the monetary department, the general theory of the rates of foreign exchange does not supplement the proposition that, under international gold monometallism, exchange rates fall within the gold points—and are, in this sense, ‘determined’ by them—but ousts it from the key position it used to hold. Just as a general theory has reduced the gold-point theorem to the status of one of many propositions about a special case, so the theory of reciprocal demand has reduced the comparative-cost principle to the status of a proposition about a particular aspect of trade under commercial competition, that indeed retains some importance—because it is particularly useful in destroying a prevalent error—but is no longer fundamental to the theory of international values. 16 Thus the two are not complements of one another, any more than they are alternative theories of international values, but their relation is that of a particular theorem and a comprehensive theory. Now for the relation of comparative cost and reciprocal demand to the general value theories of their authors. As regards Ricardo, we may look upon the comparative-cost principle as an exception from the labor-quantity law, for it describes a case where commodities no longer exchange according to this law. This exception is the more serious because it covers not only international values but also, in all cases of less than perfect mobility of labor, domestic values. In fact, together with all the other exceptions and qualifications that Ricardo was forced to make, it really rips up the entire fabric of Ricardo’s theory of value. But we can also, with almost equal justification, interpret the comparative-cost principle as an outgrowth of the labor-quantity theory from the standpoint of which the problem of international value did present itself to Ricardo and which does supply the technique of his argument. Accordingly, it has been held by high authorities (Ohlin, Mason) that Ricardo’s analysis of international trade is vitiated by its dependence on an obsolete theory of value. But it must not be forgotten that, as Haberler has shown, the principle of comparative cost admits of restatement in terms of opportunity costs. Quite different is the relation between Mill’s reciprocal demand and his general theory of value. Reciprocal demand—notwithstanding an impression to the contrary that might be created by Mill’s wording, which was as we know at times misleadingly Ricardian—is completely independent of any labor-quantity or even real-cost theory of value. On the contrary, it blends perfectly with his general supply and demand theory, which, by virtue of reciprocal demand, is successfully extended to the case of international values. 17 This 16 I quite agree with Professor von Haberler’s phrase that the comparative-cost principle ‘merges’ into a general theory of international value of which the equation of reciprocal demand is the central theorem (op. cit. p. 123). But precisely because I approve of this phrase, I cannot approve of the other phrase Haberler uses in the same place, viz., that the theory of reciprocal demand is ‘an essential supplement to the theory of comparative costs.’ 17 We may thus consider Mill’s theory of international values (or of commercial competition) as a particular case of his general supply and demand analysis, defined by the assumption that there be no mobility of factors. But there is nothing to stop us from putting it the other way round and from saying that the general case is represented by his theory of international value and that domestic value constitutes the particular case, which is defined by perfect mobility of factors. This is worth our while to observe because a similar situation has emerged of late with respect to Keynesian doctrine: most economists would describe the difference between the Walrasian and the Keynesian models by saying that the latter is, as it were, cut out of the former by means of several restrictive (‘particularizing’) assumptions; but Lord Keynes himself regarded History of economic analysis 582 case, joining the list of all the other cases in which analysis by ‘cost of production’ also fails, thus helps to strengthen and to unify Mill’s theory of value, whereas it weakened that of Ricardo. Now, supply and demand, considered as a theory of value (which it is not really, as we know), is a half-way house between real-cost and marginal-utility theories. Therefore, Mill’s equation of reciprocal demand constitutes another step away from the former and toward the latter. And this is the reason why the theory of international values, as formed by Mill, stood up under the fire of criticism so much better than did the rest of the ‘classical’ system and why it remained dominant doctrine right into the 1920’s. A discussion of the criticisms—both justified and unjustified—that were leveled, then and later, at both the comparative-cost principle and the equation of reciprocal demand would be interesting in itself and highly revelatory of the amount of ability and analytic power that went into economic controversies at various times. More important still, such a discussion would greatly improve the reader’s understanding of the theory of international values and of what it can and cannot do. But it is quite out of the question to embark upon such a discussion here. Fortunately, however, reference to the works of Viner and Haberler will amply fill this lacuna. 18 Recommending careful study of both, I can therefore conclude with the following two remarks. First, the student of the ‘classical’ literature on international values must bear in mind that he is dealing with very rough groundwork rather than with a complete structure. For instance, neither Ricardo nor Mill can have looked upon a theory that deals only with two commodities and two countries as more than an illustration of principles—Mill did in fact treat briefly the cases of three commodities and three countries (Book III, ch. 18, 4)— though they certainly believed the task of generalizing it to n commodities and n countries to be easier than it was. 19 The same goes for the ‘classical’ practice of confining analysis to the case of constant costs: variable costs, increasing and decreasing, must no doubt be introduced into the ‘classic’ theory, but the critic who cannot do this should blame himself rather than the pioneers. Also, the ‘classics’ did not ask themselves what the dropping of their assumptions of ‘free’ competition and of full employment of resources might do to their theories. It can be shown, however, that monopolistic competition and permanent unemployment do not destroy the validity of either the comparative-cost principle or the equation of reciprocal his theory as the general case from which the writers whom he described as classics (Marshall and his immediate followers) cut out the special case which yields full-employment equilibrium by assuming away certain facts. The reader will observe that this, though in strict logic a distinction without a difference, matters a great deal in the psychology of scientific warfare. 18 This must not be interpreted to mean that I agree with those eminent authors in every detail of their analysis. 19 Mill held that trade among any number of countries and in any number of commodities ‘must’ take place on the same essential principles as trade between two countries and in two commodities. This is not quite so. The generalization to more than two countries presents indeed no great difficulties. It was undertaken within the period by several writers, who also realized how far this extension affects the validity of results. But extension to n commodities raises more difficulties. So far as I know, it was first tackled by M.Longfield (Three Lectures on Commerce, 1835) General economics 583 demand, although both do make considerable difference to the practical inferences to be drawn. 20 Second, when we indict the many slips and inadequacies that no doubt disfigure the ‘classical’ analysis, we should never fail to notice that many of them may be removed without much injury to essentials and that they are fairly matched by slips and inadequacies on the part of their critics. An example is the manner in which the ‘classics’ treated the question of the ‘ratios …in which the advantage of the trade may be divided between the two nations.’ Mill had explained already in the Essay of 1829 (published 1844) that these ratios may vary all the way between the limits set by comparative costs and even considered the ‘extreme case’ in which ‘the whole of the advantage…would be reaped by one party.’ He may have underrated the likelihood of such cases—for example, he hardly thought of the case of a large and a much smaller country—and there are other criticisms to make of his treatment of this question. In substance, however, he was all right, and the corrections that might be applied leave his argument substantially intact. But even if that were not so, the case would be of serious importance only with two commodities, two countries, and constant costs—conditions that would be automatically eliminated in any more realistic presentation of the theory. Another though related example is the manner in which the ‘classics’ treated the question of the extent to which countries would specialize in the line of production in which they have a comparative advantage. Ricardo’s carelessness, assisted by the carelessness of his critics, has created the impression that he considered nothing but complete specialization and that he considered such complete specialization to be the theoretically and practically ideal case. But even if these allegations were wholly true—which is debatable—they would not amount to much. As regards the first, complete specialization of the trading countries, if physically possible—that is to say, if both countries are big enough—would indeed be the rule under the Ricardian assumption of constant costs. If we drop this assumption, as we must do in any case, we also get rid of the offending proposition. As regards the advantages of complete specialization in comparison with partial specialization or with no trade at all, Ricardo and Mill certainly did not think the matter through properly. And critics found it easy to show that complete specialization is necessary in order to reap the full advantages of international trade only in a limiting case whereas, in general, partial specialization may be more ‘advantageous’ and, in other limiting cases, complete specialization may not be better than no trade at all. Since, however, trade that is not ‘advantageous’ in the Ricardo-Mill sense will also not be profitable, the requisite corrections again do not greatly matter. Their effect may indeed be to obscure fundamental truth rather than to reassert it. Not all weaknesses of the ‘classical’ analysis of international values are venial. Even Mill had a very imperfect conception of all the repercussions of international trade upon the structure of domestic values, which he also, though not so much as Ricardo, took as given or, which is not much better, as adjusting themselves appropriately. Primitive technique and bias for free trade, moreover, account for the nearly complete neglect of all 20 The simplest way of convincing oneself of this as regards persistent underemployment of resources is to consider the argument for protection that gains in force—though it may be debatable how much it gains—in this case. History of economic analysis 584 those cases in which well devised tariffs might greatly benefit at least one and conceivably all of the trading countries. 21 But on the whole it is more misleading than it is true to say that the ‘classic’ theory of international values has ever been refuted, 22 though, as has been said already in another connection, some of the practical inferences that the ‘classic’ writers drew from it have been refuted. And the ‘classic’ theory was altogether unequal to the burden they put upon it in making it a ‘guide to policy.’ Above all, it does not ‘prove free trade.’ 4. SAY’S LAW OF MARKETS In a famous chapter of his treatise (Traité d’économie politique), J.B.Say expounded a doctrine that has come to the fore again during the last decade: his loi des débouchés or Law of Markets. 1 The fact that it has become the target of adverse criticism from Keynes and the Keynesians has invested it with an importance not naturally its own. Because of this, we shall have to return to it in our discussion of the Walras-Marshall system, of which, ac cording to some Keynesian critics, it is a basic proposition. For the same reason, we must now discuss its original meaning and its earlier fortunes with greater care than would otherwise be called for. Our first task is to find out what Say’s original meaning really was. With so inexact a writer this is not always easy. But in this instance his meaning is clear enough, illustrated as it is by his examples and conclusions. Let us start with one of these examples, which he added by way of comment upon the plight of the English export industries around 1810, that was a standard example of Sismondi’s for the deadlocks that unrestrained 21 That this neglect should not be attributed to bias only is shown by the case of Edgeworth, who did much to remedy that state of things and still remained a strong free trader. At the time, it was Torrens especially who in his tracts on The Budget (1841–4) pointed out the possibilities enshrined in the ‘classic’ theory, for an analysis of protective measures that does not quite bear out the 100 per cent argument of the more ardent free traders (which must in fact be explained by England’s position and interests rather than by anv theory), who, for tactical reasons, were very reluctant to admit the real extent of the possibility of unilateral advantage from protection. Cournot’s contribution to the theory of international values lies in this field. Only it does not lie in the argument of Chapter 12 of his Recherches, which has come in for derogatory criticism time and again and part of which he disavowed himself, but in the argument of Chapter 10 which, though not faultless either, shows successfully that, under international trade without barriers, the total quantity produced of a commodity may conceivably be smaller than it would be if the two markets were completely isolated from each other. But he does not seem to have realized the limitations of this argument. 22 See O.von Mering, ‘Ist die Theorie der internationalen Werte widerlegt?’ Archiv für Sozialwissenschaft, April 1931. 1 Book I, ch. XV, pp. 76–83 of the Prinsep translation (1821). It occupied four pages only in the first edition of the Traité (1803) but in response to criticism continued to expand, in successive editions, growing more woolly all the time. Law of Markets is the usual English version of the French loi des débouchés. The term Outlets would render Say’s meaning better. Prinsep used the term Vent. General economics 585 production might cause. Say’s argument was that the trouble did not lie with the superabundance of the English products but with the poverty of the nations that were expected to buy them. Take the case of Brazil. If English producers were unable to dispose of the wares they tried to export to that country, there could be only two reasons for it: either English exporters were making mistakes as regards the commodities the Brazilians wanted—as, in the then state of information about distant countries, they actually did—or else the Brazilians had nothing to offer in return or to export to third countries in order to procure the money with which to pay the English producers. In other words, the trouble was not that England produced too much but that Brazil produced too little. Also, as Say did not fail to emphasize, it would not have remedied the situation if the Brazilians had produced acceptable equivalents but had been prevented from exporting them by import restrictions in England or in third countries. So far as this goes, Say’s reasoning amounts simply to part of the ordinary free-trade argument, which was gaining currency at the time and was to be formulated later by Sir Robert Peel in the adage: ‘in order to be able to export, we must open our ports to foreign commodities’— an oversimplification no doubt, but one that contained a good deal of fundamental truth and of practical wisdom. This stands out particularly when we remember that, in the picture of the ‘classics,’ international economic relations reduced wholly, or almost wholly, to commodity trade: if we exclude movements of short- and long-term capital and disregard the vagaries of gold production, then exports and imports must ‘ultimately’ pay for one another. More clearly than did others, Say perceived however that this argument derives from a more general principle that applies also to domestic trade. Under division of labor, the only means normally available to everyone for acquiring the commodities and services he wishes to have is to produce—or to take part in the production of—some equivalent for them. It follows that production increases not only the supply of goods in the markets but normally also the demand for them. In this sense, it is production itself (‘supply’) which creates the ‘fund’ from which flows the demand for its products: products are ‘ultimately’ paid for by products in domestic as well as in foreign trade. In consequence, a (balanced) expansion in all lines of production is a very different thing from a one-sided increase in the output of an individual industry or group of industries. To have seen the theoretical implications of this is one of Say’s chief performances. We have now to make them clear to ourselves. Consider an individual industry that is too small to exert perceptible in-fluence upon the rest of the economy and upon the social aggregates such as national income. Therefore, the conditions in the rest of the economy may be considered as data for the purposes of an investigation into the operations of this industry, a procedure that we shall discuss in Part IV, Chapter 7, under the heading of Partial Analysis. 2 In particular, the demand schedule for the product of the industry in question is derived from the income generated by all the others: its own contribution to total income being negligible, that schedule may be considered as given independently of its own supply and so may (in general) the prices of the factors it uses. We then have given independent demand and cost schedules that summarize the whole of the economic conditions of society to which the industry in question has to respond and which may be said to determine the output it will produce at each price (supply schedule). The ‘right’ or equilibrium amount thus being, in general, well defined by this demand and this supply schedule, there is no History of economic analysis 586 difficulty or ambiguity in saying that, in any particular case, the industry has produced ‘too little’ or ‘too much’ and in describing the mechanisms that will be set in motion by such under- or overproduction. But it stands to reason that the particular industry’s equilibrium output, the output that is neither too great nor too small, is the right output only with reference to the outputs of all the other industries. There can be no point in calling it right irrespective of them. In other words, demand, supply, and equilibrium are concepts with which to describe quantitative relations within the universe of commodities and services. They do not carry meaning with respect to this universe itself. Strictly speaking, there is no more sense in speaking of an economic system’s total or aggregate demand and supply and, incidentally, of overproduction than there is in speaking of the exchange value of all vendible things taken together or of the weight of the solar system taken as a whole. But if we do insist on applying the terms demand and supply to social totals, we must be careful to bear in mind that they then mean something that is entirely different from what they mean in their usual acceptance. In particular, this aggregate demand and aggregate supply are not independent of each other, because the component demands ‘for the output of any industry (or firm or individual) comes from the supplies of all the other industries (or firms or individuals)’ 3 and therefore will in most cases increase (in real terms) if these supplies increase and decrease if these supplies decrease. This is the proposition which (like Lerner) I call Say’s Law and which I believe renders Say’s fundamental meaning. As stated, Say’s law is obviously true. Nevertheless, it is neither trivial nor unimportant. In order to convince ourselves of this, we need only notice the errors that arise to this day from the mistaken application to social aggre gates of propositions derived by means of the demand-supply apparatus. Thus, observing that ‘depression in a particular industry may be cured by a restriction of output,’ the man in the street sometimes believes that ‘to cure depression in the economy as a whole all that is necessary is that there should be a general restriction of output,’ 4 and less crude reasoning of this kind occurs too often, even in writings of scientific standing, to permit us to brush aside Say’s law as a stale truism. Moreover, Professor Lerner’s example may be reformulated, I think, in a manner that will bring out the considerable, if negative, importance of Say’s law for the theory of crises or ‘gluts.’ It avers correctly that crises can never be causally explained solely by everybody’s having produced too much. Finally, the law, at least by implication, amounts to a recognition of the general interdependence of economic quantities and of the equilibrating mechanism by which they determine one another, and therefore has a place—as have other contributions of Say’s—in the history of the emergence of the concept of general equilibrium. 2 The argument above is unnecessarily restricted. The essential point is actually independent of the particular assumptions of partial analysis. But our exposition is not materially impaired and gains much in simplicity by the use of the restrictions involved. For the same reason, also, we confine ourselves to the case of perfect competition. 3 A.P.Lerner, ‘The Relation of Wage Policies and Price Policies,’ American Economic Review, Supplement, March 1939, p. 158. 4 Lerner. ibid. General economics 587 But Say himself was little interested in the analytic proposition per se which for us constitutes the merit of his chapter on débouchés. Like many other economists of all times, he was much more anxious to exploit it for practical purposes than to formulate it with care. He was an addict to the Ricardian Vice (see above, ch. 4, sec. 2). The chapter, being mainly an argument for laissez-faire and against restrictions upon production, abounds in reckless statements, which were precisely the ones to attract attention. His readers were treated to a picture of the capitalist process that showed only a triumphant onward march of industry with nothing to disturb permanent advance at full employment except sectional maladjustments and restrictive government policies. All the other ills under which people groaned vanished before the battle cry, Supply creates its own Demand, which was made to mean much more than it can possibly mean when properly interpreted. It is not worth our while to stay in order to collect the grains of truth that even this picture contains and to point out, for example, that the difficulties experienced by French industry in 1811, 1812, and 1813 were in fact largely caused by the policy of the Napoleonic regime (Milan Decree and the rest) and that it was the lack of complements to what it produced, rather than the quantities of what it did produce, that accounts for the economic vicissitudes of those years. But it is worth our while to note that Say’s careless statements, whatever else of merit or demerit impartial criticism may find in them, gave ample scope to the propensity of hostile critics to speak of capitalistic apologetics—‘whitewashing,’ reckless denials of real difficulties, shallow optimism, ‘dwelling in a dreamland of equilibrium,’ and the like. Still more is it worth our while to scrutinize some of the analytic consequences of his carelessness. The first point to be made is that, though Say’s law is not an identity, his blundering exposition has led a long series of writers to believe that it is one—and this in no less than four different senses. I. Some writers have defended Say’s law on the ground that it asserts not more than that ‘whatever is sold is bought’ or that the sum the seller receives is the same sum that the buyer pays. This interpretation is obviously wrong. But a sentence in Say’s chapter actually reads as if he had intended to mean precisely that. It may be remarked that, as has been shown by Richard Goodwin in an unpublished paper, the truism just stated is by no means useless. Only it is not Say’s law. II. Other writers, who are disposed to allow Say’s law to stand for the case of a barter economy and who base their objection to it entirely on the neglect of the role of money which it seems to them to imply, point to the fact that in a barter economy every ‘seller’ is inevitably also a ‘buyer.’ In this sense, there is indeed identity of selling and buying and again it is true that Say himself may be quoted in support. But this identity is quite irrelevant for Say’s purposes. To make it relevant, it would be necessary to prove that, in barter, everyone’s offer is at all exchange ratios equal to what other people wish to take at the same ratios. This is obvious nonsense, of course, for disequilibrium is as possible in a barter economy as it is in a money economy, though the latter may display additional sources of disturbance. This mistake had already been made by Malthus and has been often repeated. III. Still another interpretation of Say’s law as an identity has been adopted by Lord Keynes and will be presented in the more exact form that O.Lange has given to it (‘Say’s Law…’ in Studies in Mathematical Economics and Econometrics; Lange, McIntyre, History of economic analysis 588 Yntema eds., 1942). Denoting by p i the going price of a representative commodity or service i, by D i the quantity demanded, and by S i the quantity supplied at that price, he makes Say’s law mean, if there are n−1 commodities (exclusive of money): which, if money be considered as the nth commodity, is equivalent to D n ≡S n . It is perhaps not superfluous to state explicitly that my interpretation of Say’s law amounts to replacing the identity signs (≡) by equality signs (=), valid only in a state of perfect equilibrium of the system. Of course, there is nothing to stop us from developing, as a useful exercise in pure theory, the consequences of the hypothesis, D n ≡S n . But it should not be called Say’s law, because Say, though he did not consider the problem of hoarding, did consider the problem of increasing the effective quantity of money in case increase in transactions should require it. Once more, however, Say himself is to blame for this interpretation. In his excessive zeal for establishing the practical importance of his theorem, he expresses himself in several places as if indeed the total monetary value of all commodities and services supplied (exclusive of money) would have to equal the monetary value of all commodities and services demanded (exclusive of money), not only in equilibrium but ‘always and necessarily.’ This is, of course, logically wrong if he actually meant it, but is practically wrong even if he meant only ‘always and necessarily in equilibrium’ but at the same time believed—as perhaps he did—that reality actually conformed, or would conform in the absence of government interference, to equilibrium conditions most of the time: the reader will realize how easily these two meanings can be confused. IV. The last type of identity or tautology was ludicrously created by Say for the express purpose of making his law unassailable. Driven to something very like despair by the attacks upon his law, he simply reformulated his concept of production so as to confine it to the production of things, the price of which will cover cost. What could not be sold except at a loss does not constitute production in the economic sense any more so that overproduction is excluded by definition! 5 The professional world has laughed at him ever since. Space does not permit us to analyze the psychology of this miscarriage or to make the attempt to discover a defensible kernel in it. The second and only other point that needs to be made here about Say’s carelessnesses concerns his treatment of the element of money, which must prove a vicious hurdle for anyone who relies on the model of a barter economy. Say’s few and fragmentary pronouncements on the subject may be divided into two groups: pronouncements of a theoretical nature and pronouncements concerning the practical doubts his readers might harbor about the realism of his rosy picture. The former may be reduced to a single theorem: the intervention of money does not make any difference of principle to his law. With or without money, products exchange, in the last analysis, for products, since 5 This new concept of production was first presented in a letter to Malthus (1820); see Mélanges et correspondance…, p. 202) and then in two articles in vols. 23 and 32 of the Revue encyclopédique (see especially the earlier one entitled ‘Sur la balance des consommations avec les productions’) and is embodied in the 5th ed. of the Traité (1826) and in the Cours complet (1828–9). General economics 589 money is nothing but a medium of exchange that, owing to the losses of satisfaction or business gain that are incurred by keeping it idle, everybody will try to spend as promptly as the given habits of income and business payments permit. Now we are being taught a different doctrine so generally that it is necessary to emphasize that there is nothing wrong with this theory per se if it is stated and used with due regard to its abstract character and to the assumptions it involves. 6 The main criticism that may be leveled at it and the main reason why we prefer another theoretical pattern is that Say, like practically all the theorists of that age, neglected the store-of-value function of money and therefore the fact that there is an element in the ‘demand’ for it that is not accounted for by his theory. Whatever the theoretical consequences for the whole organon of economic theory that may follow from this, they do not justify wholesale rejection of this theory or refusal to recognize that as an early step in analysis it had its value. Much pointless controversy might have been spared us, and much confusion among beginners might have been avoided, if we had been content to insert the ‘demand for cash to hold’ into the theoretical pattern that Say adopted and to speak of supplementing rather than of refuting it or of adding a second to his first approximation. The ‘practical’ group of Say’s pronouncements on the monetary questions raised by his law may be rendered as follows. Unlike his interpreter J.S.Mill, he evidently did not think much of the practical importance of the phenomena that might be produced by widespread refusal to spend receipts promptly either on consumption or on ‘real’ investment (that is, investment involving demand for goods and services). Had he been asked whether he admitted that such refusal, if it occurred, would create disturbances and, if so, why he had not pointed this out, he might with justice have replied that he was writing for readers of normal intelligence. But he did advert, in a perfunctory note (Traité, op. cit. p. 77), to the fall in price level that would be induced by expansion of output if the circulating medium failed to expand correspondingly. He answered, however, that if the increase in traffic requires more money, this want will be ‘easily supplied’ by the creation of substitutes such as trade bills, bank notes and demand deposits and that in addition money will ‘pour in’ from abroad. This was taking the matter a great deal too lightly and shows that his opponents had at least that much of a case: Say’s argument was practical in intention, and he understated unjustifiably the gulf that separates his theorems from the realities of the economic process to which he applied them uncritically. 7 We turn to the controversy that developed around Say’s law. Critics being mainly interested in its practical implications, this controversy turned chiefly on the question of ‘general gluts.’ Therefore, a few remarks are sufficient for the moment. 6 Inasmuch as loss of satisfaction or interest is made the reason why people should spend promptly, it might even be claimed that in this passage Say pointed beyond his sketch toward a more complete theory. 7 Moreover, we are here giving him the full benefit of the implications of his footnote. His text, where he tried to dispose of the whole problem by asserting that the true fund of purchasing power is goods and that any amount of money will do for any amount of physical transactions— statements that are also not simply wrong but hold only in the sphere of abstract logical principles—is still more objectionable. It is interesting to note, however, that part of his argument—that which attacks the view of the businessman, who blames scarcity of money for his troubles—had been expounded already by Sir Josiah Child. History of economic analysis 590 Say’s teaching—wheat and chaff—was accepted by Ricardo (Principles, ch. 21) and the Ricardians. James Mill, as his son claimed, may even have discovered the law independently. 8 It was attacked almost simultaneously by Sismondi and by Malthus, 9 who were followed by Chalmers and others. Some of their arguments were wrong to the point of ineptness (though Say’s replies were not much better), and J.S.Mill, in summing up in favor of Say (Principles, Book III, ch. 14), had little difficulty in disposing of them. In doing so, and in pointing out that difference of opinion in this matter involves ‘radically different conceptions of Political Economy, especially in its practical aspect,’ he applied an important improvement to Say’s exposition, though it is quite clear that he did not look upon it as a correction of Say’s thought. He fully admitted that there are times of crisis at which ‘there is really an excess of all commodities above the money demand; in other words there is an under-supply of money… Almost everybody is therefore a seller and there are scarcely any buyers: so that there may really be…an extreme depression of general prices, from what may be indiscriminately called a glut of commodities or a dearth of money.’ This passage is very interesting in various respects. First, it shows that, Say’s wording notwithstanding, an eminently competent follower of Say did not interpret his doctrine as implying denial of the actual occurrence of ‘general gluts.’ Second and a fortiori, the passage disposes of all those interpretations of Say that turn his law into an identity of some kind or another and reinforces ours. 10 Third, there is a curiously modern ring about this passage, which should not go unnoticed. Notice, in particular, the phrase ‘under-supply of money,’ which evidently does not mean that mines or printing presses have not produced a sufficient quantity of money but is the exact equivalent of the modern phrase ‘excess demand of firms and households for cash to hold.’ This goes some way toward reducing to their proper proportions the objections that may be raised against Say’s cavalier treatment of the monetary factor—besides setting an example for the manner in which such deficiencies in their predecessors should be treated by serious and fair-minded workers. 8 It appeared first in James Mill’s Commerce Defended (1808), so that Say’s priority is beyond question. Let me add that he, and especially Ricardo, went beyond Say on one point (see Ricardo’s Principles, ch. 21, note 2). Say admitted that abundance of disposable capitals relative ‘to the extent of employment for them’ or, as we say, to the available investment opportunity, will reduce the rate of interest, although he held that at falling rates of interest this investment opportunity will indefinitely expand. This—with appropriate qualifications with regard to the conditions that prevail in depressions—is quite correct and evidently involves no contradiction. But Ricardo thought that it does and held—which is also correct but only within his own theoretical model and not without it—that, except for a rise in (the real value of) wages, investment is possible to an indefinite extent without depressing the rate of ‘profits.’ 9 The first edition of Sismondi’s Nouveaux Principes was published in 1819; the first edition of Malthus’ Principles in 1820. 10 It might be objected that J.S.Mill himself asserted the identity that has been discussed under (II) above in a passage of his ch. 14, 2, where he stated that every buyer is a seller ex vi termini. But the later argument of Mill’s chapter proves sufficiently that sellers may refuse to become buyers and therefore that, if they do buy, they do so from choice and not by virtue of the meaning of the term Sellers. General economics 591 . means of several restrictive (‘particularizing’) assumptions; but Lord Keynes himself regarded History of economic analysis 582 case, joining the list of all the other cases in which analysis. that part of his argument—that which attacks the view of the businessman, who blames scarcity of money for his troubles—had been expounded already by Sir Josiah Child. History of economic analysis. operations of this industry, a procedure that we shall discuss in Part IV, Chapter 7, under the heading of Partial Analysis. 2 In particular, the demand schedule for the product of the industry