http://delong.typepad.com/sdj/2010/05/a-missing-macroeconomic-playbook.html
I'm debating hazlitt vs keynes and my adversary has asked me what is disagreeable about this article. (specifically on Say's law)
Say's law is not my strong suit.
help? :)
1. About his silly claim that Mill is refuting Say's Law because Say didn't understand that there is such a thing as money.
Oddly enough, Henry Hazlitt had Mill's essay published in its entirety in his book The Critics of Keynesian Economics. He also provided a short intro in which he writes that Mill's essay is not refuting, but rather affirming Say's Law, and it seems as if it were written to repudiate Keynes! Here's what he says:
"Of the Influence of Consumption on Production," is the fullest and best con- sidered statement of Say's Law to be found in the works of the classical economists. It is hard to account for the strange neglect of this essay. It is not merely that Keynes's General Theory does not mention or show any awareness of it; but in the whole of the Keynesian controversy of the last quarter century it has not been quoted (so far as my knowledge goes) by either the pro- or the anti-Keynesians. Yet it reads almost as if it had been specially written as a refutation of the main conten- tions of the General Theory. It begins by treating as a "pernicious mistake . . . the immense importance attached to consumption." It admits that "a very large proportion" of capital may be "lying idle," or in seeming idleness, and certainly not in "full em- ployment." But then Mill explains why an effort to bring
about "full employment" by a continuous inflationary boom must lead to what we would today call malinvestment (or misdirected investment) and distortions in the structure of production. In this essay Mill recognizes the existence of business cycles (although he did not have the phrase); he expounds Say's Law (although he never mentions it by that name); he discusses "liquidity preference" (again with- out benefit of having the phrase); and he dismisses the Keynes-Hansen bogey of a "mature economy" (once more without the doubtful advantage of knowing the phrase). So how do we account for what DeLong quoted as supposedly a refutation of Say's Law? See next post.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
As is common in such instances, Mill is being taken out of context by DeLong. For in the very next paragraph, Mill explains that such a situation is temporary at best. Here's the quote, emphasis mine:
It is, however, of the utmost importance to observe that ex- cess of all commodities, in the only sense in which it is possible, means only a temporary fall in their value relatively to money. To suppose that the markets for all commodities could, in any other sense than this, be overstocked, involves the absurdity that commodities may fall in value relatively to themselves; or that, of two commodities, each can fall relatively to the other, A becoming equivalent to B—x, and B to A—x, at the same time. And it is, perhaps, a sufficient reason for not using phrases of this description, that they suggest the idea of excessive pro- duction. A want of market for one article may arise from ex- cessive production of that article; but when commodities in general become unsaleable, it is from a very different cause; there cannot be excessive production of commodities in general. The argument against the possibility of general over-produc- tion is quite conclusive, so far as it applies to the doctrine that a country may accumulate capital too fast; that produce in gen- eral may, by increasing faster than the demand for it, reduce all producers to distress. Later on, just to make sure people like DeLong get what he is saying, that he is not refuting Say's Law, but supporting it, Mill sums it all up:
Nothing can be more chimerical than the fear that the accumulation of capital should produce poverty and not wealth, or that it will ever take place too fast for its own end. Nothing is more true than that it is produce which con- stitutes the market for produce, [=Say's Law, Mr DeLong!] and that every increase of pro- duction, if distributed without miscalculation among all kinds of produce in the proportion which private interest would dic- tate, creates, or rather constitutes, its own demand. This is the truth which the deniers of general over-produc- tion have seized and enforced; nor is it pretended that anything has been added to it, or subtracted from it, in the present dis- quisition [=I'm not refuting Say's Law, you dummy!].
Now one may ask why he says the general glut is temporary. For that we have to read an earlier part of the essay:
It is true that this state can be only temporary, and must even be succeeded by a reaction of corresponding violence, since those who have sold without buying will certainly buy at last, and there will then be more buyers than sellers. But although the general over-supply is of necessity only temporary, this is no more than may be said of every partial over-supply. An over- stocked state of the market is always temporary, and is generally followed by a more than common briskness of demand.
Meaning, relax and stop trying to "fix" the economy, fools. It will fix itself very quickly, and will be followed by a more than common briskness of demand Not chronic unemployment, Mr Keynes, but briskness of demand if you just hold your horses.
Oh wow. Nice.
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That really is some terrible scholarship.
Tell your opponent that Keynes was destroyed by Hazlitt.
Thank you guys very much. Sadly (but not surprisingly) the debate degenerated into my adversary calling me names, and storming out of the chat room. (he was a statist attempting to masquerade as an anarchist)