Criticisms of Underconsumption Theories
In those years the discussion was very intense, with comments, replies and rejoinders made to one another in the shortest time.
Mill (1808, 75-80) sarcastically criticizes Spence for his praise of landlords’ luxury.
He, says Mill, does not even distinguish between landlords’ unproductive consumption and entrepreneurs’ productive consumption (ibid., 68-69). Mill exposes at length Say’s law (ibid., 81-88), which he expresses in an extreme (and certainly wrong) version: production of commodities creates a market for its own commodities (ibid., 81). Mill (1821), like many others, repeats Smith’s sentence “That which is annually produced is annually consumed,”20 but he suggests a “Say’s law interpretation” of it (see also the following section of the same book).Colonel Torrens, against Sismondi, argues that consumption capacity necessarily grows along with production capacity.21 He also bitterly criticizes Robert Owen as if the latter were an economist, not a social reformer. Owen had written that technical progress produces more goods than the present structure of society allows its population to consume. Torrens’s (1819, 74) answer is based on Say’s law: “The supply of one set of commodities constitutes the demand for another.” However, Owen did not refer to underconsumption; he was strongly favorable to technical progress and to the increase of (cheaper) goods. He referred to the enormous inequality of incomes, and he was right (see Owen 1815 and 1818).
Say criticizes Lauderdale’s thesis that saving can damage production, and says that Lauderdale supports waste.22 He untiringly repeats that products are exchanged only with products, services included.23 This would mean that production cannot exceed consumption. He also repeats that it is impossible that all products be in excess at the same time, and, in the chapter devoted to criticize Sismondi, adds, “If each man produces much, each man will consume much” (Say, 1828-29, vol.
1: 345, vol. 2: 210). What was later called Say’s law is best expressed in his chapter “On the debouches” (1803, book 2, ch. 15) and in his letters to Malthus (Say, 1820), especially the first. The most frequent argument opposed to the underconsumption view by Say and all the followers of his law is that “to save is to spend,” although in another way. Then, overproduction is impossible.Ricardo (1820, 234) appears scandalized about Malthus’s solution to the problem (unproductive workers will absorb the surplus). He too appeals to Say’s law: “Mr. Malthus never appears to remember that to save is to spend” (ibid., 245); and “as I think that demand depends only on supply, the means of obtaining abundance of commodities can never I think be otherwise than beneficial” (ibid., 198).
Ricardo (1821, 343-44) also suggests that the surplus will be absorbed by the population’s increase (for Malthus’s answer, see above). Morton Paglin has noted that Ricardo’s argument holds only in the long run (1961, 134-50), but there are more cogent objections. If an increase in resources would automatically cause an increase in population (as both Malthus and Ricardo believe), then the scarcity of land would stop accumulation. Besides, even in that period this automatic consequence was not considered certain. Torrens (1808, 83-84: note B) challenges Malthus’s law of population because, he writes, Ireland is much poorer, but also much more prolific, than England.
Moreover, Ricardo himself is not so sure that accumulation would absorb the increase in the working population. In the chapter on machinery, added in the last edition of his Principles, he changes his mind (due to John Barton’s objection)24 and admits that—especially in sudden technical changes—an increase in profits and rent, consequent to the increase in productivity, can make net produce (income) rise, while gross produce relatively diminishes. This can make some workers redundant, because a part of the previous wage fund can be destined to unproductive (personal) consumption rather than to investment (Ricardo, 1821, ch. 31). However, in order to sugar the pill, Ricardo (ibid., 475-77) adds, the more the rich consume in the service of menial servants, rather than in luxuries, the more workers will be employed in new jobs.25 This is a curious conclusion for a fierce enemy of unproductive labor. In any event, McCulloch and Torrens criticized Ricardo’s change of mind.26 Besides, Ricardo here neglects the fact that production of luxuries also creates jobs and, moreover, productive jobs, if their products are sold.
6.