Malthusian Underconsumptionism as Mere Product of the Times
by Ryan Safner
[This paper was originally written for ECON 3462 - History of Economic Thought]
Reverend Thomas Malthus’ attempts to refute the universality of “Say’s Law of Markets” were largely driven by the rash conditions of war and post-war recession in the UK. Malthus’ underconsumptionist fears, and his more famous population thesis, both come during a coincidently chaotic time in European history – the Napoleonic Wars and the subsequent post-war depression. A sound man of empirics like the good Reverend could find economic misery all across Europe in the early 1800s as a result of these conditions, and consequently would challenge Say’s Law in order to account for this. Malthus’ dismal theories were merely ‘a product of the times:’ in the bad times, during both the inflationary war and the deflationary recession, he contested the Classicals’ pristine assumptions of full employment. In the good times, by the 1820s when Europe had recovered, he simply lost interest in the debate and moved on. Both of Malthus’ unique theories – the “population principle” and the underconsumptionist call for an “unproductive class” can be explained by the empirical history of the chaotic era. The fears of a Malthusian catastrophe – that population would outstrip food production—may have largely been a result of barriers to international trade for wheat between the war-torn European powers. Following the war, amidst a depression, mass unemployment and “redundancy of capital” would prompt his calls for an “unproductive class” to sop up the excess production.
Europe had been in turmoil for an entire generation – from 1789 to 1815. For a quarter of a century, the reactionary monarchist forces were in a prolonged conflict with the French Revolutionaries and Napoleon Bonaparte. The fury of war obviously caused great economic strain on both Great Britain and the continent – national governments amplified their expenditures on troops and war materiel, inflated their money supplies, and burgeoned their debts & deficits in order to pay for such a great struggle. Amidst this chaos were numerous international economic sanctions in the form of blockades, tariffs, and other mutual barriers to entry between the belligerent parties. Napoleon’s large-scale boycott of British goods under the “Continental System” prompted the British Parliament to pass the Orders in Council in 1807 restricting trade with the French Empire, satellite states, and neutral countries. On top of this were the infamous Corn Laws in 1791 (and again in 1815) to protect the weakening domestic production of wheat in the UK. Additionally, the greatest neutral power of the time, the United States, passed the Embargo Act of 1807 under President Jefferson to institute complete national autarky.
Thomas Malthus first made a name for himself as a commentator on political economy in when he published An Essay Concerning the Principle of Population. Malthus claimed that the production of agriculture to sustain humanity would soon be overpowered by the growth of population, leading to “misery and vice.” He made frequent use of statistics and empirical evidence to support his dismal thesis:
Let us now take any spot of earth, [Great Britain] for instance, and see in what ratio the subsistence it affords can be supposed to increase. We will begin with it under its present state of cultivation. If I allow by the best possibly policy…the produce of this Island may be doubled in the first twenty-five years…In the next twenty-five years, it is impossible to suppose that the produce could be quadrupled. It would be contrary to all our knowledge of the qualities of land. The very utmost that we can conceive, is, that the increase in the second twenty-five years might equal the present produce. (Malthus, 1798, pp.199-200)
He then compared the conditions of Britain with the relatively abundant America:
“In the United States of America, where the means of subsistence have been more ample…than in any of the modern states of Europe, the population has been found to double itself in twenty-five years.” (Malthus, 1798, p.199)
Malthus published his Essay in 1798. The French Revolutionary Wars had been raging for nine years and the Corn Laws standing for seven. The United States, at this point, was still a neutral party, relatively isolated from the trade wars over commodities such as wheat until 1807. Economic historian Robert Heilbroner explains the impetus for the Corn Laws:
What had happened in the short span of time since Adam Smith was that England, long a grain-exporting nation, was being forced to buy foodstuffs from abroad.…the actual growth of population had caused the demand for grain to exceed the supply and had quadrupled the price of a bushel of wheat. And as prices rose, so did agricultural profits…As grain soared, enterprising merchants began to buy wheat and corn abroad and bring them into the country…Hence the flow of inexpensive grain from overseas was hardly viewed in a tolerant light…Dominating Parliament, the landlord simply legislated himself an ironclad system of protection…the Corn Laws, which imposed sliding duties on the important of grain; the lower the foreign price fell, the higher went the duty. In effect, a floor was established to keep low-priced wheat permanently out of the English market.” (Heilbroner, 1999, p.79-80)
With such restrictions on imported grain, the supply of grain remained scarce, boosting profits and rents to landlords, but leaving large portions of the working population without food. Thus, given the real world experiences of the time, it was entirely logical for Malthus to fear the worst.
Following the war’s close in 1815, the economic climate still worsened, but in a reversed direction. There was wide-scale unemployment and economic stagnation as sales grew to a halt. Depressions such as these were a new trend, never before seen in Europe. Prior to 18th Century, small depressions could be traced to specific ubiquitous acts by Kings and Parliaments—the debasement of coinage, borrowing on poor credit, large tax for incessant wars & royal escapades, etc. But ever since the Industrial Revolution, a “business cycle” had emerged, and one of the first “troughs” occurred in the twilight of the Napoleonic Wars.
Classical economics under the Ricardian system, with its pristine theoretical abstractions, completely disregarded any possibility of this blemished phenomenon. Jean Baptiste Say had asserted that all production is paid for by other production, that all markets will “clear” by allowing the price to equilibrate the quantities sold, and therefore that there could never be a problem of “general gluts,” or unsellable excess produce.[1] This doctrine, popularized as “Say’s Law,” became the focus of intense debate between Malthus and Ricardo. By 1816, it became starkly evident for all to see that there were general gluts – large-scale unemployment and depression naturally left large stocks of unsold goods in the markets. Malthus led the charge against the law based on the empirical real world evidence, unlike his friend and opponent, who defended the law only with the “Ricardian vice” of abstraction.
Malthus opined that Say, Ricardo, and other such proponents had fallen into “some fundamental errors” and that “effective demand” must be satisfied by more than simply “offering one commodity in exchange for another,” (Malthus, 1820, p.296). In producing ever-larger quantities of goods by more ever-more productive (capitalized) methods, he warned that “[the various goods’] relation to each other may not have changed; but their relation to the wants of the society…to bullion, and…to domestic and foreign labour, may have experienced a most important change,” (Malthus, 1820, p.296).
Malthus believed that effectual demand could not be satisfied by capitalists and laborers alone:
It has appeared then that, in the ordinary state of society, the master producers and capitalists, though they may have the power, have not had the will, to consume to the necessary extent. And with regard to their workmen, it must be allowed that, if they possessed the will, they have not the power. (Malthus, 1820, p.305)
These classes contribute to production but do not consume enough, and by doing so, fail to satisfy the greater “will” (effective demand), causing these general gluts, according to Malthus. This surely appeared to make sense in the historical background of depression. As a viable solution to the problem he believed that a class of “unproductive consumers” ought to sop up the excess production, and “supply this will” without themselves contributing anything in return, (Malthus, 1820, p.311).[2] This class will obviously be composed primarily of landlords, such as Malthus, who can enjoy a comfortable lifestyle of luxury and idleness.
Every society must have a body of unproductive labourers; as every society…must have statesmen to govern it, soliders to defend it, judges and lawyers to administer justice and protect the rights of individuals…No civilized state has ever been known to exist without a certain portion of all these classes of society in addition to those who are directly employed in production. (Malthus, 1820, p.307)
The government would function as another perfect outlet to stimulate consumption, contributing nothing to production and only consuming resources, since:
it cannot be denied that they contributed powerfully to distribution and demand…they ensure that consumption which is necessary to give proper stimulus to production; and the desire to pay a tax…must often operate to excite the exertions of industry quite as effectually as the desire to pay a lawyer or physician. (Malthus, 1820, p.308)[3]
The political and economic conditions of Britain can certainly account for many of Malthus’ observations and prescriptions. With Malthus’ Principles of Political Economy being published in 1820, he presumably was writing much of it during the post-war depression and painful recovery.
Following the peace of 1815, the British government, like many others, had to deal with war pensions for its veterans, severe fiscal imbalances, interest payments on the soaring national debt, and the devaluation of the pound. The British government had temporarily suspended the convertibility of the pound to specie during the war in order to inflate the money supply beyond its gold base and pay for its abnormally large expenditures. Then, in 1816 the Bank of England launched the “Great Recoinage” which unadvisedly reestablished the parity of the pound to the pre-war level. Ignoring the rampant wartime inflation which had devalued the currency, such a move prompted a painful deflation and economic hardships, (Mises, 1953, p. 455). With the poor monetary situation also came further price controls. Parliament, in all its wisdom (or corruption), observed the astronomical price of wheat under Napoleon’s blockade and decided to raise the tariff on wheat even higher, passing the Importation Act in 1815, (Heilbroner, 1999, pp.80-81). The following year, 1816, was known as “the year without a summer” due to further crop failures. The political situation deteriorated into reactionary radicalism and violent riots, which the government responded to with political repressions by suspending the Habeas Corpus Act in 1917 and passing the notorious Six Acts in 1819.
In such a context it becomes plainly obvious how Malthus could make such abysmal conclusions and challenge the crystal palace of Classical economics and its dogma of “clearing markets.” His population thesis could almost be confirmed, on the surface, in 1816 with the rioting and food shortages. His theory of gluts also stemmed from an attempt to explain the unexplainable first appearance of the business cycle in industrial capitalism. The typical business cries of “overproduction,” and harsh selling conditions in any downturn captivated Malthus to weave an entire theory out of it. With so many price controls (particularly the Corn Laws) in place, prices were prohibited to freely adjust and clear the market, leading to the general gluts that Malthus observed.
By 1823, the British economy had fully recovered from the depression. Subsequently, the political situation improved greatly, with the repeal of the controversial Six Acts. Fittingly, Malthus ceased lost interest in the theory of gluts by 1824, and wrote no more on the subject, (Heilbroner, 1999, p.88). Malthus, then, appeared to have only believed what was could explain the condition of his times. He did not combine his observations of war hysteria and post-war pain to provide a general theory of business cycles, and he cannot be faulted for this, as it was the first major occurrence.[4] However, comparing his two thesis side-by-side is rather intriguing: his first thesis, that the populace would ultimately overconsume goods stands in stark contrast to his latter thesis, that the populace chronically underconsumes goods. On any account, it seemed perfectly logical for Reverend Malthus to conclude that Say’s Law is not universal based on the fact that it was being violated outside his ivory tower in the 1810s.
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Works Cited:
Heilbroner, Robert L. The Worldly Philosophers Touchstone. (New York, NY.: 1999)
Holmberg, Tom. The Acts, Orders in Council, &c. of Great Britain [on Trade], 1793-1812. The Napoleon Series Research Subjects: Government & Politics. April 2003. <http://www.napoleon-series.org/research/government/british/decrees/c_britdecrees1.html>
Malthus, Thomas. Principles of Political Economy. 1820. In Steven G. Medema and Warren J. Samuels. The History of Economic Thought: A Reader. Routledge. (London: 2003).
________. An Essay Concerning the Principle of Population. 1798. In Steven G. Medema and Warren J. Samuels. The History of Economic Thought: A Reader. Routledge. (London: 2003).
Mises, Ludwig von. Theory of Money and Credit. Yale University Press. (New Haven, CT.: 1953). <http://mises.org/books/moneyandcredit.pdf>
Footnotes
[1] Underconsumptionists like Malthus and later J.M. Keynes fail to acknowledge the critical role of price in the clearing or non-clearing of markets. It is absurd to think of being “unable to sell” a stock of goods without reference to the price of the goods in question, which is likely too high. A seller would thus never fear being unable to sell his produce if he would but lower the price to acquiesce to the demands of consumers. If he is resistant to lower his price, then it is his fault and his fault alone that there is a “glut” of unsold goods. Or, more likely, if it is a governmental act prohibiting him from lowering his price, then the blame alone rests on that.
[2] Ironically, (unless production is granted as “gifts” to the unproductive class) they would be contributing to production by selling their money, which would be further invested in capital or spent on consumption.
[3] Malthus, however, was cautious when it came to government intervention:
I am far, however, from being insensible to the evils of a great national debt. Though, in many respects, it maybe a useful instrument of distribution, it must be allowed to be a very cumbersome and very dangerous instrument…“The revenue necessary to pay the interest of such a [national] debt can only be raised by taxation…if pushed to any considerable extent, can hardly fail of interfering with the powers of production, there is always danger of impairing one element of wealth, while we are improving another…it cannot exist without rendering such revenue in some degree insecure, exposing a country to the risk of a great convulsion of property.” (Malthus, 1820, p.309)
[4] Malthus notes that “A state may certainly be ruined by extravagance; and a diminution of the actual expenditure may not only be necessary on this account…” (Malthus, 1820, p.300) and also that, “A third objection to [a national] debt is, that it greatly aggravates the evils arising from changes in the value of money. When the currency falls in value, the annuitants, as owners of fixed incomes, are most unjustly deprived of their proper share of the national produce,” (Malthus, 1820, p.309). Though he is ideologically very distant, these casual tangents, combined with that in footnote 3, hint the path to the Austrian Business Cycle Theory: The ABCT explains the post-war depression as the restoration to health and necessary consequence of the fractional reserve banking caused by cutting the gold backing of the GBP during the war (among other things). See Mises, 1953.
