Differences among Underconsumption Authors

In underconsumption authors there is a tension between the need for saving in order to secure investment and production, and the want for a sufficient level of demand, which can grant an outlet to products.

Canard defines as “superfluous” all labor that goes beyond the production of bare neces­sities. Superfluous labor produces luxuries, whose consumption is also superfluous, that is unproductive. Ceteris paribus, the level of luxury is in proportion of the industry of a peo­ple. We need—he writes—a balance in the advantages provided respectively by the three sources of income (land, capital and labor). The sum of the advantages provided by one of these sources is always proportioned to the sum of exigible (i.e., exchangeable) superfluous labor that has created it. When luxury consumption exceeds what is produced by superflu­ous labor, it is consuming the very sources of incomes (Canard, 1801, 15-16,80).

Spence uses Quesnay’s defense of landlords’ luxury to support his own undercon­sumption view. His treatment reminds us of the old idea that “the luxury of the rich gives work to the poor.” This idea was widespread among Free Thinkers and seventeenth­century mercantilists.⁹ In Quesnay and Mirabeau such an attitude appears in the view that distribution is put in motion by landlords’ consumption (about which Quesnay approves the luxe de subsistence, which fosters agricultural production, while he condemns the luxe de decoration, which refers to manufactured products) (Quesnay, 1766, 895 and 1767, 580; Mirabeau, 1769-71, 200-203).

Spence uses this approach against Smith’s defense of parsimony. If all people saved, he says, no one would consume the industry’s products. The rule of thrift does not hold for landlords’ consumption. Without the latter, incomes and consumption of the other classes would diminish.

The Earl of Lauderdale, one of the most important authors, attacks Smith and shows a radical aversion to saving and thrift. Saving is not the basis of accumulation. An excess of it can even drive to stagnation, while generating both excess of investment and lack of demand. Besides, the increase of machines diminishes capital returns. The driving force of accumulation is an increase in consumption, while demand should be supported even through a public debt. Lauderdale also attacks the sinking fund.¹⁰

His main argument is that economists (especially Smith) confuse private and public wealth, since they consider the latter as the sum of private riches. This is wrong, although both types of wealth have the same three sources (land, capital and labor) (Lauderdale, 1804a, chap. 2, esp. pp. 39-41 and 1804b, 34-47). Private wealth is measured on the basis of its value, which is determined by scarcity. For an individual, the scarcer it is, the greater a good’s value, and the greater the owner’s wealth. In contrast, public wealth is calculated on the basis of its utility for society; otherwise, we should think that the less water a society disposes of, the richer it grows, which is absurd. Lauderdale goes on by providing other amusing paradoxes to prove that thrift or prodigality produces differ­ent effects for individuals and for society. Private thrift makes a man richer, because it increases his income. But general thrift makes society poorer (Lauderdale, 1804a, 8-10, 39-45 and 208-9: passim, and 1804b, 20-34: passim). Every prodigal man—he com­plains while quoting Smith—is regarded as a public enemy, and every thrifty person as a public benefactor (Lauderdale, 1804a, 41).

Note that the same argument had been used by Barbon and, forcefully, by Mandeville.

In 1821, an anonymous author put forward a brilliant criticism to Malthus’s under­consumption view (Inquiry, 1821, 39-41ff). He also noted that if profits go down because of the increasing demand for labor, accumulation does not slow down. Entrepreneurs simply adapt themselves to lower profits (ibid., 28-31).

The year after, John Cazenove, who edited the second, posthumous, edition of Malthus’s Principles, wrote a tract in support of Malthus. Capital accumulation, differ­ently from Lauderdale’s opinion, “does not necessarily diminish consumption [...] but merely changes the direction of it”, that is, changes it from unproductive to productive. Accumulation however “augment[s] the supply in relation to the demand” (Cazenove, 1822, 2). If demand does not increase, profits drop. In contrast, prodigality increases the proportion of demand to supply and raises the rate of profit (ibid., 3-5). Thus he calls for a due balance between productive and unproductive consumption. Cazenove always identifies necessaries with wage goods and comforts with luxuries. He takes the classical view to the extreme—from which underconsumption derives—that a gradual increase of workers’ comfort is not a realistic prospect.

The Rev. Chalmers maintains that Smith and Say imply the idea that an infinite expansion of capital exists. But they are wrong.¹² Also the increase in capital has its limits, as it is proved by Malthus and Ricardo’s analyses on fertile land (Chalmers, 1832, 60-65, 249fn, passim). Thus there can also be too many machines in existence, because excessive saving depresses the profit rate (ibid., 65-69ff.). Chalmers maintains that the expendi­tures of landlords and the clergy foster trade; however, while landlords do not give any service in exchange to the community, the clergy does (ibid., 252).

Charles Ganilh always seems to be swinging between the idea that saving on one’s own consumption is necessary to generate capital and the conviction that any consumption increases production.¹³ However, he criticizes Say’s law because, he says, excesses in produc­tion do exist.¹⁴ Yet he often repeats that production always adapts itself to effective demand, as the production of material objects adapts to the production of services (Ganilh, 1815, vol. 1: 315-17; vol. 2: 24-25). Besides, it is not true, as Malthus believes, that industrial nations are short lived; on the contrary, they are richer than the agricultural ones (ibid., vol. 1: 321-23).

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