Macroeconomic History

An interesting post by Brad DeLong here. The first item in it that is too little noted is that JB Say changed his mind about general gluts:

'Yet Say changed his mind. By 1829, in his analysis of the British financial panic and recession of 1825-6, Jean-Baptiste Say was writing that there could indeed be such a thing as a general glut of commodities after all: "every type of merchandise had sunk below its costs of production, a multitude of workers were without work. Many bankruptcies were declared..."'

That's correct. In the Malthus-Say debate, Say conceded to Malthus. Which makes a comment like this one interesting:
"Say emerged victoriously from his polemics with Malthus and Sismondi."

Well, except in his own eyes!

Secondly, DeLong clarifies something that only became apparent to me last year: the deepest divide in macro is between those who believe that general overproduction is possible and those who think that only sectoral imbalances can occur. The list of adherents to the latter view is interesting here: "Think of Karl Marx, Friedrich Hayek, Ludwig von Mises, Andrew Mellon, Robert Lucas, et cetera."

That's right: Marx.


  1. Hey, don't stop the post at that point! Please elaborate on that Marx thing!

    I always thought that a "general glut" is something possible, just imagine the case that the demand for money (or supply of money) suddenly grows (shrinks). That would trigger a "general glut".

  2. Well, Marx and Engels thought the "anarchy" of capitalist production would result in frequent sectoral imbalances, and that they caused recessions.

  3. Sure, but I also thought they believed that general gluts are also possible. Marx is always remembered as one of those "over-production/under-consumption" theorists. The same for Engels:

    “We have seen how the capacity for improvement of modern machinery, which is pushed to a maximum, is transformed by the anarchy of social production into a compulsory commandment for the individual industrial capitalist constantly to improve his machinery, constantly to increase its productive power. The bare factual possibility of extending his field of production is transformed into a similar compulsory commandment for him. The enormous expansive force of large-scale industry, compared to which that of gases is mere child’s play, now appears to us as a need for qualitative and quantitative expansion that laughs at all counteracting pressure. Such counteracting pressure is formed by consumption, by sales, by markets for the products of large-scale industry. But the capacity of the market to expand, both extensively and intensively, is primarily governed by quite different laws which operate far less energetically. The expansion of the market cannot keep pace with the expansion of production. The collision becomes inevitable, and since it can yield no solution so long as it does not burst the capitalist mode of production itself, it becomes periodic. Capitalist production generates a new ‘vicious circle’.”

    For instance, take this Keynes quote:

    "The great puzzle of effective demand with which Malthus had wrestled
    vanished from economic literature. You will not find it mentioned even once in the whole
    works of Marshall, Edgeworth and Professor Pigou, from whose hands the classical
    theory has received its most mature embodiment. It could only live on furtively, below
    the surface, in the underworlds of Karl Marx, Silvio Gesell or Major Douglas."

    What do you think?

  4. Interesting. Sowell did his PhD on Marx and claims he rejected general gluts, and DeLong thinks so too. But your quote seems to indicate otherwise.

    Where is your quote from?

  5. Well, that's actually an Engels quote. I never recall reading anything from Marx getting the question straight. It's quite possible that Keynes is wrong about his assessment of Marx, and that Engels thought different to his mentor.

    Going back to the general glut issue, I really find it hard to understand the real problem about it. I think that even Mises would understand that a sudden rise in the demand for money would cause something that can be properly called a "glut". The prices will then adjust accordingly to the new reduced demand, but it would be a painful adjustment, and we cannot know its speed a priori. So then, we're again in heavy empirical grounds.

  6. Here is DeLong again placing Marx with Mises and Hayek:

  7. Great posts by Brad DeLong! The market has its great merits, but it's a fool's play to assume equilibrium, stability, full employment and/or consider it as a never-ending process towards an ERE.

  8. Say appears to have acknowledged that downturns in the business cycle could happen. Baumol has even argued that

    “Say and other writers recognized that the zero value of the sum of excess demands, or supply creates its own demand (“Say’s identity”), may not hold in the short run. Say’s passage in his Letters to Malthus … even suggests an explanation – a desire to hoard or, as we would now put it, a temporary excess demand for money. But they thought the market would fairly quickly and automatically restore equilibrium” (Baumol, W. J. 1999. “Retrospectives: Say’s Law,” Journal of Economic Perspectives 13.1: 201).

    In other words, it appears that Say eventually and partly, though not fully, understood what Keynes himself believed: changes in liquidity preference can cause insufficient demand and involuntary unemployment.

  9. You've got a link on his blog (DeLong's... not Marx's).

  10. Damn, I was sure I could get a link from Karl. There is no reason that death should stop the New Socialist Man, is there?

  11. On a somewhat-related note, does anyone know which words of Engels this reviewer is speaking of? It's from an Amazon review of Marx's The Poverty of Philosophy.

    "But the most interesting item in the volume is Engels's Preface of 1884 to the First German Edition, which includes a very lucid and forthright defense of the functions of the competitive price mechanism, and a correspondingly vigorous attack on the labor-money scheme of Rodbertus as a kind of "Utopian" socialism which afforded no solution to the problems of the allocation of resources. With his usual generous modesty vis-à-vis his senior partner, Engels suggests (p. 15) that he is simply applying to Rodbertus the criticisms Marx had directed against Proudhon and John Gray (in a passage in the Critique of Political Economy printed here as an appendix). In fact, however, the fundamental point about the essential functions of a competitive price mechanism in allocating resources hardly emerges at all in Marx's polemics, whereas Engels's paragraphs (pp. 17-22) might almost have been written by Mises."

  12. Katy, I don't understand. What Engels quotation are you refering to? And where did you get that quote?

  13. "‘Continual deviations of the prices of commodities from their values are the necessary condition in and through which the value of the commodities as such can come into existence. Only through the fluctuations of competition, and consequently of commodity prices, does the law of value of commodity production assert itself and the determination of the value of the commodity… become a reality. To desire, in a society of producers who exchange their commodities, to establish the determination of value by labour time, by forbidding competition to establish this determination of value through pressure on prices in the only way it can be established, is therefore merely to prove that, at least in this sphere, one has adopted the usual utopian disdain of economic laws… competition, by bringing into operation the law of value of commodity production in a society of producers who exchange their commodities, precisely thereby brings about the only organisation and arrangement of social production which is possible in the circumstances. Only through the undervaluation or overvaluation of products is it forcibly brought home to the individual commodity producers what society requires or does not require and in what amounts. But it is precisely this sole regulator that the utopia[n]… wishes to abolish. And if we then ask what guarantee we have that necessary quantity and not more of each product will be produced, that we shall not go hungry in regard to corn and meat while we are choked in beet sugar and drowned in potato spirit, that we shall not lack trousers to cover our nakedness while trouser buttons flood us by the million [the utopian] triumphantly shows us his splendid calculation, according to which the correct certificate has been handed out for every superfluous pound of sugar, for every unsold barrel of spirit, for every unusable trouser button, a calculation which “works out” exactly, and according to which “all claims will be satisfied and the liquidation correctly brought about”.’"

  14. Foofoo, I think she meant the Engels quote above.

    Are you named after the West African food?

  15. No. I'm just a Java developer (you were one, right?) who just uses the common variable example names "foo" and "bar" as part of my nicknames.

  16. That I was, foobar!

  17. DeLong is only half right. Say did recognize that there could be a general excess supply of non-money commodities corresponding to an excess demand for money. But Hayek and Mises never said that a depression was an economic equilibrium. Quite the contrary. To say they did is to be as poor a historian of economic thought as George Soros.


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