Overproduction and Underconsumption Fallacies
James Mill (1773–1836) is perhaps best known as the father and educator of John Stuart Mill. He deserves to be remembered for much more, however. Not only was he an influential popularizer of the ideas of his friend, David Ricardo, but also, as appears from the excerpt here presented, an important economist in his own right. What has come down to us as Say's Law may, perhaps with equal propriety, be called Mill's Law. FULL ARTICLE plus Mill's early version of Say's Law.
Comments (4)
Dr. Reisman is right; this is a very modern debate. It's discouraging that we're still debating something 200 years later.
Mill's section on national debt has raised a question that has puzzled me for a while: why do we include government expenditures in the calculation of GDP? GDP doesn't include the sales of used items, such as used homes or cars because they don't represent "new" production, according to my macro text. But sellers of used items provide just a important a service as does the government. It seems to me that the GDP was designed to promote socialism.
Published: January 11, 2007 12:25 PM
Speaking of "overproduction" and "underconsumption", there has recently sprung up a heated debate in the blogosphere over the New Deal and whether it ended or prolonged the Great Depression. It would be nice if the Mises site chimed in.
It started with Daniel Gross attacking George Will and Brad DeLong agreeing though he has earlier mocked the idea of wartime prosperity, Mark Thoma agreeing with a weaker form of Brad's statement, HedgeFundGuy dissenting because of the "Roosevelt Recession" and Tyler Cowen saying Brad overreached (Alex Tabarrok hasn't commented since the hubbub started but beforehand he agreed with Jim Powell that Roosevelt prolonged the Depression). Arnold Kling thinks Roosevelt's monetary policies were good but his fiscal ones were bad and that people can disagree as to what the new deal was. Bryan Caplan seems the most clearly opposed to the New Deal, comparing Roosevelt to Mugabe and pointing out that someone as "normal" as Bernanke has negative things to say about the New Deal. PGL of angrybear is pro-Roosevelt and said the Mugabe post was one of Bryan's worst. Peter Boettke cited Robert Higgs on the negative effects of the New Deal and in effect said "If that makes me not normal, I don't want to be normal!". It would seem to me that policies like destroying food when people are hungry should be self-evidently idiotic to any economist today, but most seem to overlook that because Roosevelt "really cared and tried to do something" and "Saved American democracy and capitalism from itself".
Published: January 11, 2007 3:05 PM
RogerM: right; government spending is subtracted from PPR. (In fact, it should be subtracted twice, to account for the damage done by government spending; google for "Law of Bitur-Camember")
Published: January 11, 2007 5:49 PM
Say and Mill demonstrated that there *would* be no problem of overproduction or underconsumption in a free market.
But what that has to do with the issue of overproduction/underconsumption in the "actually existing" state capitalism of the 20th century, I can't guess.
Check out Joseph Stromberg's article "The Role of State Monopoly Capitalism in Imperialism" (JLS), written from an impeccably Austrian standpoint. Stromberg demonstrates that the kind of state capitalism that Rothbard described *does* indeed generate problems of overproduction and underconsumption, precisely because of the effects of state intervention in the economy. State-cartelized oligopoly industry, overbuilt thanks to state subsidies to accumulation, cannot simultaneously operate at full capacity and dispose of its output at cartel prices. The result is Schumpeter's "Export-Dependent Monopoly Capitalism."
Published: January 13, 2007 1:03 AM