by Mario Rizzo
In March of this year Brad DeLong wrote a post called “More from the History of Economic Thought: John Stuart Mill Contra Say’s Law, 1844”
It contained a long quotation from John Stuart Mill from his essay “Of the Influence of Consumption on Production,” in Some Unsettled Questions of Political Economy (1844, but written in 1829/30). The quotation purports to show that even John Stuart Mill did not believe “Say’s Law.” However, DeLong leaves out the three final paragraphs of the article. (I append them at the conclusion of this post. The italics are mine.)
These paragraphs make clear that to say “there cannot be excessive production of commodities in general” is not to say that depressions are impossible. Mill makes clear that this is a wrong interpretation of Say’s Law: “[I]t in no way contradicts those obvious facts.” Furthermore, Mill says that the deniers of general overproduction have never claimed otherwise.
The only meaning of a general “excess” of commodities that makes sense is a fall of their value relative to money. In other words, people might want to hold more money as a proportion of their income. Say’s Law does not exclude this.
What is does exclude is the possibility that production of wealth might not create the potential to demand it. In other words, we need not worry about deficient demand when commodities are produced in the proportions desired by consumers. Read the rest of this entry »