential labourers and household servants and office clerks seeking work, but unemployed because of a lack of effective demand for the labour they were trying to supply. It is difficult to understand why Malthus thought that the distinction between goods and services is a fundamental principle of political economy, and why he thought a distinction between productive and unproductive labour is necessary. Would his macroeconomics collapse if the distinction were abandoned? He believed the widespread unemployment in agriculture and manufacturing could be alleviated either by public works or by the expansion of employment opportunities in the service sector, but he seems not to have recognised that the expansion of the service sector, like the expansion of the agricultural and manufacturing sectors, required not only the desire of potential service workers for employment and the desire of potential employers to employ service workers, but also adequate purchasing power and effective demand in the hands of individuals and businesses who are able and willing to employ service workers. He saw the service sector as a solution to the problem of unemployment in the material goods sector, but did not explicitly address the problem of creating employment opportunities in the service sector. However, an unstated but implicit solution to that problem could be logically and legitimately extrapolated from his discussions of the determinants of economic growth. He believed that the two sectors –​material goods and personal services –​could feed off one another, and become mutually supportive, and that policies could be designed whereby both sectors would flourish. His solution to the problem of unemployment in both sectors lay in the ability of the economy to generate adequate general levels of effective demand, and the solution to the problem of generating adequate effective demand lay in establishing an optimum system of production and an optimum level of distribution, as discussed in Chapter 13, remembering that “the excessive wealth of the few is never equivalent in effective demand to the more moderate wealth of the many”.

222  Unproductive labour and unproductive consumption The preceding chapters in this work indicate the wide range and logical coherence of Malthus’s macroeconomics. Opinions will differ about which were his most important contributions; three of particular importance would be effective demand, effective supply, and an optimum degree of economic equality. It seems doubtful that his macroeconomics would have been essentially impaired if he had omitted all reference to the distinction between productive labour and personal services.

Unproductive consumption In the first edition of the Principles Malthus stressed the role of unproductive consumers in the creation of wealth; for example: “it is absolutely necessary that a country with great powers of production should possess a body of unproductive consumers” (Malthus 1989b, I, 463). This idea has been interpreted as an attempt to justify the existence of a social class who consume wealth produced by others but produce nothing, and has been criticised as an argument that is economically absurd and ethically repulsive. It is an idea that has fostered much animosity towards Malthus and has engendered a reluctance to accept other elements of his economics for the fear that they might give support to his concept of unproductive consumption. Criticisms in the secondary literature of Malthus’s concept of unproductive consumption Ricardo interpreted Malthus’s term “unproductive consumers” to mean wasteful or useless: I can see no soundness in the reasons you give for the usefulness of demand, on the part of unproductive consumers. How their consuming, without reproducing, can be beneficial to a country, in any possible state of it, I confess I cannot discover; (Ricardo 1973,VIII, 301) and How can they by their consumption give value to the results of national industry? It might as justly be contended that an earthquake which overthrows my house and buries my property, gives value to the national industry. (Ricardo 1973, II, 436) In Ronald Meek’s judgement, Malthus suggested that economic health “depended upon the wealth and idleness of the landlord”, and “its continued progress required the existence of a vast hoard of idlers” (Meek 1950, 51, 52). Malthus was said to possess a “tenderness for the landed interest, for its

Unproductive labour and unproductive consumption   223 extravagance in maintaining large bodies of retainers”; and in Malthus’s view: “Society is saved from destruction by a large class of unproductive consumers who, in such a system, are little more than parasites”; “The main purpose of Malthus’s attack on the Ricardian theory [of gluts] was to defend the unproductive consumer”; (Roll 1956, 205, 210). Schumpeter’s comments were particularly severe. Referring to Malthus’s statement that “a certain proportion of unproductive consumption” is “absolutely and indispensably necessary to call forth the resources of a country”, Schumpeter said: “it is, to be sure, not impossible to find an element of sense in this passage, but as it stands it is nevertheless patently wrong”, and “a hundred and twenty years ago such advice, if taken, would have seriously impaired what was to be the greatest economic success in recorded history” (Schumpeter 1933, 653). According to Blaug, the “basic argument” of Malthus’s theory of growth relied on “unproductive consumers”; Malthus’s theory of growth held that “Without exogenous spending by ‘unproductive consumers’, the process of capital accumulation leads inherently to secular stagnation” (Blaug 1968, 164). On the contrary, there are strong reasons for doubting that, in Malthus’s view, capital accumulation leads inherently to secular stagnation. Malthus was surely saying that stagnation occurs, not because capital is being accumulated, but because of the absence of effective demand for products, leading to the absence of suitable investment opportunities and to capital lying idle. This is an example of the charge by Malthus that economists have a tendency to confuse consequences and causes; in his view, the accumulation of capital is not the cause of stagnation; the existence of redundant capital is the consequence of the absence of adequate investment opportunities. It has also been argued by Blaug that “Malthus’ main contribution to the problem of unemployment was the concept of unproductive consumption”, and that Malthus believed the landowner is “the principal unproductive consumer”, and “the prosperity of the community depends on the wealth and spending powers of landlords” (Blaug 1973, 88–​89, 238).There is no doubt that Malthus attributed to landlords a causal influence on general prosperity, and it is certainly true to say that for Malthus the economy “depends” on the spending of the landlords, provided that “depends” is not interpreted to mean “depends solely” or “depends mainly” –​expressions which would ignore the other classes and occupations classified by Malthus as unproductive personal services. This is an example of the multicausal methodology used by Malthus, as distinct from the monocausal approach of Ricardo. According to Harvey (1974, 260), “Malthus’ solution to the problem of effective demand is to rely upon the proper exercise of the power to consume on the part of those unproductive classes –​the landlords, state functionaries, etc. –​who were outside of the production process” (Harvey 1974, 260). The statement that Malthus’s solution is to “rely upon” the consumption of the unproductive classes would not be true if “rely upon” is understood as “rely only upon” or “rely mainly on”. Likewise, the statement: “labor might be

224  Unproductive labour and unproductive consumption unemployed … simply because of the failure of the upper classes to consume” (Harvey 1974, 261) appears to exaggerate the role attributed by Malthus to this particular cause of unemployment, and to underestimate the roles he attributed to other causes, such as the inequality of income and wealth, as discussed in Chapter 13. Malthus has also been said to have argued that an upper economic class of unproductive consumers is essential in the prevention of gluts; in Malthus’s view, gluts would occur “unless a class of unproductive consumers with grand life styles is carefully nurtured and buttressed up” (Khosla 1978, 12). His case for unproductive consumption has been firmly rejected: “Malthus’s attempt to justify the expenditure of the unproductive consumers can be dismissed out of hand” (Bleaney 1976, 55), and has been interpreted as a defence of parasitism: in Malthus’s view, there will only be a market for goods, if there exists a social class whose members receive incomes without having to work, who are consumers without being producers; consumption by non-​producers was a necessary condition for the realization of profit and this could only be achieved by maintaining a parasitic class … His arguments can, therefore, be read as a justification for the continuation of the social order of his period. (Wolff 1983, 70) Spiegel identified Malthus’s unproductive consumers with the landlord class, or with “the idle rich and their servants”. Spiegel appears to have accepted Malthus’s view that the landlords provide an element of social and political stability, and perform a useful social service by raising effective demand to a level that prevents overproduction and stagnation, but appears to have given excessive emphasis to the role of unproductive consumption in Malthus’s theory of growth. He accused Malthus of class bias: “Malthus’s solution of the problem of overproduction is in line with his general preference for the landlord class”, and “represents an attempt on his part to vest this class with the new dignity of an important economic function”. According to Spiegel, Malthus saw the unproductive consumer as “the savior of the economic order”, and Malthus “linked his macroeconomics with an espousal of the landed class”, but he failed to win generous reception for his theories because readers were “repelled by the ideological taint of his macroeconomics” (Spiegel 1991, 297, 298). However, these adverse interpretations of Malthus’s concept of unproductive consumption appear not to have given due consideration to his definition of unproductive consumption. In his Definitions (1827a, 258) he defined “unproductive consumption, or spending” as “The consumption of wealth, as revenue, with a view to the final purpose of all production –​subsistence and enjoyment; but not with a view to profit”. It is interesting to note that this definition of unproductive consumption makes no reference to the distinction between material goods and non-​material services, and would therefore appear to be

Unproductive labour and unproductive consumption   225 a concept that was intended to be quite different from his concept of unproductive labour. In his Definitions (1827a, 248–​249) Malthus defined “productive consumption” as “The consumption or employment of wealth by the capitalist, with a view to future production”, and he added: “The only productive consumption, properly so called, is the consumption or destruction of wealth by capitalists with a view to reproduction”.This suggests that his concept of productive consumption was equivalent to the modern concept of investment. It is an example of the way he sometimes used “consumption” in the narrow sense to refer to the consumption of consumer goods, and sometimes used it in a broader sense to include also the consumption of capital, as discussed in Chapter 2. The term “unproductive consumption”, as commonly used in vituperative attacks on Malthus, conveys an image of wealthy landlords and other persons who derive their incomes with a minimum of personal effort, assisted by an army of menial servants and retainers; but the term “unproductive consumption”, as defined in Malthus’s Definitions (1827a), makes no reference to idle landlords, or menial servants. It carries no implications of a maldistribution of wealth or economic injustice or social bias or parasitism, and indicates that the intense criticisms directed at his arguments in support of unproductive consumption are misdirected and irrelevant. Malthus’s revisions and omissions of the concept of unproductive consumption In the second edition of the Principles Malthus generally, but not entirely, removed the term “unproductive consumers”. The following are three of many such changes. In the first edition, as already quoted, he said: “it is absolutely necessary that a country with great powers of production should possess a body of unproductive consumers” (Malthus 1989b, I, 463), but in the second edition “absolutely” was deleted, and “unproductive consumers” was altered to “consumers not directly productive of material objects”. In the first edition he stated that one of the causes most favourable to an increase of distribution was “the maintenance of unproductive consumers”, but in the second edition this was altered to “the maintenance of an adequate proportion of the society employed in personal services, or otherwise entitled to make a demand for material products without contributing directly to their supply” (Malthus 1989b, I, 427; II, 372). In the first edition he said “the maintenance of a certain body of unproductive consumers is necessary”, but in the second edition “unproductive consumers” was altered to “consumers who are not themselves engaged in the immediate production of material objects” (Malthus 1989b, I, 489; II, 280).

12  Causes of growth and depression Malthus’s theory and alternatives

This chapter begins by considering several theories of the causes of growth and depression, some of which claim to be interpretations of Malthus’s view. It discusses the extent to which these theories appear to be consistent with or in disagreement with Malthus’s thoughts. It then argues that, according to Malthus, a major cause of slow economic growth, and of depressions and gluts, is an inadequate level of aggregate effective demand –​where “demand” is understood to include the demand for investment as well as the demand for consumption. Commentators differ when interpreting Malthus’s views on the causes of demand failure. It is argued in this chapter that, according to Malthus, a fundamental cause of inadequate demand can be the maldistribution of income and wealth, and the remedy he proposed for the maldistribution occurring at that time was a wider distribution of income and wealth, and a reduction of economic inequality.

Overproduction or underproduction The cause of gluts has sometimes been attributed to overproduction, and sometimes to underproduction. The overproduction argument is derived from the fact that a glut is a situation where more goods are produced than can be sold, from which some commentators conclude that overproduction is the cause of gluts. But the logic of Malthus’s position suggests, without stating it explicitly, that overproduction is merely a description of glut, not strictly speaking a cause of glut. It begs the question: what is the cause of glut? An underproduction argument has been derived from the view that production creates demand and the cure for depression is increased production. As discussed in Chapter 9 on Say’s Law, Malthus opposed Say’s Law on the grounds that general gluts could not be corrected merely by policies directed to increasing production, because although an increase of supply or production generates an increase of purchasing power in the hands of the factors of production, it would not necessarily generate an adequate level of effective demand. It has been argued that Say “provided the fundamental insight necessary for understanding all recessions, that the effective demand for goods

Causes of growth and depression   227 is limited by wealth and income, which in turn is limited by the successful sale of goods” (Jonsson, 1999, 968). However, the claim that this was a “fundamental” insight could be doubted. It leaves unanswered the question of what constitutes or brings about a “successful sale of goods”. For any sale of goods to be successful there must surely be a demand for the goods as well as a supply. An insight into the cause and cure of recessions cannot be truly fundamental unless it explains how an adequate level of effective demand can be established.

Saving and oversaving Malthus’s theory of depression has been linked with an oversaving hypothesis, in which oversaving is seen as the initiating cause of overproduction and depression (see, for example, Davis 2003, 134). It has been said that Malthus attributed the problem of demand failure to oversaving: “people saved and invested so much that there was under-​consumption leading to a fall in prices and profits” (Jha 1979, 39). However, the view that for Malthus the cause of gluts is excess saving is disputable. As argued in Chapter 2, although he recognised that savings are an essential cause of growth, he also argued that savings are not a sufficient cause. They will not promote growth unless they are accompanied by adequate investment opportunities, which in turn require an adequate demand, actual or expected, for the products of the investments financed by the savings. A deficiency of investment opportunities would not be cured merely by an increase in savings. In Malthus’s view, excess savings could occur, and will take the form of redundant savings, but it would not be strictly true to describe his position as an oversaving theory if oversaving is understood to be the deliberate purpose of the savers. The primary goal of savers, according to Malthus, would normally be to invest; their savings would usually be intended and destined for investment, and would merely be a means to this end, not the end itself. Their oversaving would occur primarily, not because they had been too parsimonious, or had been reluctant to invest, or had preferred to occupy their time gazing at and counting their gold, but because they were unable to find suitable investment outlets. In his view, excess or redundant savings are usually unintentional savings, and occur primarily as a consequence of a deficiency of suitable investment opportunities. John Toye has commented (2000, 194):“Malthus was quite emphatic that the capitalist sector could not invest its way out of general glut”, but as interpreted in Béraud and Numa (2018, 231), Malthus held that “crises resulted from too rapid capital accumulation”. Another interpretation is that, for Malthus, capital accumulation and redundant savings are a concomitant or consequence of the deficiency of adequate investment opportunities. He did not signal capital accumulation per se as the cause of recession, and his theory of growth could not therefore be strictly defined as a capital-​accumulation theory. Malthus

228  Causes of growth and depression believed that confusion between causes and effects is all too frequent in political economy.

Investment as a cause of growth As argued in Chapter 2, Malthus believed that investment is often a desirable and necessary cause of economic growth, but he also argued that an increase in the investment funds available to eager investors will not by itself be a sufficient stimulus for growth or a sufficient remedy for depression; it will not succeed unless accompanied by increases in the effective demand for the intended products. In a depression “Capital would be seeking employment, but would not easily find it; the profits of stock would be low. There would be no pressing and immediate demand for capital, because there would be no pressing and immediate demand for commodities”. Without increased consumer demand, attempts to increase investment would merely add to the distresses of the capitalists (Malthus 1989b, I, 492). It should be remembered that when Malthus referred to the employment of capital with a view to production –​or in other words, when he referred to what we would now call “investment” –​he was referring to the creation of an additional supply of material goods and their being offered for sale in the market, which would have been useless as a cure for depression, given that the market was already overstocked with material goods.

Overinvestment as a cause of depression Joseph Schumpeter believed that Malthus’s theory of stagnation was based on the idea that stagnation occurs because of an excess of investment, leading to increased production and a fall in prices and profits, and leaving no motive for further increases of production. The overinvestment interpretation of Malthus’s theory of depression has recently been restated: “for Malthus, general gluts stem from too much investment that expands production in relation to final demand” (Smith, M. 2020, 74). But although overinvestment is a common characteristic of depression, it would not be strictly accurate to describe his theory of depression as an overinvestment theory. As well as saying that depression cannot be cured merely by increasing investment, Malthus argued that, although individual firms may suffer from unwise investments or hazardous attempts to invest, general depressions are caused not by the rash actions of overconfident investors, but by the absence or collapse of suitable investment opportunities.

Satiation of wants It has been argued that Malthus’s reason for objecting to Say’s Law, and for maintaining the possibility of gluts, was his belief in the satiation of wants. For example, “Malthus’s objections to the idea that supply creates its own demand

Causes of growth and depression   229 arise from his claim that, in the short run, the desires of mankind are easily satiated and may be practically considered as fixed”; according to Malthus, “the critical reason for a general glut was the satiation of wants in the short run” (Rashid 1987, 288–​289); “the hinge on which Malthus’s entire model of gluts turns is the satiability of consumer tastes in the short run” (Rashid 1977, 383; original emphasis); and “the argument from satiation of wants was the central one employed by the dissenters from Say’s Law” (Rashid 1977, 370; original emphasis). Much could be said, for or against, this satiation-​of-​wants hypothesis as a cause of depressions. In support, it is certainly true that effective demand requires both the means of purchasing and the motive to purchase, and that if wants are satiated there will be no motive to purchase, and no effective demand for products; there will be a glut of existing products and reduced levels of future production and employment. Against a satiation-​of-​wants hypothesis it could be argued, firstly, that satiated wants will not necessarily be a feature or cause of depressions. They can also be a sign of economic comfort, affluence, and full employment. Secondly, in common with other theories of the cause of growth and the cure for depression, the satiation-​of-​wants theory does not immediately lead to an effective and feasible policy. If growth can occur only if some wants remain unsatiated, do we encourage people to have more wants, or make it difficult for them to satisfy their existing wants? And, irrespective of whether the satiation-​of-​wants is a plausible theory of gluts and whether a reduction of wants a feasible remedy for gluts, there remains the question of whether it was an argument used by Malthus, and was it the “critical reason” or “the” central argument used by Malthus in explaining the cause of depressions. However, despite these reservations about the centrality of want-​satiation in Malthus’s theory of gluts, one would have to agree that Malthus was very concerned about the adverse effect of an inadequate level of desires. Frequent statements can be found in which Malthus emphasised the need to elevate desires and aspirations. Malthus insisted that wants are necessary for growth, but to say that wants are a necessary cause of growth is not to say they are a sufficient cause, or the only cause, or the central cause. Malthus argued that desires to purchase will be of little avail if not accompanied by adequate purchasing power. He did not regard desires as more essential than purchasing power, or purchasing power as more essential than desires. The combination of both desire and purchasing power is seen in his frequent references to the roles of will and power, or of motives and means, in political economy. He was in effect restating the traditional philosophical distinction between final causes and material causes. It has been argued that, according to Malthus, overproduction and gluts occur because of “some absolute limit to the willingness to consume”, because “recessions were created by some absolute limit on people’s willingness to consume”, and because there is “an unwillingness by consumers (and investors in real goods) to buy the goods of capitalists” (Jonsson 1995, 148). However, it is difficult to find text evidence to support this interpretation of Malthus. In

230  Causes of growth and depression particular it is countermanded by the emphasis given by Malthus to the desire of bettering our condition (see Pullen 2019a). It has been further argued that, according to Say, the answer to the question “what causes consumers not to want to buy the capitalists’ goods” is “a coordination failure, a failure by capitalists to produce the exact mix of goods consumers want to buy” (Jonsson 1995, 151). Malthus does not ignore or deny the importance of coordination between suppliers and demanders in promoting growth and preventing recession, but the principal tenor of Malthus’s theory of depression is that in a depression the inadequacy of effective demand occurs not because consumers do not want to buy, but because they lack the ability to buy. They do not lack the motive, they lack the means.

Wage reductions Malthus did not agree with the idea that wage reductions could be a cure for depression. In evidence before the 1827 Select Committee he was not asked to address the question at length, but his forceful economic arguments in favour of increases in wages could reasonably be interpreted, at least indirectly, as economic arguments against wage reductions. As Samuel Hollander (1979, 534) has noted, “Malthus recognized the possibility of involuntary unemployment which is not amenable to correction by money wage cuts” (original italics), and as noted in Chapter 7, Malthus rejected the view proposed to him at the Select Committee that wages should not be raised because of the injury that might do to profits, and he did not accept the view that “labour should be kept permanently in a state bordering on distress”. He regarded such a view as “by no means fitting” (Malthus 1827b, 317, question 3281). His argument against money-​ wages reductions as a cure for depression reinforces the Keynes–​Malthus linkage.

Deficiency of aggregate effective demand and investment opportunities In my view, as outlined in Pullen 2016a, Malthus’s theory of gluts involved not an excess savings theory or an overinvestment theory, but a “deficiency of aggregate effective demand and deficiency of investment opportunities” theory. Malthus’s position on the question of the causes of depression has been contrasted with that of Keynes who is said to have stressed “the deficiency of investment” and “the failure of investment to soak up all of the savings which have been generated” (Kates 1998, 135, 143), but on this point Malthus’s theory is not too dissimilar from the theory of Keynes, which might even be described as a close replica of Malthus’s theory. Because of Malthus’s belief in the multi-​causality of economic events it is difficult to nominate one single term that adequately describes his theory of depression, but the conclusion of this work, as outlined previously in Pullen 2016a, is that in Malthus’s theory depression and gluts are principally caused

Causes of growth and depression   231 not by overproduction or excess supply, but by an insufficiency of aggregate effective demand, and the remedy is a stimulation of aggregate effective demand for both consumer goods and investment goods, generated by a redistribution of income. His theory could also be described as an underconsumption theory, provided that “underconsumption” is understood to refer to consumption in the broader sense that includes the consumption of investment goods as well as the consumption of consumer goods.

The path to recovery: supply-​side or demand-​side Malthus did not provide a step-​by-​step program showing how an economy could recover from depression. One possible interpretation of his position, one that might be logically deducible from his writings, places emphasis on an alteration in production or supply, as the activating factor in the adjustment process. A possible sequence of causation might be as follows: the excess supply of unsaleable material goods in a situation of glut leads to a reduction of prices and/​or the abandonment of unsold goods, both of which cause a reduction in profits and production, which in turn reduces the supply of savings that can be made out of the reduced profits, and reduces the supply of investment funds that can be made out of the reduced savings, thus causing a further reduction in the glut of goods. This could be described as a supply-​side theory of the path to recovery. It proceeds by a process of self-​correction without government intervention. But does it amount to a true and complete representation of Malthus’s position? It is significant that the supply-​side version of Malthus’s theory of recovery makes no mention of public works as a cure for depression, and no mention of the need for government intervention in the form of political changes, such as a redistribution of landed property rights. It is essentially a laissez-​faire solution to depression, and one that implies that depressions will be automatically self-​correcting through the operation of market forces, or that oversupply has within itself the seeds of its own destruction. It also raises the question: if gluts are self-​correcting, why do they occur? Another view, which could be described as a demand-​side theory of recovery, but which could be regarded as either an alternative or as a supplement to a supply-​side theory, is as follows: Malthus attributed the main cause of depression to deficient demand, and in mapping the course of recovery, he emphasised measures to promote demand, such as public works and policies designed to redistribute income to those with a higher propensity to consume. This demand-​side approach would appear to be a more textually authentic interpretation of Malthus’s position on the path to recovery, but he did not explicitly reject a supply-​side interpretation, and might therefore have regarded the two approaches as complementary. A glut would commonly be seen and described as a situation of surplus supply, but the term “surplus supply” is meaningful only in a relative sense, namely, in relation to demand. It could be described synonymously either as

232  Causes of growth and depression a situation of surplus supply, or as a situation of deficient demand. The phenomenon called “oversupply” is as much a demand phenomenon as a supply phenomenon. The choice between a supply-​ side interpretation of Malthus’s theory of recovery from depression and a demand-​ side interpretation could have important policy implications, and could affect our understanding of the links or differences between Ricardo, Malthus, and Keynes. To privilege a supply-​ side theory of recovery and to ignore demand-​side forces would be to commit another form of Ricardian vice –​the vice of neglecting the possibility of multiple causation, and attempting to interpret Malthus’s macroeconomics in monocausal terms.

13  Distribution, redistribution, and the balance between economic equality and economic inequality

In Chapter VII of his Principles Malthus argued that the continued increase of wealth requires not only the powers of production, but also the means of distribution. The importance he gave to distribution, as well as to production, as a cause of growth, and the emphasis he gave to redistribution and the establishment of a proper level of distribution as possible means of preventing or curing depression, was one of his most important, most distinctive, and most original contributions to macroeconomics. This redistributionist interpretation of Malthus has been ignored or denied by some commentators; for example: Malthus’s work “is seriously marred by his lack of interest in the question of maldistribution”; “Malthus is obsessed with one idea, that the rich cannot be expected to retrench”, and Malthus thought “the whole burthen of the scarcity ought to fall on [the poor]” (Smith, K. 1951, 77); “[Malthus] seemed to imply that the existing distribution of social wealth was acceptable” (Poynton 1969, 162); Malthus was “anxious to deify” existing property relations as “the inviolable construction of the cosmos” (Nicholson 1990, 413); and Malthus “rules out the possibility that the workers’ income might be increased by reducing the consumption of the upper classes” (Stirati 1994, 108). The importance he attached to distribution and redistribution as causes of growth was evident in the first edition of his Essay where he said “the present great inequality of property, is either necessary or useful to society”, and he added: “ On the contrary, it must certainly be considered as an evil, and every institution that promotes it, is essentially bad and impolitic” (Malthus [1798] 1926, 287), and his later writings contain statements forcefully advocating a wider distribution as a means of stimulating effective demand and economic growth. For example: •

In the first edition of the Principles: “no instance as ever been known of a country which has pushed its natural resources to a great extent, with a small proportionate body of persons of property, however rich and luxurious they might be”, and “Practically it has always been found that the excessive wealth of the few is in no respect equivalent, with regard to effective demand, to the more moderate wealth of the many” (Malthus 1989b, I,

234  Economic equality and economic inequality 431). In the “Summary” attached to the first edition of the Principles, the phrase “is in no respect equivalent, with regard to effective demand” was rendered as: “is never equivalent, in effective demand” (Malthus 1989b, I, 581). In the second edition of the Principles, page 375, the wording of this statement is the same as in the first edition, except that “effective demand” was changed to “effectual demand” (Malthus 1989b, II, 269). • “a very large proprietor, surrounded by very poor peasants, presents a distribution of property most unfavourable to effective demand” (Malthus 1989b, I, 429; in the second edition “effective” was altered to “effectual”). • “Thirty or forty proprietors with incomes answering to between one thousand and five thousand a year, would create a much more effective demand for wheaten bread, good meat, and manufactured products, than a single person with a hundred thousand a year” (Malthus 1989b, I, 430; in the second edition “effective demand … manufactured products” was altered to “effectual demand for the necessaries, conveniences, and luxuries of life”). • “a better distribution of landed property might exist than that which actually prevails in this country at present; and … to make it better, the distribution should be more equal” (Malthus 1989b, I, 439). • “a more equal distribution of landed property might be better than that which actually prevails” (Malthus 1989b, I, 582). These statements in favour of a wider distribution of landed property were expressed simply and mildly without the slightest hint of rancour, aggression, envy, or class hatred, but are a powerful and radical indictment of the existing social order. If Say’s theory, when expressed as “supply creates its own demand”, is deemed worthy to be awarded the honorific title “Law”, then it would be appropriate if these statements by Malthus, expressing one of his most distinctive contributions to macroeconomics, were to be known as “Malthus’s Law” or “Malthus’s Law of Equality–​Inequality Balance”. The following statement was made by Malthus in his attempt to establish the distinction between productive and unproductive labour, but it also has redistributionist implications: “the productive labourers at the same time that they obtain wealth, and the means of accumulation for themselves, furnish a large surplus to that other important class of society which lives on the profits of capital” (Malthus 1989b, I, 33). This statement was in effect saying the efforts of the labourers contribute to the profits of the capitalists, and could be used to sanction a redistribution of the products of industry. It might even be used to support Marx’s view that Malthus’s theory of profits was based on alienation. However, it was not presented by Malthus in the context of his theory of profits or his policy of redistribution, and was not integrated by Malthus into his formal treatments of those topics. It does not exclude causal contributions other than those from labourers, and does not claim that labourers should be

Economic equality and economic inequality  235 the sole beneficiaries. It could be interpreted as a statement of class cooperation rather than class warfare. For further quotations of anti-​redistributionist and pro-​redistributionist interpretations of Malthus, see Pullen 2016a, 18–​19. Malthus saw the process of distribution not merely as a division of the production proceeds between the factors of production, and not merely something that occurs after production, but also as a determinant of production. Ricardo placed great emphasis on distribution. In a letter to Malthus on 9 October 1820 he wrote: Political Economy you think is an enquiry into the nature and causes of wealth –​I think it should rather be called an enquiry into the laws which determine the division of the produce of industry amongst the classes who concur in its formation … Every day I am more satisfied that the former enquiry is vain and delusive, and the latter only the true objects of the science. (Ricardo 1973,VIII, 278–​279) Referring to the proportions of the whole produce of the earth which will be allotted to the three classes –​proprietors of land, owners of capital, and labourers –​he said “To determine the laws which regulate this distribution, is the principal problem of Political Economy” (Ricardo 1973, I, 5). In his 315 Notes on Malthus’s Principles (see Ricardo 1973, II), Ricardo did not comment on Malthus’s arguments in favour of a wider distribution of property and income, as listed in the bulleted quotations above. For Ricardo and in most of classical political economy, the distribution problem was the problem of sharing portions of the product between the factors of production; it was a pie-​sharing problem. Malthus argued that the way in which the revenue from the produce is divided can have an effect on the size of the produce. Malthus sometimes used “distribution” in the sense of the allocation, partition, or allotment of the revenue or output of a business enterprise between the factors of production; and he also sometimes used it in the sense of physical transport (see, for example, Malthus 1989b, I, 414, 415; II, 264). His expression “means of distribution” has been interpreted in the latter sense: for example, “Malthus considers the ‘means of distribution’ to depend heavily on the scale and scope of the transport and communications network” (Smith M. 2020, 68). But, in discussing the causes of growth, Malthus used “means of distribution” in the wider sense of the sharing between social classes –​which Bonar described as the older and looser sense: Ricardo, with Say and James Mill, uses Distribution in what is now the common acceptation among economists, allotment among producers of their several shares in the product; Malthus clings to the older and looser sense of sharing amongst consumers generally. (Bonar 1929, 214)

236  Economic equality and economic inequality In Chapter VII of the Principles this wider usage of “distribution” is evident in the titles of Section VII, “Of the Distribution Occasioned by the Division of Landed Property”, Section VIII, “Of the Distribution Occasioned by Commerce, Internal and External”, and Section IX, “Of the Distribution Occasioned by Unproductive Consumers” (Malthus 1989b, I, vi), in which “distribution” is used in a sense much wider than merely transport and communications, and in a sense much wider than sharing portions of a pie. A contrary view was presented by Michael Bleaney, who argued that it was Ricardo, not Malthus, who referred to distribution between social classes, whereas Malthus’s concept of distribution referred to the prices of factors of production; it implies “the primacy of the individual commodity as the starting point for the analysis of the whole economy”; it “lost sight of the distribution of the product amongst the social classes”; and it obscured “the real issues in the general glut debate” (Bleaney 1976, 52–​53). But to argue that Malthus lost sight of the distribution of the product amongst social classes, one would have to overlook his frequent references to landlords, labourers, lower classes, middle classes, etc. –​references too numerous to recite here, but readily found by a quick search of the indexes to modern editions of the Essay and the Principles, and discussed at length in Pullen 2019b. For Malthus, distribution is as important as production in the growth of wealth: “a proper distribution of the produce is as necessary to the continued increase of wealth as the means of producing wealth” (Malthus 1989b, I, 482), and “the distribution of wealth to a certain extent [is] one of the main causes of its increase” (Malthus 1989b, I, 507; original emphasis).

Distribution, as a factor of production Malthus appears to have regarded distribution as a factor of production, although not specifically calling it a “factor of production”, and thus appears to have been arguing that the concept of factors of production should not be restricted to the conventional grouping of land, labour, and capital (see Pullen 2001, 177). His intention seems to have been to show that distribution is an effective and powerful force in the production process. The macroeconomics developed by Malthus demands that the classification of factors of production be expanded to include, not only the role of government, as argued above, but also the role of distribution. In this respect, by bridging the gap between production and distribution, he gave to his macroeconomics a distinctive feature rarely found among his contemporaries, and a feature that makes it a significantly different version of classical political economy, or an alternative to classical political economy. Malthus was concerned to show how the distribution of aggregate income and wealth throughout the economy and between various income levels, and the pattern of ownership of land and other natural resources, have significant effects on general economic well-​being. Such questions are sometimes deemed to belong to politics or sociology or philosophy or ethics. In Malthus’s view “the science of political economy bears a

Economic equality and economic inequality  237 nearer resemblance to the sciences of morals and politics, than to the science of mathematics” (Malthus 1989b, I, 518). Excessive distribution However, despite these strong arguments in favour of a wider distribution, Malthus unsurprisingly warned of the danger of an excessive distribution, in keeping with his doctrine of proportions: “the division of landed and other property … to a certain extent must be beneficial, and beyond a certain extent prejudicial to the increase of wealth” (Malthus 1989b, I, 433); and “the distribution so occasioned will, as it extends, continue to produce a more favourable effect on wealth, till it meets its antagonist principle, and begins to interfere with the power of production” (Malthus 1989b, I, 439). Despite his criticism of the existing distribution of private property, he did not doubt the essential role of the institution of private property, and he strongly opposed the communitarian notions of William Godwin. He was not advocating equalisation in the Communist or Marxist sense. As mentioned elsewhere (Pullen 2010, 83), he argued that the bounties of nature cannot be shared by all alike; he did not advocate an equal sharing of the value of land and other natural resources as later proposed by Thomas Spence or Henry George. He believed there would always be proprietors as well as labourers. The dominant theme of his pro-​redistributionist ideas was not absolute equality or no inequality, but greater equality or less inequality. He seems to have been arguing that a moderate degree of inequality is both inevitable and economically desirable, but that a redistribution from rich to poor could be carried too far –​or, using modern terminology, that if an insufficient proportion of income goes to the higher-​income classes who have a higher propensity to save and invest, there could be a deficiency of investment, which could be just as much an impediment to economic growth as a deficiency of consumption. For Malthus, the problems of economic depression and slow economic growth will not be solved until the distribution problem is resolved.

The middle classes His emphasis on a wider distribution of land and other forms of wealth led him to an equivalent emphasis on the role of prosperous and expanding middle classes. He regarded the middle classes as the most favourable source of effective demand: “there is nothing so favourable to effectual demand as a large proportion of the middle classes of society” (Malthus 1989b, II, 261, 444–​445). He argued that the consumption expenditure by merchants, manufacturers, and landlords, and the consumption by “capitalists themselves and of their workmen, may still be insufficient to keep up and increase the exchangeable value of the whole produce”, and would not generate an adequate market (Malthus 1989b, I, 466; with some alterations in the second edition of the Principles, see Malthus 1989b, II, 276). It needs to be supported by the

238  Economic equality and economic inequality consumption expenditure generated by the other classes, especially the middle classes. Contrary interpretations ignoring or denying the importance given by Malthus to the expenditure generated by the other classes, can be found in the secondary literature –​for example, “Despite his concern for the common man, Malthus reflected the pre-​Smithian focus on the consumption of the wealthy versus that of the masses of the people” (Bowman 1951, 10). Malthus’s views on the importance of the middle classes are discussed more fully in Pullen 2019b. Malthus objected to the view of William Paley that the condition most favourable to the population and general happiness of a country is “that of a laborious frugal people ministering to the demands of an opulent, luxurious nation” (see Paley, Natural Theology, quoted in Malthus 1989a, II, 193). In a masterly understatement, Malthus responded: “Such a view of society has not, it must be confessed, an inviting aspect”. He added: Nothing but the conviction of its being absolutely necessary could reconcile us to the idea of ten millions of people condemned to incessant toil, and to the privation of everything but absolutely necessaries, in order to minister to the excessive luxuries of the other million. But the fact is, that such a form of society is by no means necessary. (Malthus 1989a, II, 193) It would be interesting to know what Malthus thought of Paley’s comment: “The laws which accidentally cast enormous estates into one great man’s possession are, after all, the self-​same laws which protect and guard the poor man” (Paley, Works, I, 199; quoted in LeMahieu 1976, 25). He did not argue that everyone should belong to the middle class and that the middle class should be the only class. Such a situation would be neither necessary nor desirable: it is evident that all cannot be in the middle. Superior and inferior parts are in the nature of things absolutely necessary; and not only necessary but strikingly beneficial. If no man could hope to rise or fear to fall in society; if industry did not bring with it its reward, and indolence its punishment; we could not expect to see that animated activity in bettering our condition which now forms the master-​spring of public prosperity. (Malthus 1989a, II, 194) Malthus’s emphasis on the importance of the middle classes and on a reduction of economic inequality is utterly incompatible with the commonly expressed view that he was a lackey of the landlords, or that he believed a higher income share for the landowners would always be beneficial to aggregate production and to the economy as a whole –​see, for example, the statement that, for Malthus, “The prime mover of production is not the yield of land but the spending power of landlords” (Blaug 1958, 81).

Economic equality and economic inequality  239 These statements by Malthus advocating a wider distribution of income and wealth and an expanded middle class are rarely emphasised in the secondary literature, but are extremely significant for his macroeconomics. Malthus’s theory of growth and depression has been variously described as an underconsumption theory, an overinvestment theory, an oversaving theory, etc., but it would be more appropriately described as a maldistribution or redistribution theory, although such a single-​word description would not adequately recognise his multicausal methodology. Marginal propensity to consume Malthus did not explicitly invoke the principle of marginal propensity to consume, as later developed by Keynes, but he clearly implied its essential concept, namely, as income increases, the proportion of income used for expenditure on consumer goods tends to diminish and the proportion saved tends to increase. Some might argue that Malthus did not articulate a “formal” statement of the principle, and therefore cannot be acknowledged as a precursor; but that argument rests on the assumption that “formal” is synonymous with “algebraic” or “mathematical”, and forgets that it can be legitimately used in other senses. If you receive an invitation to a function where dress is formal, this does not mean you have to cover yourself with algebraic symbols. Malthus’s use of the concept of diminishing marginal propensity to consume supported his conclusion that increasing inequality of income and wealth could lead to a reduction in aggregate effective demand and to depression. He appears to have been arguing that, in an exchange involving one party who supplies goods or services and receives money in return, and another party who supplies money and receives goods or services in return, the way in which the first party uses and distributes the money received will obviously have a bearing on future transactions. Assuming a situation in which there is no deliberate long-​term hoarding of money, the overall level of demand and production will be affected by the relative levels of the propensity to consume and the propensity to invest of the recipient of the money. If the recipient has a high propensity to save and invest rather than consume, or if the propensity to save and invest increases over time, the proportion going to consumption will tend to decrease, and the effective demand for consumer goods will relatively decline. Profitable investment opportunities might therefore decline, and the result could be a depression or glut. On the other hand, Malthus also argued that greater equality in the distribution of income could result in a higher overall level of the propensity to consume and, unless carried too far, would tend to stimulate economic growth. As Malthus said: “Consumption, therefore, is the main fundamental cause of production” (Malthus 1827a, 98). It has been argued that “Malthus confines his argument to the distribution of profits (and rent) income among the property-​owning classes, ignoring the more general case of the distribution of national income between profits and wages and of wage income among wage-​owners” (Smith, M. 2020, 73).

240  Economic equality and economic inequality A contrary view is that, when arguing that economic growth will be affected by changes in the distribution of incomes, Malthus made no distinction between wages, profits, and rents. Malthus pointed out (see Pullen 2016a, 37–​42) that the propensities to consume, save, and invest will be affected by the degree of inequality of income and wealth in the community, and on the distribution of income between the social classes, between the rich and the poor, between labour and capital, between the old and the young, and between proprietors and peasants. Redistribution by government Having placed considerable emphasis on maldistribution as a cause of depression, and on the redistribution of income and wealth as a cause of growth, provided the redistribution is not excessive, it is strange that Malthus did not articulate a more definite theoretical link between government expenditure and redistribution. One of his most telling arguments for redistribution was, as quoted above: “Practically it has always been found that the excessive wealth of the few is in no respect equivalent, with regard to effective demand, to the more moderate wealth of the many” (Malthus 1989b, I, 431). From this it would have been a logical deduction to argue the theoretical case for at least some degree of government intervention as a means of enhancing “the more moderate wealth of the many”. Nor did he enunciate a government program of monetary or fiscal initiatives to achieve wider distribution. Malthus’s arguments in favour of a wider distribution of income and wealth and a reduction in the degree of economic inequality are found mainly in his Principles of Political Economy, but an early intimation of his ideas on those issues can be seen in a letter, written soon after the publication in 1798 of the Essay on Population to William Godwin on 20 August 1798 in which he spoke of “the extreme desirableness” of “the abolition of all unnecessary labour, and the equal division of the necessary labour among all the members of the society”, while at the same time preserving “the present structure of society” with “the existence of a class of proprietors and a class of labourers, [with] the system of barter and exchange, [and] the general moving principle of self-​love”, and “without the interference of Government”, which he would reprobate (in Kegan Paul 1876, second volume, 322, 323). But the first edition of the Essay also stated his reluctance to commend government intervention in the distribution of wealth: whether a government could with advantage to society actively interfere to repress inequality of fortunes, may be a matter of doubt. Perhaps the generous system of perfect liberty, adopted by Dr. Adam Smith, and the French Œconomists, would be ill exchanged for any system of restraint. (Malthus [1798] 1926, 287) This reluctance is also evident in the following alteration in the second edition of the Principles. In the first edition he had said:“one should be extremely

Economic equality and economic inequality  241 cautious of trusting to any government the means of making a different distribution of wealth, with a view to the general good”; in the second edition, “one should be extremely cautious of trusting to any government” was altered to “no one would think of trusting to any government” (Malthus 1989b, I, 481; II, 279, 461).The alteration emphasises his adherence to the principle of laissez-​ faire, but raises a problem in interpreting his argument that a wider distribution of wealth is one of the most important causes of economic progress. By what means will a redistribution be effected if the government is not to be trusted? It would be many years after Malthus before redistributive policies such as a progressive rate of income taxation and the welfare state came to be implemented.

Inequality, growth, and depression Although Malthus has been praised by some commentators for introducing some particular concepts –​notably, the threat of overpopulation, and the importance of effective demand –​he has also been said not to have presented a satisfactory theory of growth, and not to have provided an adequate theory to explain depressions in general or to counter Say’s Law in particular, because he did not articulate a convincing explanation of how aggregate effective demand could be moved to a satisfactory level. It has been argued that his program of practical policies was left in a deficient state, because although a wider distribution of wealth might be desirable, he did not propose a feasible means of achieving it. He is accused of leaving an unbridgeable gap or missing link in his theory of growth and in his theory of depression. Having argued that aggregate demand deficiency can be responsible for a general recession, he was faced with the problem of how such a deficiency can be prevented or cured. For Say, who argued that such a deficiency was impossible, that problem did not arise; but for Malthus there was no missing link; a wider distribution of income or a reduction in economic inequality provides the link in his theoretical structure. He saw it as an essential determinant of economic growth, and an essential component of a cure for depression. Malthus did not set out to provide a specific treatise on equality and inequality, being more specifically concerned with aggregate growth and depression, but in recommending a wider distribution of income and wealth to promote growth and remedy depression he was, in effect, also making a strong case for a reduction in economic inequality. The statement that could be dubbed “Malthus’s Law of Greater Equality” –​namely, “the excessive wealth of the few is never equivalent in effective demand to the more moderate wealth of the many” –​is a most persuasive case for greater economic equality. Malthus argued that too much equality can be as harmful as too much inequality, and that, in assessing the situation in Britain at that time, the aim therefore should be not absolute equality, but a lower level of inequality. Malthus appears to have been moderately optimistic about the feasibility and possibility of reaching a proper balance between equality and inequality, despite the obvious difficulties of implementation. He did not explicitly discuss the

242  Economic equality and economic inequality political and social difficulties that would be encountered in attempts to change the distribution of income in a way that reduces the degree of economic inequality, and he did not provide a formula, or a set of equations, that could be used to calculate the optimum balance between equality and inequality for any economy, or to prove unequivocally that an optimum balance had occurred. He believed that each movement of an economy towards an optimum balance between equality and inequality would tend to improve economic conditions, but he also recognised that it would be difficult to know whether a particular improvement in economic conditions was due to a movement towards an optimum balance, or due to a movement in one or more of the many other possible causes of economic growth. The task of reaching and recognising an optimum balance between equality and inequality faces difficulties and challenges similar to those faced in finding an optimum balance for any other economic variable, as outlined in Chapter 1 on the doctrine of proportions. But the inability of Malthus, and of every other economist since Malthus, to provide a glib response to these challenges does not detract from his achievement in bringing the equality–​inequality problem to the fore, and in showing how it occupies an integral part of the macroeconomy. He did not succeed in defining the optimum pattern of distribution for Britain or any other economy, but he showed that the pattern of distribution, whatever it may be, will have an effect, good or ill, on aggregate production and standards of living. His arguments lead to the conclusion that progressive movement towards an optimum distribution should be recognised as a major economic goal, and even if an absolute optimum is unachievable, there should be general recognition that some patterns of distribution of aggregate income are more economically beneficial than others.

14  Malthus and recent debates on economic inequality

If any doubts are raised concerning the relevance of Malthus’s macroeconomics to modern economic problems and policies, it is only necessary to look at the similarity of his thoughts on economic inequality with those of modern commentators. This chapter looks at five important studies dealing with the equality–​inequality question that have been published in recent years –​ Wilkinson and Pickett (2011),Waterman (2014), Piketty (2014), Stiglitz (2015), and Atkinson (2015) –​and compares them with Malthus’s ideas, although these recent studies do not refer to Malthus’s views on this question, and do not recognise Malthus as a protagonist for greater economic equality. In 2010 Richard Wilkinson and Kate Pickett published The Spirit Level. Why Greater Equality Makes Societies Stronger, with a paperback version in 2011, containing an exhaustive survey of the level of inequality in many countries, and highlighting the recent trend towards greater inequality. They paid particular attention to the personal and social problems it appears to have been generated, and to the measures adopted or suggested to counteract it. They showed that “the more equal countries often get their greater equality through redistributive taxes and benefits and through a large welfare state”, although they also noted that some countries, like Japan, manage to achieve low levels of inequality before taxes and benefits, and so have less need for large-​scale redistribution. They noted that “the argument for greater equality is not necessarily an argument for big government”, but they also noted that “governments have usually not pursued egalitarian policies until they thought their survival depended on it” (Wilkinson and Pickett 2011, 241, 245, 247). The argument Malthus put to the Select Committee on Artizans and Machinery in 1824 in favour of trade unions as a means of raising the living standards of the working classes has a parallel in the idea of Wilkinson and Pickett that trade unionism might be an equalising force. They stated (245) that “in this study, declines in trade union membership were most closely associated with widening income differences”, but they also asked: “how much of the widening differences in earnings is due to weaker trade unions and how much is due to a decline in demand for unskilled labour?” The emphasis given by Malthus to government as a factor of production has a parallel in their view that “the major changes in income distribution in any country are almost never

244  Malthus and recent debates on economic inequality attributable simply to market forces influencing wage rates” (Wilkinson and Pickett 2011, 243). A significant difference between Malthus and The Spirit Level is the greater emphasis given by Malthus to the redistribution of landed property as a means of promoting economic growth. In 2014 Anthony Waterman published a review of the Spirit Level, commending the authors for having provided persuasive and plausible evidence linking greater inequality with poverty, misery, and social evils, but at the same time saying (Waterman 2014, 38) that the link is suggestive and possible, rather than strictly causal and necessary, and indirect rather than direct. He rightly asked: is inequality necessarily bad, and will greater equality always and necessarily result in a better society and better lives for individuals? In some disadvantaged areas of the world today, there is a high level of equality, but it is an equality of poverty, misery, starvation and premature death. In saying that an advantage of inequality is that it provides an incentive for the humble to rise, Waterman has echoed an idea expressed by Malthus. The seemingly unstoppable movement of modern economies towards greater inequality in the distribution of wealth and income was highlighted in 2014 in the publication of Capital in the Twenty-​First Century by Thomas Piketty, based on extensive statistical evidence. Its emphasis on the importance of distribution was reinforced in the following year with publication by Piketty of the article “Putting distribution back at the center of economics”. When Malthus reached the same conclusion in 1820, he could never have expected it would one day be corroborated in such a remarkable syzygy of theoretical analysis and empirical research. Piketty’s proposals for slowing or reversing the growth of inequality included radical measures such as greater progressivity in the income tax scales, and a global capital tax, the latter not considered by Malthus and probably never advocated or even conceived by any other major economist in Malthus’s era. Malthus’s proposed policy of a wider distribution of landed property, as a cure for depression and a stimulus for growth, did not figure prominently among Piketty’s reform proposals. Piketty acknowledged that a global tax on capital is “a utopian idea. It is hard to imagine the nations of the world agreeing on any such thing anytime soon” (515), and “Many people will reject the global tax on capital as a dangerous illusion, just as the income tax was rejected in its time, a little more than a century ago”. Piketty added: “When looked at closely, however, this solution turns out to be far less dangerous than the alternatives” (516). If Piketty had considered Malthus’s proposal for a wider distribution of landed property, would he have concluded that it also is a dangerous illusion? It would be interesting to speculate on what Malthus might have thought of Piketty’s idea that one of the reasons for the disproportionate movement of income and capital towards the higher economic classes is that the rate of return on capital (r) is greater than the rate of growth of the economy (g). I wonder whether Malthus would have responded by referring to his views on the meaning of the terms “consumption” and “capital”, as discussed above. If “consumption” is used in the broad sense, as used by Malthus and initially

Malthus and recent debates on economic inequality   245 accepted by James Mill, to include not only expenditure on consumer goods, but also expenditure on capital goods, then the distinction between consumption and capital is obscured, with expenditure on capital goods being regarded as a form of consumption. Expenditure by employers on the wages of employees might have been regarded by Malthus as a form of capital expenditure which is as necessary to production as expenditure on machinery and factories. The employees’ expenditure of their wages on consumer goods, such as food, clothing, and accommodation would be classified in modern economics as consumption expenditure rather than capital expenditure, but without that sort of expenditure the employees could not survive, and without its employees the company could not survive; therefore, in Malthus’s terminology the company’s expenditure on the wages and hence on the consumption needs of its employees would have to be included in its total capital expenditure, and if Malthus had been asked to calculate the rate of return on capital, he would have expressed the returns as a percentage of its total capital expenditure, not merely as a percentage of its expenditure on what modern terminology would describe as capital expenditure, which means that the rate of return on total capital would be lower, because, in calculating the percentage return on capital, the denominator in the calculation would be higher, and therefore the rate of return on total capital would be closer to, or might not exceed, the rate of growth of the economy, or in other words, (r) could be closer or equal to (g). It follows that Malthus might not have agreed with Piketty in thinking that an excess of (r) over (g) would be a significant cause of the trend towards increasing inequality of income and wealth. However, although Malthus did not develop his theory of growth by comparing the rate of growth of capital and the rate of growth of the economy, his reasoning and his conclusions appear to be similar to Piketty’s if the rate of growth of investment is compared with the rate of growth of consumption, interpreted in its usual modern sense of the consumption of consumer goods as distinct from capital goods. The importance of the proportionate shares of investment and consumption was an essential feature of Malthus’s theory of growth and depression. He argued that a decrease in the share of consumption would lead to a decrease in the effective demand for consumer goods, which would lead to a decline in the production of consumer goods, and to a decline in the profit prospects of producers, followed by a decline in investment and national income. On the other hand, an increase in the proportionate share of consumption, would lead to “its antagonist principle”.There would be a reduction in the share of savings, and a decrease in the funds available for investment, and then a fall in production and national income. There thus appears to be a marked similarity between Malthus and Piketty on the importance of obtaining an optimum balance between consumption and investment. Malthus would certainly have been pleased with Piketty’s view that economic questions relating to issues such as economic growth and economic inequality cannot be adequately addressed in isolation from politics. Piketty argued:

246  Malthus and recent debates on economic inequality The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms … The history of inequality is shaped by the way economic, social, and political actors view what is just and what is not, as well as by the relative power of those actors and the collective choices that result. It is the joint product of all relevant factors combined … How this history plays out depends on how societies view inequalities and what kinds of policies and institutions they adopt to measure and transform them. (Piketty 2014, 20, 35) The importance of political and ethical considerations in the formation of economic policies was also emphasised by Malthus. This can be seen, for example, in his attitude to the Corn Laws, where an important part of his case for retention was that Britain’s reliance on food imports could have been jeopardised in times of war. His reluctance to support the abolition of primogeniture, even though he recognised that abolition could lead to a wider distribution of effective demand, was motivated by his belief in the political stability of the British Constitution and on the need for the coexistence of the upper, lower, and middle classes. His acceptance of wider enfranchisement under the Reform Act of 1832 was tempered by fear of possible political disturbances and threats to private property. In 2015 Joseph E. Stiglitz published The Great Divide, recording the remarkable development of economic inequality in recent years, and exploring possible solutions. He stated that “there has always been inequality. There always will be”, and the aim should be not to eliminate it but to moderate it (113, 187) –​an aim replicating that of “Malthus the moderate” –​and like Malthus he saw an important remediating role for collective bargaining. An even more important similarity is seen in the role to be taken by the middle class. Stiglitz argued that the best way to grow is to build out from the middle, not to trickle down from the top (106): “A trickle-​down economics is a myth” (268),“Trickle-​down economics does not work” (408). Policies designed to bolster the rich in the expectation that their expenditure on investment and consumption will benefit the poor, have led to a redistribution from the bottom to the top, to a siphoning of money off from the poor (201), and to more wealth appropriation by the top (277). The importance of an affluent middle class, as stressed by Malthus, was also stressed by Stiglitz: “Only with a vibrant middle class can the economy fully recover and grow faster. The more inequality, the slower the growth” (146); “Economists … have come to realize that excessive inequality is bad for growth and stability” (200); and “Inequality weakens our economy, undermines our democracy, and divides our society” (213). Such cogent arguments for development of the middle classes would have delighted Malthus. Stiglitz’s view is that economic inequality is the result, not of the free play of economic forces, and is not due to inexorable laws of economics (301), but is a consequence of political factors.This echoes Malthus’s view that economic growth in Britain at the time required a redistribution of

Malthus and recent debates on economic inequality   247 landed property, but that this redistribution would require a major reform of the laws of land ownership. Malthus’s macroeconomics is predicated on the role of effective demand, and on the link between effective demand and income inequality, and this link is forcibly expressed in Stiglitz’s statement: “the main reason for the weakness in our economy was the lack of demand, and a main reason for that was our inequality” (376). Malthus’s opposition to a policy of wage reduction as a cure for depression recurs in different words, but with similar cogency, in Stiglitz’s statement: “low wages and incomes would simply reduce demand, weakening the economy further” (400). On the relation between wages and growth, Malthus strongly argued (see Chapter 8) in favour of higher wages in Britain in 1820, not merely for humanitarian reasons, but also to stimulate effective demand and growth. Stiglitz’s position on wages was similar. He opposed the mainstream view that downturns would correct themselves if wages are reduced, and argued that on the contrary “lower wages and incomes would simply reduce demand, weakening the economy further” (Stiglitz 2015, 400). Stiglitz also proposed a minimum-​wage policy, but this was not considered by Malthus. Anthony Atkinson recognised that measures to reduce inequality could have “some negative effects on the size of the cake”, but has argued that there is no general presumption that this will happen, or that the rate of growth will be harmed.The a priori view that there is an inevitable conflict between equity and efficiency is not borne out by an examination of the underlying assumptions. (Atkinson 2015, 262) As outlined above, Malthus insisted that the aim was to reach a lower level of inequality and a less unequal society, not to achieve absolute equality. That moderate position was also adopted by Atkinson: I am not aiming for total equality. Indeed, certain differences in economic rewards may be quite justifiable. Rather, the goal is to reduce inequality below its current level, in the belief that the present level of inequality is excessive. … Readers may well disagree as to how much inequality is acceptable while agreeing that the present level is intolerable or unsustainable. (Atkinson 2015, 9; original emphasis)

15  Conclusion

The view that Malthus did not have a convincing theory of depression has often been supported by citing Keynes’s comment: Malthus, indeed, had vehemently opposed Ricardo’s doctrine that it was impossible for effective demand to be deficient; but vainly. For, since Malthus was unable to explain clearly (apart from an appeal to the facts of common observation) how and why effective demand could be deficient or excessive, he failed to furnish an alternative construction. (Keynes 1936, 32) Keynes did not explicitly comment on or draw attention to remarks by Malthus on the beneficial effects of a redistribution of income and wealth that resulted in a reduction in the level of inequality. He did not explicitly comment, for or against, on whether Malthus’s views on the redistribution of income might offer “an alternative construction”, or whether they might provide a means of escaping from demand deficiency, or might at least offer a plausible contribution to a response to Say’s Law. Malthus’s arguments for a distribution of wealth have not always received the attention they deserve in the secondary literature, and have not always been considered in conjunction with his views on the population problem. His theory of population takes on an additional dimension when juxtaposed to his arguments for greater economic equality. He is well-​known for his view that poverty and misery can result from lack of prudential restraint in population matters, but not so well-​known for his view that poverty and misery can also be caused by inequality in the distribution of wealth and income, and particularly by inequality in the distribution of landed property. As discussed in Chapter 6, he regarded land as a great boon to mankind and as evidence of the beneficence of the Creator, but he also regarded the current pattern of ownership of land as a great evil. This leads us to wonder which of the two evils –​overpopulation or economic inequality –​he considered the greater, and which remedy he considered the more pressing –​the exercise of prudential restraint, or a more equal distribution of the economic benefits of land and other natural resources. Unfortunately, he did not explicitly address that question in detail

Conclusion  249 in his publications, but the following quotation appears to indicate that he regarded population pressure, rather than inequality in the distribution of property, as the more fundamental cause of slow growth or depression:“the principal and most important cause of poverty has little or no relation to forms of government, or the unequal division of property” (Malthus 1989a, II, 201; in the 1806 edition of the Essay “no relation” was altered to “no direct relation”). But in giving priority to the population problem over the distribution problem, he was not saying that all economic problems would disappear when there ceases to be population pressure. Poverty and misery could result from overpopulation, but they could also occur because of a maldistribution of wealth in situations where there is no population problem. He would presumably have also argued that the benefits of an optimum distribution of wealth would be lost by an excessive growth of population. It has been said that Malthus’s growth theory relied on the practice of moral restraint; for Malthus, “the only way [to approach growth] was (of course) by encouraging moral restraint among the poor” (Poynton 1969, 163). But it seems obvious that, while attaching great importance to prudential restraint, Malthus did not see it as the only cure or as a sufficient cure for depression, nor as the only or sufficient cause of economic growth. If Malthus had been in charge of a nation’s Reserve Bank, he would almost certainly have insisted that, in performing its regulatory role, its stipulated functions should include the supervision, not merely of the levels of prices and employment, but also of the level of inequality. Malthus was of course not the first to plea for greater equality in society. Many of the great political conflicts throughout history, such as the French, American, and Russian revolutions, have occurred, to a greater or lesser extent, as reactions against perceived injustices and inequalities. But the distinguishing feature of Malthus’s argument for greater equality is its integration within a macroeconomic system; it was not merely an appeal to social justice. Malthus’s case for greater equality was a logical consequence of his model of economic growth. For Malthus, greater economic equality is not only a moral absolute, but also a possible determinant of material wealth. He was in effect arguing that a society’s average standard of comfort will be impeded by its failing to establish its optimum distribution of income and wealth, and that no economy can achieve its optimum level of economic growth unless it achieves its optimum level of distribution; an optimum level of economic equality is a necessary prerequisite for optimum growth. Malthus argued that in Britain at that time a greater level of economic equality would be a solution to the problem of aggregate demand deficiency. In his view the causes impeding growth were the same as the causes generating depression, and the causes promoting growth were the same as the causes curing depression. Referring to the economic situation in Britain in the period 1815–​1820, he said: “I find it very difficult to admit a theory of our distresses so inconsistent with the theory of our prosperity” (Malthus 1989b, I, 496; in the second edition of the Principles “prosperity” was altered to “comparative

250 Conclusion prosperity”). But he did not argue that greater equality was a sufficient condition. He recognised that persistent growth would also require causes other than redistribution, such as technological improvements in agriculture and manufacturing, as discussed in Chapter 4 on manufacturing. Malthus’s argument for greater economic equality as a cure for depression, though persuasive and perhaps compelling, could not justifiably be regarded as the last word or as a panacea, nor did Malthus claim it would be. He asked for a wider distribution, but how wide is wider? His proposed solution cannot escape from the reaches of his own doctrine of proportions. He recognised that if redistribution is pushed too far it would meet its “antagonist principle”; excessive expenditure on consumer goods could lead to a deficiency of funds available for investment. Also, he did not address the possibility that, if the middle classes as a whole became more numerous and more affluent, some of its members would become more affluent than others, endowing them with greater bargaining power to exploit the less well-​to-​do; for example, some might acquire a more than proportionate ownership of land and other essential natural resources, and of financial and physical capital. As already mentioned, he did not advocate or aim for a situation of absolute equality of income, but on the contrary recognised that, although, when there is inequality of incomes, there will always be some distress and misery among the poor. Everyone will suffer in a state of absolute equality: “no possible form of society could prevent the almost constant action of misery, upon a great part of mankind, if in a state of inequality, and upon all, if all were equal.” (Malthus [1798] 1926, 36). In effect, though not in these precise words, he was condoning and advocating a policy of inequality in moderation, saying that some degree of inequality is both economically desirable and inevitable, and that a redistribution from rich to poor could be carried too far; or, using modern terminology, if an insufficient proportion of income goes to the higher-​income classes who have a higher propensity to save and invest, there could be a deficiency of investment, which could be just as much an impediment to economic growth as a deficiency of demand for consumer goods. Among Malthus’s significant contributions to macroeconomics, perhaps the least heralded and most underrated today has been his contribution to the case for greater economic equality and less economic inequality, without recourse to communistic or socialistic government, and without excessive government ownership. Other voices have also been heard calling for less inequality –​on humanitarian or religious or emotional grounds, or out of sheer envy and class hatred –​but Malthus is telling us that, although there will always be a certain degree of inequality if society chooses to be based on a predominantly laissez-​faire system, there can be situations where an economy will grow faster if it moves away from too much inequality, and there can be situations where national income and welfare will suffer if its prevailing economic policies push it too far towards equality. Malthus gives to the greater-​equality movement an intellectual justification that is logical, coherent, theoretically rigorous, and moderate.

Conclusion  251 Malthus’s warnings of the harmful consequences of excessive population have had a serious impact on the way the world thinks about population size. His writings have shown that excessive economic inequality is just as dangerous to human welfare as excessive population, and that maldistribution of wealth is just as detrimental as overpopulation.

Notes

7  Labour and wages 1 In the second edition of his Definitions (Malthus 1853, 19), edited by John Cazenove, a definition of “Labour Fund” was inserted: “That portion of the Revenue and Capital of the Society which is specially appropriated to the payment of wages”. This was one of the four additional definitions that appeared in the second edition of the Definitions. However, it is not known whether they were added by Malthus, or whether they were invented and inserted by Cazenove on his own initiative after the death of Malthus in 1834, or whether they were an attempt by Cazenove to develop Malthus’s thought. 2 The use of the term “cost of production of labour” was criticised by Mountiford Longfield, who argued that “cost of production” is merely metaphorical in the case of labour, and is not analogous to the effect which cost of production has upon the price of commodities. According to Longfield, wages are paid out of the proceeds of current sales, not out of capital, and depend on the value of the work done by labour (quoted in Blaug [1958]1973, 127–​128).

References

Ahiakpor, J. C.W. 2003.“Say’s Law: Keynes’s success with its misrepresentation”, in Kates 2003, 107–​132. Akhtar, M. A. 1973. “The stationary state of Ricardo and Malthus: comment”, Intermountain Economic Review, 4 (1): 77–​79. Ambirijan, S. 1959. Malthus and Classical Economics, Bombay: Popular Depot. Anderson, J. 1801. A Calm Investigation of the Circumstances that Have Led to the Present Scarcity of Grain in Britain, London: John Cumming. Anon. 1808. “Spence on commerce”, Edinburgh Review, 11 (January): 429–​448. Aspromourgos, A. and J. Lodewijks 2004. History and Political Economy: Essays in Honour of P.D. Groenewegen, London: Routledge. Atkinson, A. B. 2015. Inequality.What Can Be Done? Cambridge, MS: Harvard University Press. Baumol, W. J. 1977. “Say’s (at least) eight laws, or what Say and James Mill may really have meant”, Economica, 44: 145–​162. Baumol, W. J. 1997. “J.-​B. Say on unemployment and public works”, Eastern Economic Journal, 23 (2): 219–​213. Baumol, W. J. 2003. “Retrospectives: Say’s Law”, in Kates 2003, 39–​49. Béraud, A. and G. Numa 2018. "Beyond Say’s Law. The significance of J. B. Say’s monetary views” Journal of the History of Economic Thought, 40 (2): 217–​241. Berdell, J. F. 1999. “The Ricardo-​Malthus debate: effective demand, technical change and the limits to growth”, in Sardoni and Kriesler 1999, 23–​41. Billoret, J. L. 1984. “Le système dynamique de Malthus: critique ou interpretation du modèle cybernétique”, in Fauve-​Chamoux 1984, 251–​264. Blaug, M. 1968. Economic Theory in Retrospect, second edition, London: Heimann. Blaug, M. [1958] 1973. Ricardian Economics. A Historical Study,Westport, CT: Greenwood Press. Bleaney, M. F. 1976. Under-​Consumption Theories. A History and Critical Analysis, London: Lawrence and Wishart. Bonar, J. [1885] 1924. Malthus and His Work, second edition, London: George Allen & Unwin. Bonar, J. 1929. “Ricardo on Malthus”, Economic Journal, 30 (June): 210–​218. Bowley, M. 1937. Nassau Senior and Classical Economics, London: George Allen & Unwin. Bowman, M. J. 1951. “The role and interests of the consumer. The consumer in the history of economic doctrine”, American Economic Review, 41: 1–​18. Brewer, A. 1991. “Economic growth and technical change: John Rae’s critique of Adam Smith”, History of Political Economy, 23 (1): 1–​11.

254 References Brezis, E. S. and W.Young 2003. “The new views on demographic transition: a reassessment of Malthus’s and Marx’s approach to population”, European Journal of the History of Economic Thought, 10 (1): 25–​45. Bronfenbrenner, M. 1983. “On Malthusian macroeconomics”, Aoyama Journal of Economics, 3: 122–​133. Cannan, E. 1894. History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848, London: Rivington, Percival & Co. Cannan, E. 1929.“Review of Ricardo, D. Notes on Malthus’ Principles of Political Economy”, ed. Hollander, J. H. and T. E. Gregory, Economica, (November): 358–​365. Coleman, D. and R. Schofield 1986. The State of Population Theory: Forward from Malthus, Oxford: Basil Blackwell. Coontz, S. H. 1965. Productive Labour and Effective Demand, Including a Critique of Keynesian Economics, London: Routledge & Kegan Paul. Corry, B. 1958. “The theory of the economic effects of government expenditure in English classical political economy”, Economica, 25 (February): 34–​48. Corry, B. 1959. “Malthus and Keynes –​a reconsideration”, Economic Journal, 69 (December): 717–​724. Corry, B. 1962. Money, Saving and Investment in English Economics 1800–​1850, London: Macmillan. Costabile, L. 1983. “Natural prices, market prices and effective demand in Malthus”, Australian Economic Papers, 22 (June): 144–​170. Costabile, L. and B. Rowthorn 1985. “Malthus’s theory of wages and growth”, Economic Journal, 95 (June): 410–​437. Davis, T. 2003. “The historical context of the general glut controversy”, in Kates 2003, 133–​153. De Marchi, N. B. and R. P. Sturges 1973.“Malthus and Ricardo’s inductionist critics: four letters to William Whewell”, Economica, New Series, 40 (30): 379–​393. Deane, P. 1978. The Evolution of Economic Ideas, Cambridge: Cambridge University Press. Dow, L. A. 1977. “Malthus on sticky wages, the upper turning point, and general glut”, History of Political Economy, 9 (2): 303–​321. Dupâquier, A., A. Fauve-​Chamoux, and E. Grebenik 1983. Malthus Past and Present, London, Academic Press. Eagly, R.V. 1974. The Structure of Classical EconomicTheory, NewYork: Oxford University Press. Eltis, W. 1980. “Malthus’s theory of effective demand and growth”, Oxford Economic Papers, 32 (1): 19–​56. Eltis, W. 1984. The Classical Theory of Economic Growth, London: Macmillan. Empson, W. 1837. “Life, writings and character of Mr. Malthus”, Edinburgh Review, 64 (130): 468–​506. Fauve-​Chamoux, A. ed. 1984. Malthus hier et Aujourd’hui, Paris: Centre National de la Necherche Scientifique. Ferricelli, J. 1966. “Malthus, théoricien de la croissance”, Revue d’Histoire Economique et Sociale, 44: 24–​65. Fetter, F. A. 1898. “The Essay of Malthus: a centennial review”, Yale Review, 7 (August): 153–​167. Fetter, F. W. 1969. “The rise and decline of Ricardian Economics”, History of Political Economy, 1: 67–​84. Fiaschi, D. and R. Signorino 2003. “Consumption patterns, development and growth: Adam Smith, David Ricardo and Thomas Robert Malthus”, European Journal of the History of Economic Thought, 20 (1): 5–​24.

References  255 Field, J. A. 1931. Essays on Population and Other Papers, Chicago: University of Chicago Press. Forget, E. 2003. “Jean-​Baptiste Say and the law of markets: entrepreneurial decision-​ making in the real world”, in Kates 2003, 50–​66. Freni, G., N. Salvadori and R. Signorino 2019. “Back to agriculture. Malthus (1817 and 1826), Torrens (1815) and (1822) on international trade and structural change”, History of Political Economy, 51 (5): 935–​955. Ganilh, C. 1812. An Inquiry into the Various Systems of Political Economy, London: Henry Colburn. Translation by D. Boileau of Des systèmes d’économie politique, 1809. Ghosh, R. N. 1963. “Malthus on emigration and colonization: letters to Wilmot-​ Horton”, Economica, 30 (February): 45–​62. Gilbert, G. 1980. “Economic growth and the poor in Malthus’ Essay on Population”, History of Political Economy, 12 (1): 83–​96. Grampp,W. D. 1956. “Malthus on money wages and welfare”, American Economic Review, 46 (5): 924–​936. Gray, A. 1931. The Development of Economic Doctrines: An Introductory Survey, London: Longmans, Green & Co. Gregory, T. E. and Dalton, H. eds. 1927. London Essays in Economics in Honour of Edwin Cannan, London: George Routledge. Haney, L. H. 1949. History of Economic Thought, fourth edition, New York: Macmillan. Hansen, A. 1951. Business Cycles and National Income, New York: W. W. Norton. Harvey, D. 1974.“Population, resources, and the ideology of science”, Economic Geography, 50 (3): 256–​277. Heertje, A. 2004. “On Say’s Law”, in Aspromourgos and Lodewijks 2004, 44–​56. Heimann, E. 1945. History of Economic Doctrines. An Introduction to Economic Theory, London: Oxford University Press. Hilton, B. 2006. A Mad, Bad, and Dangerous People? England 1783–​ 1846, Oxford: Clarendon Press. Hollander, S. 1962. “Malthus and Keynes: a note”, Economic Journal, 72 (June): 355–​359. Hollander, S. 1969. “Malthus and the Post-​Napoleonic depression”, History of Political Economy, 1 (2): 306–​335. Hollander, S. 1977a. “The reception of Ricardian economics”, Oxford Economic Papers, 21 (2): 221–​257. Hollander, S. 1977b. “Smith and Ricardo: aspects of the nineteenth century legacy”, American Economic Review: Proceedings, 67 (1) (February): 37–​41. Hollander, S. 1979. The Economics of David Ricardo, Toronto and Buffalo: University of Toronto Press. Hollander, S. 1992. “Malthus’s abandonment of agricultural protectionism: a discovery in the history of economic thought”, American Economic Review, 82 (3): 650–​659. Hollander, S. 1995. “More on Malthus and agricultural protection”, History of Political Economy, 27 (3): 531–​537. Hollander, S. 1997. The Economics of Thomas Robert Malthus, Toronto Buffalo London: University of Toronto Press. Hollander, S. 2005. Jean-​Baptiste Say and the Classical Canon in Economics. The British Connection in French Classicism, London and New York: Routledge. Horner, F. 1803. Review of N.F. Canard, Principes d’Economie Politique, Edinburgh Review, 1 (2): 431–​450. Horwitz, S. 2003. “Say’s law of markets: an Austrian appreciation”, in Kates 2003, 82–​98.

256 References Hutchison, T. W. 1953. A Review of Economic Doctrines 1817–​1929, Oxford: Clarendon Press. Hutchison, T. W. 1978. On Revolution and Progress in Economic Knowledge, Cambridge: Cambridge University Press. Hutt, W. H. 1974. A Rehabilitation of Say’s Law, Athens, GA: Ohio University Press. Huzel, J. P. 1969. “Malthus, the Poor Law, and population in early nineteenth-​century England”, Economic History Review, 22 (3): 430–​452. James, P. 1979. Population Malthus His Life and Times, London, Boston, and Henley: Routledge & Kegan Paul. Jha, D. 1979. “Relevance of Malthusian economics”, Indian Economics Journal, 26 (3): 34–​39. Jonsson, P. O. 1995. “On the economics of Say and Keynes’ interpretation of Say’s Law”, Eastern Economic Journal, 21 (2): 145–​155. Jonsson, P. O. 1997. “On gluts, effective demand, and the true meaning of Say’s Law”, Eastern Economic Journal, 23 (2): 203–​205. Jonsson, P. O. 1999. “Review of Kates 1998”, Southern Economic Journal, 65 (4): 967–​970. Joplin, T. [1828] 1970. Outlines of a System of Political Economy, London: Baldrick, Cradock, and Joy. Reprinted, New York: Augustus M. Kelley. Kates, S. 1995. “Crucial influences on Keynes’s understanding of Say’s Law”, History of Economics Review, 23 (Winter): 74–​82. Kates, S. 1997. “On the true meaning of Say’s Law”, Eastern Economic Journal, 23 (2): 191–​201. Kates, S. 1998. Say’s Law and the Keynesian Revolution: How Macroeconomic Theory Lost Its Way, Cheltenham, and Northampton, MA: Edward Elgar. Kates, S. ed. 2003. Two Hundred Years of Say’s Law. Essays on Economic Theory’s Most Controversial Principle, Cheltenham, and Northampton, MA: Edward Elgar. Kates, S. 2005.“‘Supply creates its own demand’: a discussion of the origins of the phrase and of its adequacy as an interpretation of Say’s Law of Markets”, History of Economics Review, 41 (Winter): 49–​60. Kates, S. 2010. “Influencing Keynes: the intellectual origins of the general theory”, History of Economic Ideas, (3): 71–​102. Kegan Paul, C. 1876. William Godwin. His Friends and Contemporaries, two volumes, London: Henry S. King & Co. Kent, R. J. 2005.“Keynes and Say’s Law”, History of Economics Review, 41 (Winter): 61–​76. Keynes, J. M. 1936. The General Theory of Employment Interest and Money, London: Macmillan. Keynes, J. M. 1961. “Robert Malthus. The First of the Cambridge Economists”, in Essays in Biography, London: Mercury Books, 81–​124. Khosla, R. 1978. “Malthus’s theory of gluts: a political-​economic view”, Indian Economic Journal, 26: 117–​137. Kregel, J. A. 1979. “The relation of distribution to growth”, World Development, 7: 933–​941. Lambert, P. [1952] 1956. “The Law of Markets prior to J.-​B. Say and the Say-​Malthus debate”, International Economic Papers, 6, London: Macmillan. Translated by S. A. Maitland. Original publication, Revue d’économie politique, 1952. Landreth, H. and D. C. Colander 2002. History of Economic Thought, fourth edition, Boston: Houghton Mifflin. Laurent, J., ed. 2003. Evolutionary Economics and Human Nature, Cheltenham: Edward Elgar.

References  257 Lee, R. D. 1986.“Malthus and Boserup: a dynamic synthesis”, in Coleman and Schofield 1986, 96–​130. LeMahieu, D. L. 1976. The Mind of William Paley. A Philosopher and His Age, Lincoln and London: University of Nebraska Press. Malthus, T. R. 1800. An Investigation of the Cause of the Present High Price of Provisions, London: Johnson, J. Malthus, T. R. 1807. A Letter to Samuel Whitbread, Esq. M.P. on His Proposed Bill for the Amendment of the Poor Laws, London: Johnson, J. and J. Hatchard. Malthus, T. R. 1809. "Newenham on Ireland", Edinburgh Review, 14: 151–​170. Malthus, T. R. 1815a. Observations on the Effects of the Corn Laws, London: John Murray. Third edition. Malthus, T. R. 1815b. The Grounds of an Opinion on the Policy of Restricting the Importation of Foreign Corn, London: John Murray. Malthus,T. R. 1815c. An Inquiry into the Nature and Progress of Rent, London: John Murray. Malthus, T. R. 1821. “Godwin on Malthus”, Edinburgh Review, XXXV, Article VI, 362–​377. Malthus,T. R. 1823.“Tooke –​on high and low prices”, Quarterly Review, 29 (57): 214–​239. Malthus, T. R. 1824a. “Political economy”, Quarterly Review, 30: 297–​334. Malthus, T. R. 1824b. Evidence of T. R. Malthus, Sixth Report from Select Committee on Artizans and Machinery, 598–​601, London. Malthus, T. R. 1827a. Definitions in Political Economy, London: John Murray. Malthus,T. R. 1827b. Evidence of T.R. Malthus, Report of the Select Committee on Emigration from the United Kingdom, Minutes of Evidence, Parliamentary Papers, 311–​327, London. Malthus, T. R. 1830. Summary View of the Principle of Population, London: John Murray. Malthus, T. R. 1846. Des définitions en économie politique … par T.R. Malthus, translated by M. Monjean, in Principes d’économie politique, second edition, Paris, Guillaume. Malthus, T. R. 1853. Definitions in Political Economy, A new edition, with a preface, notes, and supplementary remarks by John Cazenove, London: Simpkin and Marshall. Malthus, T. R. [1798] 1926. An Essay on the Principle of Population as It Affects the Future Improvement of Society … London: J. Johnson. Reprinted 1926, London: Macmillan.Malthus, T. R. [1836] 1968. Principles of Political Economy, second edition, London: William Pickering. Reprinted, New York: Augustus M. Kelley. Malthus, T. R. 1986. The Works of Thomas Robert Malthus, eight volumes, edited by E. A. Wrigley and D. Souden, London: William Pickering. Malthus, T. R. 1989a. An Essay on the Principle of Population, variorum edition, two volumes, edited by P. James, Cambridge: Cambridge University Press, for the Royal Economic Society. Malthus, T. R. 1989b. Principles of Political Economy, variorum edition, two volumes, edited by J. Pullen, Cambridge: Cambridge University Press for the Royal Economic Society. Malthus, T. R. 1992. An Essay on the Principle of Population, selected and introduced by Donald Winch, Cambridge: Cambridge University Press. Malthus,T. R. 1997. T. R. Malthus:The Unpublished Papers in the Collection of Kanto Gakuen University, Volume I, edited by J. Pullen and T. H. Parry, Cambridge: Cambridge University Press for the Royal Economic Society. Malthus,T. R. 2004. T. R. Malthus:The Unpublished Papers in the Collection of Kanto Gakuen University,Volume II, edited by J. M. Pullen and T. H. Parry, Cambridge: Cambridge University Press for the Royal Economic Society. McCleary, G. F. 1953. The Malthusian Population Theory, London: Faber and Faber.

258 References McCulloch, J. R. 1821. “Effects of machinery and accumulation”, Edinburgh Review, 35 (March): 102–​123. McCulloch, J. R. [1864] 1965. The Principles of Political Economy, fifth edition, Edinburgh: Adam and Charles Black. Reprinted, New York: Augustus M. Kelley. Meek, R. L. 1950. “The decline of Ricardian economics in England”, Economica, 17 (February): 43–​62. Meek, R. L. 1951. “Physiocracy and the early theories of under-​ consumption”, Economica, 18 (71): 229–​269. Milgate, M. 1982. Capital and Employment: A Study of Keynes’s Economics, London: Academic Press. Mill, J. 1804. “Lord Lauderdale on public wealth”, Literary Journal, 4: 1–​18. Mill, J. 1808. “Mill’s commerce defended”, Eclectic Review, 4: 554–​559. Mill, J. 1966. James Mill. Selected Economic Writings, introduced and edited by Donald Winch for the Scottish Economic Society, London: Oliver & Boyd. Mill, J. S. [1848] 1909. Principles of Political Economy, London: Longmans, Green, and Co. Nicholson, M. 1990. “The eleventh commandment: sex and spirit in Wollstonecraft and Malthus”, Journal of the History of Ideas, 51 (3): 401–​421. O’Brien, D. P. 1970. J. R. McCulloch: A Study in Classical Economics, London: George Allen & Unwin. O’Brien, D. P. [1975] 2004. The Classical Economists, Princeton: Princeton University Press. O’Brien, D. P. 2007. History of Economic Thought as an Intellectual Discipline, Edward Elgar: Cheltenham. O’Leary, J. J. 1942. “Malthus’s general theory of employment and the Post-​Napoleonic depression”, Journal of Economic History, 3: 185–​200. Paglin, M. 1961. Malthus and Lauderdale:The Anti-​Ricardian Tradition, New York: Augustus M. Kelley. Patten, S. N. 1893. “The interpretation of Ricardo”, Quarterly Journal of Economics, 7: 322–​352. Penrose, E. F. 1956. “Malthus and the underdeveloped areas”, Economic Journal, 67 (266): 219–​239. Perrotta, C. 2018. Unproductive Labour in Political Economy.The History of an Idea, London and New York: Routledge. Piketty, T. 2014. Capital in the Twenty-​First Century, Cambridge, MA and London: The Belknap Press of Harvard University Press. Political Economy Club. 1882 [1980]. Minutes of Proceedings,Volume IV, London: Printed for the Club. Reprinted 1980, Tokyo: Nihon Keizai Hyoron Sha. Poynton, J. R. 1969. Society and Pauperism: English Ideas on Poor Relief, 1795–​1834, Melbourne: Melbourne University Press. Pullen, J. 1981. “Notes from Malthus: the Inverarity Manuscript”, History of Political Economy, 13 (4): 794–​811. Pullen, J. 1982. “Malthus on the doctrine of proportions and the concept of the optimum”, Australian Economic Papers, 21 (39): 270–​285. Pullen, J. 1992. “Malthus on sustainable population growth”, The Annual Bulletin of the Malthus Society, 2: 38–​61. Pullen, J. 1995. “Malthus on agricultural protection: an alternative view”, History of Political Economy, 27 (3): 517–​529. Pullen, J. 2001.“Keynes’s criticisms of Malthus and Malthus’s ‘reply’”, History of Economics Review, 34 (Summer): 168–​181. Pullen, J. 2003. “Malthus on indolence”, in Laurent 2003, 74–​95.

References  259 Pullen, J. 2010. The Marginal Productivity Theory of Distribution. A Critical History. London and New York: Routledge. Pullen, J. 2013. “Further details of the life and financial affairs of T. R. Malthus”, History of Economics Review, 57 (Winter): 16–​31. Pullen, J. 2016a. “Malthus on growth, glut and redistribution”, History of Economics Review, 45 (1): 27–​48. Pullen, J. 2016b. “Malthus on causality”, European Journal of the History of Economic Thought, 23 (3): 349–​377. Pullen, J. 2016c. “The other correspondence of T. R. Malthus: a preliminary list and selected commentary”, History of Political Economy, 48 (1): 65–​110. Pullen, J. 2019a.“Malthus on the desire of bettering our condition and the Vis Medicatrix Reipublicae”, History of Political Economy, 51 (4): 731–​751. Pullen, J. 2019b. “Malthus on social classes: upper, middle, and lower”, Cambridge Journal of Economics, 43 (5): 1417–​1435. Rashid, S. 1977. “Malthus’s model of general gluts”, History of Political Economy, 9 (3): 366–​383. Rashid, S. 1981. “Malthus’s Principles and British economic thought, 1820–​ 1835”, History of Political Economy, 13 (1): 55–​78. Rashid, S. 1987. “Recent literature on Malthus”, in Thweatt 1987, 53–​84. Ricardo, D. 1973. The Works and Correspondence of David Ricardo, edited by P. Sraffa with the collaboration of M. H. Dobb, 11 volumes, Cambridge: University Press for the Royal Economic Society. Rima, I. H. 1991. Development of Economic Analysis, fifth edition, Homewood, IL: Irwin. Robbins, L. 1927. “The optimum theory of population”, in Gregory and Dalton 1927, 103–​134. Robbins, L. 1967. “Malthus as an economist”, Economic Journal, 77 (June): 256–​261. Robbins, L. 1968. The Theory of Economic Development in the History of Economic Thought, London: Macmillan. Roll, E. 1956. A History of Economic Thought, third edition, Englewood Cliffs, NJ: Prentice Hall. Roy, H. N. 1978. “Towards a reappraisal of Malthus as an analyst –​and overrated or an underrated economist?”, Indian Economic Journal, 26 (1): 138–​156. Sardoni, C. and P. Kriesler 1999. Keynes, Post Keynesianism and Political Economy: Essays in Honour of Geoff Harcourt,Volume III, London: Routledge. Say, J.-​B. 1820. Lettres à M. Malthus sur différens sujets d’économie politique, Paris: Chez Bossange. Say, J.-​B. 1821. Letters to Mr. Malthus on Several Subjects of Political Economy and on the Cause of the Stagnation of Commerce, translated by J. Richter, London: Sherwood, Neely & Jones. Say, J.-​B. 1826. Traité d’économie politique, cinquième édition, tome premier, Paris: Chez Rapilly, Libraire. Say, J.-​B. 1833. Cours complet d’économie politique. Tome septième. Mélanges et correspondance, Paris: Chamerot Libraire. Say, J.-​B. 1846. Principes d’économie politique, par M. Maurice Monjean, Paris: Guillaumin, Libraires. Schumpeter, J. A. 1933.“Review of Essays in Biography by J. M. Keynes”, Economic Journal, 43 (December), 652–​657. Schumpeter, J. A. 1954. History of Economic Analysis, London: George Allen & Unwin. Senior, N. W. 1829. Two Lectures on Population, London: Saunders and Otley.

260 References Skinner, A. S. 1967. “Say’s Law: origins and content”, Economica, New Series, 34: 133–​166. Skinner, A. S. 1969. “Of Malthus, Lauderdale and Say’s Law”, Scottish Journal of Political Economy, 16: 177–​195. Smith, A. 1976. An Enquiry into the Nature and Causes of the Wealth of Nations, edited by Campbell, R. H., A. S. Skinner, and W. B. Todd, Oxford: Clarendon Press. Smith, K. 1951. The Malthusian Controversy, London: Routledge & Kegan Paul. Smith, M. 2020. “A reconsideration of the role of demand in Malthus’s theory of accumulation”, Contributions to Political Economy, 39: 57–​76. Sowell, T. 1972. Say’s Law. An Historical Analysis, Princeton: Princeton University Press. Sowell, T. 1974. Classical Economics Reconsidered, Princeton: Princeton University Press. Spengler, J. J. 1945. “Malthus’s total population theory: a restatement and reappraisal”, Canadian Journal of Economics and Political Science, 11 (February): 83–​ 110; 11 (May): 234–​264. Spengler, J. J. 1965. “Today’s circumstances and yesterday’s theories: Malthus on services”, Kyklos, 18 (4): 601–​613. Spengler, J. J. 1971. “Malthus on Godwin’s Of Population”, Demography, 8 (1): 1–​12. Spiegel, H. W. 1991. The Growth of Economic Thought, third edition, Durham & London: Duke University Press. Sraffa, P. 1955. “Malthus on public works”, Economic Journal, 65 (September), 543–​544. Stark, W. 1943. The Ideal Foundations of Economic Thought.Three Essays on the Philosophy of Economics, London: Kegan Paul, Trench, Trubner. Stiglitz, J. E. 2015. The Great Divide. Unequal Societies and What We Can Do About Them, New York: W. W. Norton. Stirati, A. 1994. The Theory of Wages in Classical Economics. A Study of Adam Smith, David Ricardo and Their Contemporaries, translated by J. Hall. Aldershot: Edward Elgar. Thompson, T. P. 1826. The True Theory of Rent, in Opposition to Mr. Ricardo and Others, London: Hatchard and Son, and C. and J. Rivington. Thweatt,W. O. 1979. “Early formulators of Say’s Law”, Quarterly Review of Economics and Business, 19 (4): 79–​96. Thweatt, W. O. 1980. “Baumol and James Mill on ‘Say’s’ Law of Markets”, Economica, 47: 467–​469. Toye, T. 2000. Keynes on Population, Oxford: Oxford University Press. Tucker, G. S. L. 1960. Progress and Profits in British Economic Thought 1650–​ 1850, Cambridge: Cambridge University Press. Tunzelmann, G. N. von 1986. “Malthus’s ‘total population system’: a dynamic reinterpretation”, in Coleman and Schofield 1986, 65–​95. Viner, J. 1937. Studies in the Theory of International Trade, New York: Harper. Walker, E. R. 1933. Australia in the World Depression, London: P. S. King. Waterman, A. M. C. 1998. “Reappraisal of ‘Malthus the economist,’ 1933–​97”, History of Political Economy, 30 (2): 293–​334. Waterman, A. M. C. 2012. “Adam Smith and Malthus on high wages”, European Journal of the History of Economic Thought, 19 (3): 409–​429. Waterman, A. M. C. 2014. “Inequality and social evil. Wilkinson and Pickett on the Spirit Level”, Faith and Economics, 63 (Spring): 38–​49. Review of Wilkinson and Pickett 2011. Weaver, J. H. and Wisman, J. D. 1978. “Smith, Marx, and Malthus –​ghosts who haunt our future”, The Futurist, 12 (April): 93–​104.

References  261 Weyland, J. 1816. The Principles of Population and Production, as They Are Affected by the Progress of Society, With a View to Moral and Political Consequences, London: Baldwin Craddock. Wilkinson, R. and K. Pickett 2011. The Spirit Level.Why Greater Equality Makes Societies Stronger. New Book: Bloomsbury. Winch, D. 1987. Malthus, Oxford and New York: Oxford University Press. Winch, D. 1996. Riches and Poverty. An Intellectual History of Political Economy in Britain, 1750–​1834. Cambridge: Cambridge University Press. Wolff, J. 1983.“The economic thought of T. R. Malthus”, in Dupâquier et al. 1983, 61–​81.

Index

absolute rent 76–​80 aggregate demand 159–​160, 164 agriculture: balance between manufacturing and 55–​57; bias of Malthus towards 42–​43; combined systems of manufacturing, trade, and 190–​195; primacy of profits from 120; superiority over manufacturing 57–​59 Akhtar, M. M. 44 Ambirijan, S. 8, 42 American Economic Association 206 Anderson, J. 78 Atkinson, A. 243, 247 bad government, reform of 180–​181 Baumol, W. 74, 147, 149, 164–​166 Béraud, A. 227 Berdell, J. 119 Blaug, M. 18, 42–​43, 82, 150–​151, 223 Bleaney, M. 12–​13, 236 Bonar, J. 81, 152–​153, 205, 235 bounties: on corn exports 184–​185; for new undertakings/​infant industries 190 Bowley, M. 8 Bronfenbrenner, M. 8, 201, 211 brought to market concept 36–​37 Calm Investigation of the Present Scarcity of Grain, A 78 Cannan, E. 67, 81, 87–​88 capital: as determinant of profits 118; importance of 115–​116; inequality and 244–​245; interest, loanable funds, and liquidity preference with 121–​123; and Malthus as not anti-​capitalist 116; Say’s Law and possibility of redundant 146–​148

capital accumulation 21; high wages and 109–​111 Capital in the Twenty-​First Century 244 Chalmers, T. 47 circulating capital 110–​111 Combination Laws 109, 175 combinations of masters and labourers 108–​109 competition: as cause of profits 117; fluctuations in trade and 188–​190 consumption 25–​27; desires, velleities, and the intensity of demand and 30–​31; by labourers 104–​105; by the middle classes 239–​240; power to purchase and will to purchase and 29–​30; purchasing power and actual purchases and 31; relationship between production, investment, and 27–​28, 168; relative importance of investment and 28; unproductive 26, 222–​225; see also demand, effective Corn Laws 9, 11, 62, 65, 82, 127–​128, 171; benefits of home and foreign trade and 182–​184; bounties on corn exports and 184–​185; manufacturing and 45–​48, 53, 57; trade-​induced structural change and 186–​188; wages and 103, 120 Corry, B. 18, 194, 200, 202 Costabile, L. 19, 131 cumulative and circular causation 15 customs duties 185–​186 Deane, P. 8 Definitions in Political Economy 114, 139, 208, 224–​225 demand: aggregate 159–​160; deficiency of 230–​231; effective 21, 171; deficiency of 230–​231;

Index  263 desires, velleities, and intensity of 30–​31; investment depending on 123; investment generating 124–​125; power to purchase and will to purchase and 29–​30; purchasing power and 31–​35 demand-​and-​supply theory of wages 105–​108 depression: exogenous and endogenous causes of 156–​160, 165; inequality, growth, and 241–​242; Malthus’s path to recovery from 231–​232, 248–​249; overinvestment as cause of 228; overproduction and underproduction as causes of 226–​227; saving and oversaving as causes of 227–​228; wage reductions as cure for 230 desires 30–​31; to better our condition 72–​73, 230 differential rent 76–​80 distribution and redistribution 233–​236; excessive 237; as factor of production 236–​237; by government 240–​241; growth through 241–​242, 248–​249; inequality and 241–​242, 243–​247; middle classes and 237–​241 division of labour 48–​50 doctrine of proportions 6–​7 Eagly, R.V. 88 Eden, W. 173 Edinburgh Review 17, 27, 52, 87, 134 education 192 effective demand see demand, effective Elements of Political Economy 145 Eltis, W. 18, 82 emigration 192 employment-​creating activities 202–​203 Empson, W. 2, 183 English restrictions on Irish manufacturing 173–​174 Enquiry into the Nature and Progress of Rent, An 76, 100 Essay on Population 8, 20–​21, 40, 64, 136, 163; anti-​manufacturing interpretations of 40, 41–​43; on distribution and redistribution 233–​234, 240; on future of wages 98–​99; on Law of Diminishing Returns (LDR) 80–​82, 83–​85; on link between manufacturing and economic growth 59; on machinery 50, 52, 55; on population growth 66, 69–​70; pro-​manufacturing interpretations of 43–​48, 55–​56; on

public works 197–​198; on superiority of agriculture 58 expectations 24–​25 Ferricelli, J. 18, 208 Fetter, F. A. 2, 81 Field, J. 42, 81 fixed capital 110–​111 fluctuations in trade 188–​190 foreign trade 182–​184 Forget, E. 164 Friedman, M. 178 frugality, excess 14–​16 Ganilh, C. 149 General Theory 153, 168–​169 George, H. 79, 237 Gifford, W. 145 Gilbert, G. 44, 55–​56 gluts 157–​158, 165, 169–​170, 202–​203; overproduction and underproduction as causes of 226–​227; satiation of wants and 228–​230 Godwin, W. 30, 41, 87–​88, 237, 240 government intervention 171; aid to the private sector 179; conclusions on 204–​206; duties of government and 181; in education 192; in emigration 192; in extension of markets 174–​175; as factor of production 205–​206; inefficiency of 176; in Ireland 173–​174; Malthus’s arguments against 172–​178; Malthus’s arguments for 178–​185; national debt and 181, 194–​195; in poverty 171, 192–​194; in public works 195–​200; in redistribution 240–​241; reform of bad legislation and 180–​181; taxation and 179–​180, 194; too much or too little 176–​177; unemployment relief 177–​178; see also laissez-​faire economics Grampp, W. 103 Great Depression 157 Great Divide,The 246–​247 Grounds of an Opinion on the Policy of Restricting the Importation of Foreign Corn,The 99–​100, 183 growth: distinction between productive and unproductive labour and 220–​222; distribution and redistribution as causes of 233–​234; home and foreign trade and 182–​184; inequality, depression, and 241–​242; investment as cause of

264 Index 228; Law of Diminishing Returns (LDR) and 80–​86; manufacturing and 59–​61; population growth and 65–​72; rent and 80; service sector and 214–​215; unproductive labour as necessary but not sufficient cause of 217–​218 Hansen, A. 215 Hayek, F. 162, 178 Heimann, E. 81 Herkner, H. 149 Hilton, B. 202 Hobson, J. A. 136 Hollander, S. 18, 38, 67, 70, 174, 201–​202, 205, 230 home trade 182–​184 Horner, F. 17 Horwitz, S. 155 Hume, D. 136 Hutchison, T. 8 Hutt, W. 161 indolence and leisure 26–​27 inequality: growth, depression, and 241–​242, 249–​250; trade unions and 243–​244 intensity of demand 30–​31 interest 121–​123; investment depending on 123–​124 inventions and machinery 50–​53 Investigation of the Cause of the Present High Price of Provisions, An 172 investment: capital accumulation, effective demand, and 21; as cause of growth 228; deficiency of opportunities for 230–​231; depending on interest or on profits 123–​124; depending on profits or on effective demand 123; depending on saving 123; expectations in 24–​25; generating effective demand 124–​125; importance of 21–​24; relative importance of consumption and 28; savings equaling 16–​19 Ireland: England’s restrictions on manufacturers in 173–​174; government support for 173 James, P. 70, 78, 173 Joplin, T. 152 Kates, S. 153 Kent, R. 152–​153

Keynes, J. M. 1, 2, 17, 34, 37, 114, 119, 136, 171; on deficiency of investment 230; liquidity funds theory of interest 121–​122; on Malthus’s theory of depression 248; on overpopulation 68; on public works 200–​203; Say’s Law and 163–​164, 166; on supply creating its own demand 151–​154 labour: demand for 110–​111; division of 48–​50; excessive personal services 215–​216; importance and advantages of service sector 214–​215; legislative intervention in 102–​103, 175; Malthus as high-​wage advocate and 90–​96; Malthus as low-​wage advocate and 87–​90; productive (see productive labour); trade unions and 243–​244; unproductive (see unproductive labour); see also wages labourers: combinations of masters and combinations of 108–​109; expenditures by 104–​105; hours of work and working conditions of 175; labouring classes and 99–​105, 219; menial service by 175; savings by 96–​98; unemployment relief for 177–​178; see also wages laissez-​faire economics 162–​163, 171; Combination Laws and 176; conclusions on 204–​206; customs duties and 185–​186; division between productive labour and unproductive labour and 220; excessive self-​interest and 179; export of machinery and 180; fluctuations in trade and 188–​190; high price of provisions and 172–​173; home and foreign trade and 182–​184; land ownership and 178–​179; limitations and exceptions to 178–​185; Malthus’s arguments against 178–​185; Malthus’s arguments for 172–​178; poor laws and 193–​194; principle of 172; reform of bad legislation and 180–​181; saving and 174; as unrealisable vision 178; see also government intervention Lambert, P. 164, 168 land and landlords 74–​76; differential rent and absolute rent and 76–​80; laissez-​ faire and 178–​179; scarcity of 80, 117–​118; as unproductive consumers 224 land-​scarcity theory 80, 117–​118

Index  265 Lauderdale, Lord 14 Law of Diminishing Returns (LDR) 80–​86; as commonplace 85–​86; as essential component of Malthus’s macroeconomics 82–​85 Law of Greater Equality 241 Law of Markets 158, 164–​165 leisure and indolence 26–​27 Letters to Malthus 36, 137–​144 limited space 84–​85 liquidity preference 121–​123 loanable funds 121–​123 long run time perspective 9–​12 machinery and inventions 50–​53; export of 180 macroeconomics of Malthus: economic equality and 250; Law of Diminishing Returns (LDR) as essential component of 82–​85; microeconomics versus 12–​13 Malthus, Thomas Robert: introduction to work of 1–​5; misconceptions about 3–​4; see also Essay on Population; Principles of Political Economy Malthus and His Work 153 manufacturing: balance between agriculture and 55–​57; civilising effects of 46–​47; combined systems of agriculture, trade, and 190–​195; conclusions on Malthus’s views of 61–​63; division of labour and 48–​50; economic growth and 59–​61; England’s restrictions on Irish 173–​174; establishment and survival of 53–​55; fluctuations in trade and 189–​190; machinery and inventions in 50–​53; Malthus’s views against 40–​43; Malthus’s views in favor of 43–​48; superiority of agriculture over 57–​59 marginal propensity to consume 239–​240 Marshall, A. 79 Marx, K. 135, 234 masters, combinations of 108–​109 maximum and minimum values 7 McCleary, G. F. 81–​82 McCracken, H. L. 153 McCulloch, J. R. 4, 52–​53, 55, 112, 136, 166; on population growth 70–​71 Meek, R. 58–​59, 126–​127, 222–​223 menial servants 175; unproductive labour and 218–​219

microeconomics versus macroeconomics focus of Malthus 12–​13 middle classes 237–​241 Milgate, M. 18 Mill, James 15, 19, 136, 145, 148, 151, 160, 245; on consumption 25, 26; on power of purchasing 31, 32–​33; Say’s Law and 167–​168, 170 Mill, John Stuart 85, 136 minimalist motivation of labourers 101 Murray, J. 62–​63, 144–​145, 180 national debt 181, 194–​195 Newenham, T. 173 New Monthly Magazine 137–​138 Notes on Malthus 129, 182, 214, 235 Numa, G. 227 O’Brien, D. 52, 185, 195–​196 Observations on the Effects of the Corn Laws 9, 11; see also Corn Laws Of Population 87 O’Leary, J. 18, 124 overinvestment 228 overproduction 226–​227 oversaving, danger of 14–​16, 227–​228 Owen, R. 11, 51–​52 Paglin, M. 18 Paley, W. 238 Patten, S. 42 Penrose, B. 42 Perrotta, C. 26 personal services: alteration from unproductive labour to 209–​210; excessive 215–​216 Pickering, W. 70 Pickett, K. 243 Piketty, T. 243, 244–​246 Political Economy Club 32, 139 Poor Laws 171, 192–​194, 197 population growth 64, 251; desire of bettering our condition and 72–​73; economic benefits of 65–​72 poverty 26–​27, 101–​102; Poor Laws and 171, 192–​194 power to purchase 29–​30 price-​quantity relation and supply 37–​39 Principles of Political Economy (Malthus) 1–​2, 136, 138, 249–​250; on brought to market concept 36–​37; on capital and investment 22, 115–​116; on cause of wages 105–​108; on demand for

266 Index labour 110–​111; differences between first and second editions of 13, 35; on distribution and redistribution 233–​234; on division of labour 49–​50; doctrine of proportions in 6–​7; on expectations 24; on extension of markets 174–​175; on future of wages 98; on government interventions as too much or too little 176–​177; on government support for Ireland 173; on high wages 94; on Law of Diminishing Returns (LDR) 83–​85; on link between manufacturing and economic growth 59; on low wages 88–​90; on machinery 50–​52, 62; on population growth 69, 72; on price-​ quantity relation 38; on productive versus unproductive labour 219–​220; on profits 114, 115; pro-​manufacturing views in 44–​46; on prudential habits 66; on public works 197–​198; on redistribution 240; on rent 77; on saving 16, 96, 174; on superiority of agriculture 58; on supply creating its own demand 151–​152; on taxation 180; time perspective in 8–​9; on unproductive consumption 222, 225; on wage-​profits relation 125–​126; on wages as quantities or proportions 111–​113; on working conditions 102–​103; see also Malthus, Thomas Robert Principles of Political Economy and Taxation (Ricardo) 55, 62, 129–​131, 188 Prinsep, C. R. 32 production: distribution as factor of 236–​237; government as factor of 205–​206; indolence and leisure effects on 26–​27; relationship between consumption, investment, and 27–​28, 168; Say’s definition of 144–​146 Production and Distribution 81 productive consumption 26 productive labour: complexities and unsatisfactory features of definitions of 211–​213; criticisms of Malthus’s distinction between unproductive and 219–​220; defined 207–​209; relation between unproductive and 219 profits: capital as determinant of 118; competition as cause of 117; future course of 120–​121; importance of 114–​115; investment depending on 123–​124; justice of 117; land scarcity

limiting principle of 117–​118; primacy of agricultural 120; relation with wages 125–​135; relative importance of rents and 115; risk, uncertainty, and 119; uniformity of 119–​120 proportionate wages 111–​113 prudential habits 66 public works 195–​200; Malthus and Keynes on 200–​203 Pullen, J. 19, 27, 134 purchasing power: actual purchases and 31; effective demand and 31–​35 Quarterly Review 130–​131, 145, 212, 215 Rashid, S. 208 reciprocal causation between consumption and production 27–​28 redundant capital 146–​148 rent: differential and absolute 76–​80; growth and 80; ideological basis of 79; land-​scarcity theory of 80; relative importance of profits and 115 Ricardo, D. 2, 4, 52, 55, 62, 136, 171, 204; on capital accumulation and demand 21; on demand for labour 110–​111; deviation from the inverse theorem of wage-​profits relation 131–​132; on distribution 235; on effective demand 29–​30; on land cultivation 118; on landlords 75, 76–​77; on possibility of redundant capital 147–​148; on profits 119, 120; on public works 196–​197; refuted by Say 164; on rent 78–​79, 80; on savings 19; Say’s Law and 150–​151; on structural change 188; on taxation 180; on time effects 8–​9, 11; on unproductive consumers 222; on unproductive labour 214; on wages 111–​113; on wages-​profits relation 126–​128, 132–​135 Richter, J. 36, 137–​138 Rima, I. 44 risk and uncertainty 119 Robbins, L. 18, 67, 82, 193, 212 Rowthorn, B. 19 Royal Economic Society 70 satiation of wants 228–​230 savings: and danger of oversaving 14–​16, 227–​228; depression and 227–​228; equaling investment 16–​19; importance of 14–​16; investment depending on

Index  267 123; by labourers 96–​98; laissez-​faire economics and 174; Malthus on Adam Smith on 20–​21; redundant 19–​20 Say, J.-​B. 19, 23, 36, 39, 136, 216–​217; on aggregate demand deficits 164; correspondence with Malthus 138–​144; definition of production and his implicit recognition of demand 144–​146; mutual respect between Malthus and 163; on Say’s Law 137–​138 Say’s Law 17, 18, 23, 31, 34, 226–​227; applied to food and other commodities 153–​154; brought to market concept and 37; conclusion on Malthus on 168–​170; correspondence between Malthus and Say on 138–​144; deficiency of aggregate demand and 159–​160; defined 136–​137; designated a truism 148–​151; exogenous and endogenous causes of depression and 156–​160; extended 164–​166; fundamental issue between Malthus and Say on 166–​168; as grammatical construct, and Malthus’s deconstruction 154–​155; persistence of belief in 168; policy implications of 160–​163; possibility of redundant capital and 146–​148; price-​quantity relation and 38; revenue-​generating basis of 155–​156; satiation of wants and 228–​230; Say’s statements on 137–​138; supply creating its own demand and 151–​154, 165 Schumpeter, J. 18, 75, 77, 223, 228 self-​interest: excessive 179; possible harsh effects of 179 Senior, N. W. 10–​11 service sector 214–​215 Shakespeare, W. 85 short run time perspective 7–​9 Sismondi, S. de 51–​52, 136, 177 Skinner, A. 16, 33 Smith, A. 14, 16, 58, 105, 116, 136, 162, 163, 171, 178; on capital accumulation 109–​110; on division of labour 48–​49; on duties of government 181; on education 192; on free import of corn 183; on labour 212; on landlords 75–​76; on savings 20–​21 Smith, K. 81 Souden, D. 70 Sowell, T. 8, 18, 32

Spence, T. 237 Spengler, J. 49, 67, 215 Spiegel, H. W. 74, 224 Spirit Level.Why Greater Equality Makes Societies Stronger 243–​244 Sraffa, P. 196–​197, 203 Stark, W. 64 Stiglitz, J. E. 243, 246–​247 Summary View 82 supply: brought to market concept and 36–​37; creating its own demand 151–​154, 165; defined 35–​36; price-​quantity relation and 37–​39 supply-​side economics 162–​163 tax-​and-​transfer policy 194 taxation 179–​180, 194 Taylor, F. 137 Ten Hours Movement 175 Thompson, T. P. 78 Thoughts and Details 149 Thweatt, W. O. 164, 167 time perspective 7–​12 Tooke, T. 32, 149 Toye, J. 8, 227 trade: benefits of home and foreign 182–​184; combined systems of agriculture, manufacturing, and 190–​195; fluctuations in 188–​190; restrictions on 185–​186; structural change induced by 186–​188 trade unions 243–​244 Traité 139–​140, 163 Treasury View 197, 200 Tucker, G. 117 Tunzelmann, G. N. 8, 82 underproduction 226–​227 unemployment relief 177–​178 uniformity of profits 119–​120 unions, trade 243–​244 unproductive consumption 26, 222–​225 unproductive labour: alteration to personal services from 209–​210; complexities and unsatisfactory features of definitions of 211–​213; critical commentaries from secondary literature on Malthus on 213–​214; criticisms of Malthus’s distinction between productive and 219–​220; defined 207–​209; examples of 210–​211; menial servants and 218–​219; as necessary but not sufficient cause of

268 Index growth 217–​218; practical applications and 217; relation between productive and 219; valuation of services and 216–​217 valuation of services and unproductive labour 216–​217 velleities 30–​31 Viner, J. 38–​39 von Humboldt, A. 178–​179 von Tunzelmann, G. N. 44 wages: capital accumulation and high 109–​111; cause of 105–​108; demand-​ and-​supply theory of 105–​108; future of 98–​99; incentives and aspirations for higher 100–​101; legislative intervention in 102–​103; Malthus as high-​wage advocate and 90–​96; Malthus as low-​wage advocate and 87–​90; policy implications of Say’s Law for 160–​163; as quantities or

proportions 111–​113; reductions in, as cure for depression 230; relation with profits 125–​135; see also labour; labourers wages-​profits relation: Malthus on inverse 128–​131; Malthus’s arguments in favour of direct 125–​126; Malthus’s synthesis of direct and indirect theorems of 132–​135; Ricardo on 126–​128, 131–​132 Walker, E. R. 145 Waterman, A. 109–​110, 243, 244 Wealth of Nations 48 welfare state 243 Weyland, J. 71 Whewell, W. 84–​85, 149 Wilkinson, R. 243 will to purchase 29–​30 Wilmot-​Horton, R. J. 56–​57 Winch, D. 6, 44, 194 Wolff, J. 224 Wrigley, E. A. 70