History of Economic Thought

Chapter 6 Thomas Malthus and J.B. Say: The political economy of population behavior & aggregate demand

Commodity gluts: An insufficiency of aggregate effective demand that results in unsold goods.

Diminishing returns: In a given state of the arts, the productive capacity of land increases at a decreasing rate beyond a certain point. Malthus inferred from this principle that the food supply could only be increased at an arithmetical rate.

Hedonism快乐主义: The explanation of human behavior in terms of the objective of maximizing pleasure & minimizing plan. In economics, the counterparts of pleasure & pain are monetary gains & losses.

Principle of population: The hypothesis that, in the absence of restraints, population will tend to increase at a geometrical rate as long as there is a food supply.

Say’s identity: Equality between aggregates demand & supply in money terms. It is predicated on the assumptions that the demand for cash balances is 0. Say’s equality assumes that money serves only as a medium of exchange and not as a store of value.

Utilitarianism: A system of ethics, primarily associated with Bentham and other philosophic radicals, that maintained that the ideal of “the greatest good for the greatest number” could be achieved by educative & punitive measures to promote the kinds of individual choices that would maximize human happiness.


Summing up: Malthus’s key points on population growth

Malthus argued that he required only 2 postulates to prove the unattainability of the millennium Godwin & Condorcet foresaw: 1. “That food is necessary to the existence of man”; 2. That “the passion between the sexes is necessary, and will remain nearly in its present state.” The potential increase of population, when unchecked, is in a geometrical ratio, whereas subsistence can increase only in an arithmetical ratio. It’s obvious therefore that the growth powers of population greatly exceed those of the food supply. This implies that there must exist a strong & constantly operating check on population because of the difficulty of obtaining subsistence. The latter is clearly attributed to diminishing returns on land.

Summing up: Say’s key point about the impossibility of gluts

Say’s most fundamental point is that goods are intended to be exchanged for other goods; every act of production simultaneously creates a market for the product produced by making the monetary means of purchasing it available in the form of income payments to those engaged in its production. Aggregate effective demand is thus necessarily the equivalent of aggregate supply—a generalization that has become known as Say’s law. Its logic asserts that a state of general overproduction, or glut, is impossible, even though specific commodities may, at times, be produced in greater quantities than the demand for them warrants. Such maladjustments, Say argued, tend to correct them. If the supply of a given commodity is excessive, the losses incurred in its production will soon diminish its supply; conversely, if the supply falls short of current demand, the resulting high profits will expand output so that individual demands & supplies will tend to be balanced.


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