Thomas Robert Malthus (1766-1834) recently visited Maastricht, known for the creation of the European Monetary Union and the establishment of national debt and deficit ceilings. Sitting at the bank of the Meuse river and watching the ghosts of long departed salmon splashing in the stream and its gentle vortices, Malthus allowed for some soul searching as well. It appears that he always used the name Robert so that our intention to link him up with Tomas Sedlacek and Thomas Piketty collapses.
Malthus and Darwin
Malthus set Charles Darwin on the path of the theory of evolution. Darwin records in his autobiography:
“In October 1838, that is, fifteen months after I had begun my systematic inquiry, I happened to read for amusement Malthus on Population, and being well prepared to appreciate the struggle for existence which everywhere goes on from long- continued observation of the habits of animals and plants, it at once struck me that under these circumstances favourable variations would tend to be preserved, and unfavourable ones to be destroyed. The results of this would be the formation of a new species. Here, then I had at last got a theory by which to work”. (Taken from this weblink.)
Malthus and Keynes
Malthus set John Maynard Keynes on the parth of the theory of effective demand. Keynes in his Essays in Biography:
“If only Malthus, instead of Ricardo, had been the parent stem from which nineteenth-century economics proceeded, what a much wiser and richer place the world would be to-day!” (Keynes 1961 , p. 120) (Quoted by John Pullen in HETSA here)
Relevant is also this archive of the History of Economics Review, and in particular Steven Kates on JMK and TRM and then also on JMK and McCracken,or see the longer discussion by Kates in HER 48, 2008.
“Thus, at the very time that he has commenced writing the book that will become the General Theory, the single most influential book on the business cycle written during the past century, Keynes states in no uncertain terms that the most fruitful approach to dealing with the economic issues raised by the cycle ought to be set within an analytical framework that descends from Malthus.” (Kates HER 48, 2008)
Note that David Ricardo isn’t kicked out of the window. His method of mathematical modeling is retained, of course. His arguments are duly weighted too. The only thing is that Malthus’s argument on the lack of demand finds proper recognition. What was counter-intuitive to Ricardo is rephrased so that it becomes the proper intuition that we enjoy today. Merely putting money in the bank doesn’t help: it are the real investments that determine income.
“The Keynesian Revolution, which swept the economics world in a matter of less than a decade, had its origins in Keynes’s reading of Malthus’s letters to Ricardo in late 1932. It was from these letters that Keynes discovered the issue of demand deficiency. Reading Malthus’s letters in the midst of the Great Depression infused within him the belief that demand deficiency was the cause of recession and mass unemployment. The essay on Malthus, found in Keynes’s Essays in Biography and published in February 1933, makes plain the extent to which he had absorbed Malthus’s economic views while reading Malthus’s writings. Malthus had been the leading advocate of demand deficiency in the nineteenth century. It was this message that Keynes’s carried into the twentieth.” (Kates 2010, History of Economic Ideas, xviii/2010/3)
The Keynesian revolution is still relevant. There is criticism whether the model still applies, but see the About page for my amendments to Keynes and Tinbergen so that there is a sound manner to tackle the economic crisis. See my memo in the Royal Economic Society Newsletter October 2014 for the need for an Economic Supreme Court per nation.
Allin Cottrell has the nice argument that the Ricardo-Malthus discussion used money as a veil, and that Keynes showed that Say’s Law only breaks down when money isn’t a veil: so that Malthus was wrong and so that it is curious that Keynes selects him as a hero. I have “always” been somewhat intrigued by the historical use of the tally stick, and wonder whether analysts like Hume and Smith and thus also Ricardo and Malthus could really regard money as only a veil, certainly after the creation of the Bank of England in 1694. Even more amazing is that Jean-Baptiste Say himself wrote letters to Malthus too, see the pdf at the Von Mises institute. But I am not a historian and all this leads too far.
I had thought that I could leave the matter at that, so that this would be a rather short section, but the ghost or google of Robert Malthus alerted me to an issue.
Sanjeev Sabhlok 2012 claims that Keynes plagiarized Malthus and McCracken. Sabhlok himself copies this 2010 article by Kates. However, Kates denies this plagiarism on some points and merely asks pointed questions on other points.
Kates provides statements from the Rymes lecture notes in Autumn 1932 that show Keynes referred to Malthus and a failure of effective demand. Keynes biography of Malthus of early 1933 would make clear that he came to this view independently.
Keynes can only plagiarize McCracken in that biography of Malthus if he would have used earlier articles by him without proper reference. But currently there is only evidence about an exchange in 1933, after the publication of the Essays in Biography.
The picture is diffuse, since Kates in this other text refers to John R. Commons (1862-1945) who apparently already wrote on Ricardo and Malthus around 1920, and whom Keynes wrote to in 1927. McCracken wrote his Ph. D. thesis with Commons, and there is a joint article in 1922 on the business cycle. There is for example also William Trufant Foster (1879-1950), apparently a precursor to Keynes too, but eclipsed by the impact of the General Theory. Thus, Keynes had ample impulses to look into the Ricardo-Malthus controversy, after the 1929 Wall Street Crash made that issue urgent again. But it seems that the Ricardo-Malthus controversy was part of general knowledge amongst researchers like Pigou and Keynes anyway.
Kates shows that McCracken in early 1933 sent a copy of his 1933 book to Keynes. Kates suggests that it is to Keynes as a person, but it may also have been for a review, since Keynes was editor of the Economic Journal. There is a review by (if I understand it correctly) James Meade, EJ, Vol 47 no 186 (June), p 337-339, 1937 – somewhat late for such an important book from 1933. Correction 2015-01-01: Keynes’s 1933 letter to McCracken clearly states: “Having now read your book, I must again thank you for having sent it to me.” Thus it must have been sent directly, and note the “again”. I thank Kates for correcting me on this, and his additional comment is: “if it is not a personally sent copy, there is no reason for Keynes to have written to McCracken at all.”
One supposes that Harlan McCracken (1961) “Keynesian Economics in the Stream of Economic Thought” would explain the situation himself. Kates quotes McCracken stating that Commons developed the theory of expectations (“futurity”) twenty years before Keynes. Common’s 1934 book that further develops that issue would almost certainly have drawn the attention of Keynes, who already admired him in 1927. (Addendum 2015-01-01: I now have a copy of McCracken (1961) and should return to the issue later on.)
However, did Commons put all the pieces of the puzzle together to create the General Theory ? One additional piece on Say’s Law was provided by McCracken himself, but there are also the issues of liquidity preference, the internal rate of return (a.k.a. marginal efficiency of capital), and the Knightian “uncertainty” related to the ‘animal spirits‘ (Aristotle’s spiritus animalis).
One point is that, when McCracken was writing on the history of economic thought in 1930, he might have tried to contact James Bonar, editor of Malthus, or Piero Sraffa, editor of Ricardo, and thus have indirectly caused Keynes to look at the Ricardo-Malthus correspondence. Malthus’s letters were rediscovered, but how exactly ? It is up to historians to see whether more evidence on this can be recovered.
The proper point to consider is:
“One could, of course, decide Keynes had found someone else who had come to the same conclusion as he had on Ricardo and Malthus. Coincidence possibly or parallel development of ideas.” (Kates 2010)
“The fortuitous arrival of McCracken’s Value Theory and Business Cycles in early 1933 was a prime example in the parallel development of thought. Keynes immediately recognised the strong similarity of view. How much Keynes already understood of the context of the Malthus-Ricardo correspondence or the General Glut debates is difficult to know. But McCracken, being as he was a specialist in the history of thought, would have added to Keynes’s understanding of the issues at stake, and provided an appreciation of what was needed to refute Say’s Law.” (Kates 2010)
Kates shows that Keynes took the summary of Say’s law as “supply creates its own demand” from McCracken rather than the common “supply and demand are in equilibrium”. Keynes had considerable literary talent and will have recognised the value of that formulation. His letter of August 1933 to McCracken therefor seems disingenious. Rather than thanking McCracken for his phrase, he suggests that both reached the same kind of insight at the same time. At best, perhaps Keynes realised only in 1934 that McCracken’s phrasing of Say’s Law was a very effective way to put the argument, but then, why not refer to McCracken in the General Theory ?
The term “insight” should not be overworked. Concluding that Ricardo was wrong and Malthus was right is important as an insight but doesn’t generate the very mechanism for 1933 how to tackle the Wall Street Crash of 1929.
A key question is: why the delay from 1933 to 1936 ? Why didn’t Keynes publish a recommendation in the Economic Journal for the world to read McCracken’s analysis ? In McCracken’s book some elements are already available, of what took Keynes three years to write himself, though in different words:
“If Aftalion [in 1913] has succeeded in establishing the possibility of a voluntary failure of demand by those who have purchasing power but insufficient keenness of desire, when facing expanded production under the influence of the principle of diminishing utility, then it constitutes one of the greatest contributions to economic theory in a generation. Say’s Law of Markets, according to which production financed consumption and supply generated adequate demand is in serious need of modification.” (Kates 2010 quoting McCracken 1933)
Of course, McCracken’s book did not contain other elements that Keynes was concerned about. He however could have said that too. This however would have put Keynes in the position of a reporter. Keynes did not see himself as a reporter. Correction 2015-01-01: I wrote this too fast, since I did not read McCracken (1933), and it might be guesswork what “Keynes was concerned about” (except trying to find clarity). Dr. Kates writes me that McCracken (1933) may be seen as “a preliminary version of The General Theory”. Thus, indeed, historians must read McCracken (1933) and tally the overlap and differences. But my idea that Keynes did not see himself as a reporter would hold. There could have been a choice in recommending the book to others or developing “his own argument”.
His focus was on being a scientist and develop his own theory. Apparently, Keynes was focused on the Einstein’s distinction between the special and the general theory of relativity. The special theory is Say’s Law, the general theory allows this law not to hold as well. He might use what was available in the literature, but his own contribution would be the complete picture. In that complete picture the elements changed their role because of that complete picture. In this, I merely rephrase Kates’s observation:
“However, in showing that savings might grow as a proportion of income as income increased, it would have been clear to Keynes that less than half the task in demonstrating the possibility of demand deficiency was complete. What was still needed was a theory to explain why the additional savings made available because of a proportionate drop in consumption would not be channelled into investment through adjustments in the rate of interest. The elements that went into this part of the story were, in essence, the theory of liquidity preference, the marginal efficiency of capital and the related notions of expectations and economic uncertainty. These were, however, concepts that in early 1933 Keynes had not yet appreciated the significance of. As he noted in an oft-quoted passage in his letter to Harrod (cw, xiv, 85), these concepts would be assembled one by one. Each of these concepts had already been discussed in depth in the contemporary economic literature by leading economists but in each case with a different purpose in mind. Moreover, each of these economists had had a book published during the early 1930s while Keynes was preparing the General Theory. Two of these works were published in 1933 and two in 1934, the years of greatest intensity in the development of Keynes’s core ideas.” (Kates 2010)
Keynes referred to Ricardo and Malthus but generally not to others. This modus operandi is totally unacceptable today.
A negative interpretation is intellectual theft. I am not convinced of this yet. I wonder whether a historian can give more information about the conventions in those days.
About Alfred Marshall writing his Principles of Economics it is known that he first developed an argument and then threw away the formula’s and references since the argument should be convincing by itself, and a reader should not be burdened by the need to look up the references. Marshall taught his students to work in that fashion. It seems that Keynes worked in that fashion indeed.
A positive interpretation is as follows:
- Given the manner how arguments were settled in the academia and government circles in those days, nothing would do, except the formulation of the General Theory.
- A reference would draw attention away from the General Theory. Reference would occlude the new role assigned to the particular piece in the puzzle. Such reference would cause discussion whether a definition was applied correctly, and whether it could indeed be put to such new use.
- Since this applied to various authors who provided various pieces of the puzzle, the discussion would fragment over all these authors, instead of focus on the point that the puzzle was finally completed.
- The book was about Keynes making up his mind, it wasn’t a report about how others contributed to the solution to the puzzle.
“It is thus an interesting question why Foster and Catchings, worthy heretics in 1933, had been dropped from the list by 1936. Indeed, why McCracken is not on this list, and perhaps Commons as well, are questions that might well be asked.” (Kates 2010)
An answer is – of course unacceptable in our days:
- References to Foster and Catchings and Commons and McCracken might weaken the General Theory, for, all arguments that had been waged in the past to those authors would then be wielded against the General Theory.
- A reference would cause a discussion of particulars, refutation of old arguments, and only then the introduction of the new application.
- The General Theory might require more than double its present pages.
- Reference would not be necessary for the connaisseurs (who also read the Wall Street Journal) and who would recognise the relevant authors anyway.
- Keynes did not mind referring to some authors that clearly differed from the General Theory so that there would be little discussion about overlap.
Compare Keynes’s argument why he did not refer to Fisher originally and only did so after some urging by others:
“My definition of the marginal efficiency of capital is quite different from anything to be found in [Marshall’s] work or in that of any other classical economist (except for a passage which he makes little subsequent use of in Irving Fisher’s latest book).” (Kates 2010 quoting Keynes cw, xiii, 549)
It is a convoluted statement that indeed is rather disingenious. Why not clarify Marshall’s method of exposition ? Marshall might say: Why waste time on discussing Fisher’s use of that definition if it doesn’t pertain to the role that the notion has for the General Theory ?
A key question: Did the General Theory settle the various disputes or did it create more dispute ?
One may suppose that there would have been much earlier discussion about references and priorities w.r.t. Kahn, Commons, McCracken, Schumpeter, Fisher, Knight, Foster & Catchings, and the Swedes, if the Harrod, Hicks & Meade IS-LM model hadn’t surfaced soon and shown the usefulness of the complete picture. There has been ample discussion of the precursors to the General Theory, but Kates’s inclusion of McCracken and the subsequent deconstruction indeed is a new twist to the story.
PM 1. On the use of the words “uncertainty” and “risk” see this discussion. PM 2. See how consumer durables would be investments that satisfy Say’s Law. PM 3. The wikipedia article on effective demand Oct 26 2014 is deficient. Effective demand is the actual production occurring in the present short period, following the decisions that entrepreneurs have made, based upon their expectation of what people will demand and they will be able to sell. PM 4. My analysis on unemployment continues from that of Keynes and Tinbergen, see the About page. I am willing to defend that theory and have no vested in interest in Keynes’s ethics w.r.t. his references. PM 6. Perhaps the best introduction to the GT is Fanning & O Mahony (1999) “The General Theory of Profit Equilibrium: Keynes and the Entrepreneur Economy“. PM 7. See Coleman’s review of Kates’s earlier book on Say’s Law. Kates is a bit in danger of suggesting “Keynes stole, but from crackpots”. The true story would be that Malthus and others weren’t crackpots and that Keynes might have reasons, seemingly defensible at that time in the Marshall way, for not referring to all. Kates seems a fine scholar to me, but in his IEA weblog he attacks a rather vulgar ‘keynesianism” that is very remote from the real Keynes, as if this Steve Kates here is a quite different person. PM 8. See my protest against plagiarism in the research in mathematics education.
Malthus and McCloskey
Deirdre McCloskey (1942) invokes Malthus to maintain that homo sapiens sapiens (but rather, with Darwin, the little bit more intelligent version born circa 65,000 years ago, perhaps in the wake of the Toba volcanic eruption) lived on $3 a day until 1800 AD, after which income exploded 30-fold. Her theory is that the latter income explosion derived from respect for the individual, such that ideas & innovation, that normally occur in 10% of the population but that are suppressed by tyrants and priests, finally got the chance to work their wonders. She tends to state that the process started in Holland, see our earlier weblog text on the Dutch World Empire.
A hypothesis concerns the influence by Geert Groote (1340-1384), from the Hanseatic towns of Deventer and Zwolle. The Wikipedia article is lackluster on him, for it doesn’t emphasize that Groote started elementary schools and that his convents were factories that produced hand-written bibles for common people to read. Johannes Gutenberg was inspired to invent the printing press in 1455 only because there was already a big market for people reading the bible because of Geert Groote. See this weblog text on the Scottish Enlightenment and Adam Smith, and this CPB research paper.
There is an instructive Nebraska 2014 video in which McCloskey wiggles her finger to illustrate Malthus’s law of population from 250,000 years ago (this should rather be 65,000) to 1800 AD and then the woosh take-off. Perhaps you must know that she has a small speaking disorder that might take to get used to. Overall she makes a lot of sense. The spoken presentation is simpler than Rostow’s theory of stages but her analysis is rather more involved, which you can discover by trying her books – thanking Gutenberg. Unfortunately, McCloskey hasn’t grasped the analysis of this website yet. E.g. she gives the advice of a basic income, and see my reply to that.
The reference to J.R. Commons is not without relevance for McCloskey. Commons, in his stages of economic development, distinguished stages (1) scarcity / feudal, (2) abundance / individual, (3) stabilisation / modern, see Skidelsky “John Maynard Keynes: The Economist as Saviour, 1920-1937”, Macmillan 1992, p229-231.
Capitalism, wild or tamed
Rostow already asked: “where is compound interest taking us? Is it taking us to communism; or to the affluent suburbs , nicely rounded out with social overhead capital; to destruction; to the moon; or where?”
Interviewer Evan Davis, The Spectator May 24 2014, who compares Piketty and McCloskey, summarizes:
“Wealth, by whatever means it is originally created, thus begets more wealth; successful entrepreneurs, through their initial accumulation of capital, go on to ‘become more and more dominant over those who have nothing but their labour’. In Piketty’s excellent phrase, it is through capital that ‘the past devours the future’.
(…) She enthuses about the Great Enrichment of the 19th century. ‘What happened, understand, is not 100 per cent growth, but anywhere from 2,900 per cent growth to 9,900 per cent growth. A factor of either 30 or 100.’ That jump in incomes came about not through thrift, she says, but through a shift to liberal bourgeois values that put an emphasis on the business of innovation. In place of capitalism, she talks of ‘market-tested innovation and supply’ as the active ingredient of our economic system. It is incidentally a system ‘drenched’ in values and ethics overlooked by economists.
(…) Bill Gates or Liliane Bettencourt? They co-exist, of course, and have both had a pretty good time of it in recent decades. The question is which one better characterises the very rich. And also which risk you would rather take: taxing the Bills at the risk of deterring them from creating Microsofts? Or not taxing the Lilianes, at the risk of letting them become ever wealthier and more powerful while sitting at home doing nothing?
(…) I know that the 99 per cent of the population have no difficulty coming to a view. I’m in the sad 1 per cent, who can see both sides.”
Speaking about Bill Gates: recall Malcolm Gladwell on Outliers, and the specific turns in technology that make some people rich, like also Carnegie and VanderBilt. See my earlier discussion of Piketty’s case.
The Maastricht Treaty question
Phillip Longman in his May 2 WSJ review of Robert J. Mayhew (2014) Malthus. The life and legacies of an untimely prophet, distinguishes the young and old Malthus. One might find it a bit surprising that the old Malthus provides exactly the position of this weblog, see the About page:
“To accommodate such anomalies to his original theory, Malthus developed the concept, later reformulated by Keynes, of effective demand. The main cause of poverty, Malthus gradually conceded, was not that there were too many people or too few natural resources; rather it was that society was organized in such a way that too few people had a way to earn the money necessary to buy the resources they needed. Give them a job or some other way to make money, Malthus concluded, and the problem would be solved. As Keynes summarized Malthus’s intellectual journey, which was one that Keynes himself followed: “Just as the young Malthus was disturbed by the facts of population as he saw them round him and sought to rationalise that problem, so the older Malthus was no less disturbed by the facts of unemployment.”” (Longman, WSJ 2014)
We are thus left with the final question in this musing with Robert Malthus on the banks of the Meuse river that flows through Maastricht:
What to do with the economic crisis in the European Union ?
Alas, a chilly October breeze touches Malthus and he drifts off, solving in fragments, evaporating over the Meuse’s waters.