Introduction

Underconsumption theories maintain that capitalist accumulation has an inner ten­dency to make demand permanently fall short of the increase in production. According to Michael Bleaney (1976), we cannot speak about an underconsumption view before the nineteenth century, because only Adam Smith separated consumption and invest­ment expenses.

Later, Smith’s hostility to unproductive consumption and his unconditional support of investment raised doubts among underconsumption economists. But only a few, like William Spence, tried to revive the physiocratic approach (see below). On the contrary, Smithian followers criticized the physiocrats on this issue. J. B. Say ironically wrote, “Many people [...] have imagined that to encourage consumption means fostering pro­duction. The Economists [the Physiocrats] seized this idea and made it one of the main principles of their doctrine.”¹ Even more sarcastic wasJames Mill (1808, 75-80) when criticizing Spence and the physiocrats for defending landlords’ consumption. Despite this,Jacob Hollander’s (1928, lxxix-lxxx) idea of tracing back the underconsumption view to the physiocrats appears inappropriate.

However, Smith’s commitment for saving drove to neglect the importance, for accu­mulation, of consumption increase, and of the consequent increase in skill. About pro­ductivity growth, Smith only relied on the opposite process: division of labor. The idea that accumulation only consisted in a growing division of labor led economists to uncrit­ically accept the first industrial revolution, where mechanization was decreasing the need for skilled labor and was pushing wages down to the subsistence level. Classical authors assumed these conditions as unavoidable economic laws. Thus, when the peri­odical crises first appeared, it was practically impossible for economists to avoid an uneasy alternative: either denying the importance of the crises and maintaining that accumulation could go on indefinitely (this was the position of Say, David Ricardo, even Karl Marx, and their respective followers) or stating that capitalist accumulation was destined to reach a standstill (underconsumption theses). The perspective of a stationary state was the trait-d’union between the two views. This alternative excluded the prospect that many Enlightenment authors had hinted at, that is, a steady investment in human capital.

The enormous literature about the classical debate on underconsumption still leaves some issues unclear. Here we are set to argue the following.

First, since the 1930s two wrong interpretations of underconsumption have generated great confusion. One—best expressed by Gottfried Haberler—mistakes underconsump­tion for a simple element of the trade cycle. The other, attributable toJohn Maynard Keynes, improperly reduces underconsumption to hostility toward saving and extends this supposed attitude to mercantilists (see below, section 2).

Recognizing the two interpretations of underconsumption are very different from one another, we only examine the authors who started to publish in the period 1800-20, when the main features of the debate were implemented (section 3).

However, the critics of underconsumption answered the following question: where the increasing final consumption goods were to be employed productively without caus­ing gluts (section 5).

Critics show that in the long run Say’s law suggests a prospect of indefinite increase of new needs and new goods (section 6). However, the question remains: who will consume these goods? In real experience, they have been absorbed by skilled labor, which—since then—has been growing more and more. But the economists of 1800-20 never grasped this process. Since their debate was the blueprint of the economists that followed, the right solution never emerged.

chap. 22: respectively 196 and 202-3) himself discusses underconsumption within the trade-cycle analysis.

In the end, these authors have the same view of the classical critics of undercon­sumption, who reduced the latter to a temporary unbalance between production and consumption in some sectors.⁴ The only difference is that for the classical critics gluts were a casual, unpredictable phenomenon, while for the moderns it was a cyclical, nec­essarily superable, passage. The latter view shows that long-term capitalist accumulation and its possible breakdown have been canceled in the neoclassical framework. It has been reduced to an invariable alternation of upswings and downswings.

Haberler does ask himself, What do secular processes—like demographic varia­tions, increase in stock and technical progress (which were the very objects of the classic debate)—have to do with business cycles? He answers, nothing (1937, 121-22), but he does not deduce that underconsumption and trade cycles are separate issues.

In the same years Keynes gives importance to the underconsumption approach, but suggests that it simply opposes excessive saving. He cites many authors who, according to him, support an increase in consumption and state that parsimony hinders development. However, Keynes neglects the difference between hoarding and saving. Before the mer­cantile economy, hoarding was widespread; it was coherent with a static economy, where occasions for investment did not exist. Saving, in contrast, arose with commercial econ­omy. It was due to the tendency—opposite to hoarding—to invest wealth. This tendency aimed at a productive use of wealth, not to devote it to wars and ostentatious luxury.

Then, contrary to what Keynes suggests, the pre-Smithian authors he mentions⁶ are favorable to saving. Also they support consumption for very different reasons, neither of which can be labeled as an underconsumption attitude. Barthelemy de Laffemas (1597) supported the consumption of silk in France because he pressed for an import substitu­tion policy, not for an alternative to saving.⁷ William Petty, Samuel Fortrey and Friedrich von Schrotter, in supporting luxury, expressed the seventeenth-century commonplace that “the luxury of the rich gives work to the poor” (see also below). This statement, however, did not mean an opposition to saving and investment. At the end of the seven­teenth century, Nicholas Barbon and John Cary praised increase in consumption, but it was in order to encourage domestic demand. The same attitude is to be found in Bernard Mandeville, the main representative of Free Thinkers’ economics. Mandeville actually appears closer to Keynes’s interpretation; however, his polemic target was not saving but rather the Christian ethics of renunciation.⁸

In the eighteenth century the favor toward an increase in consumption augmented, but, again, not as a dismissal of saving. Contrariwise, such an increase was seen as a pow­erful factor of accumulation. Most authors, Smith included, supported high wages. Some of them praised high wages because they allowed a higher skill and increase in produc­tivity. In general, Enlightenment authors—except physiocrats—were in favor of comfort for the productive classes, but bitterly attacked the unproductive ostentatious luxury of the aristocrats, which kept wealth away from investment (see Perrotta, 2004, ch. 11).

3.