Malthus's methodological and macroeconomic thought

MALTHUS’S METHODOLOGICAL AND MACROECONOMIC THOUGHT*

ALEXANDER JAMES FIELD?

1. Introduction

Although Thomas Robert Malthus achieved his most lasting notoriety for one rather controversial idea - his so-called principle of population, he was also the author of an important general treatise on economic theory and policy, Principles of Political Economy, Considered With a View to their Practical Application. ’ Published in 1820, three years after the first edition of David Ricardo’s magnum OPUS,~ Malthus’s contributions to economics have not been universally acclaimed. Put on the defensive by many of his colleague’s arguments, Malthus spent much of his Principles trying to refute them. The at times defensive and querulous tone contrasts unfavourably with Ricardo’s confident assertive style in a way that surely contributed to the latter’s reputational eclipse of the former. The low repute in which Malthus is held even today by many economists is also probably in no small part due to the disdain that Marx exhibited toward him.’ The recognition accorded him by Keynes not only for anticipating a concern with the adequacy of aggregate demand but also, more generally, for his inductive, empirical method has served only partially to counterbalance this negative evaluation.4

In addition to his theoretical approach, Malthus’s hard-nosed attitude toward welfare spending, his apparently callous and indifferent attitude toward the poor, and in general his intolerance for all forms of liberal reformism as epitomised in William Godwin’s Political Justice” did not endear him to generations of progressive academicians who may accordingly have slighted his contributions to economic theory. The French socialist Proudhon probably summed up the attitudes of a great many intellectuals toward Malthus when he wrote: ‘There is only one person too many in the world, and that is Ma1thus’.6 We can only speculate as to whether, in an age which has seen the death of liberalism proclaimed,’ Malthus’s treatment at the hands of intellectuals may improve. Regardless of what the future promises, however, it is fair to say that up to this point, Malthus’s contributions to economic theory have not received anywhere near as much attention as have those of his contemporary Ricardo.

One might attempt to justify or criticise this allocation of intellectual

* The original version of this paper was written during a year spent at the Institute for Advanced Study, Princeton, New Jersey, U.S.A. and was prepared for presen- tation at the International Colloquium on Malthus, ‘Congres International de Demog- raphie Historique: Malthus Hier et Aujourd’hui’, Paris, France, 27-29 May. lY80.

i- Department of Economics. The University of Santa Clara. Santa Clara, CA 95053. U.S.A.

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136 Alexander Jumes Field

attention on the basis of general assertions about who was the ‘better’ economist. This approach, however, has been eschewed: the division of the world into ‘good’ and ‘bad’ economists on apparently objective grounds can easily and frequently does degenerate into a division of the world into those with whom one agrees, and those with whom one does not. Rather, I intend in this essay to examine several aspects of Malthus’s economic writing that repay attention sixteen decades after they first appeared. They repay attention not necessarily because his views on these matters are now universally accepted as correct (or wrong, for that matter), but rather because they shed light on problems or debates that remain with us. The paper focuses primarily on Malthus’s methodological and macroeconomic thinking.

2. Method

Malthus’s views on economic method, set forth at the start of his book, are notable in several respects. First, although he embraced the principles of laissez-faire, he was much more careful to qualify and limit their application than were some of his predecessors, in particular Adam Smith. At the very beginning of his treatise, where he delimits areas of agreement and disagree- ment among economists, Malthus maintains that Smith and most economists (including Malthus himself) do not differ on the desirability of ‘freedom of trade’ and ‘the leaving every person, while he adheres to the rules of justice, to pursue his own interest his own way’* (my italics). This maxim is repeated in essentially unchanged form at the conclusion of the book.” The italicised phrase reveals an important distinguishing feature of Malthus’s methodological thought. Even where he repeats the maxim, and could well have dis- pensed with the qualifier, he does not do so. Smith, on the other hand, was more likely to. We do not find in Z’he Wealth of Nations the same stress on this important limitation to an individualist model of society, not because Smith disagreed fundamentally with the position, but probably because he felt he had dealt adequately with the problem in The Theory of Moral Sentiments. “’

This limitation, unfortunately, is not accorded sufficient recognition by some economists today,’ ’ nor is it recognised in many interdisciplinary discus- sions which view the ‘economic sphere’ as somehow unconstrained by legal or institutional regulations or restrictions on the pursuit of self-interest.12 True freedom does not imply the absence of all restraints on individual action. Similarly, ‘free’ markets presuppose at the very minimum elementary guarantees against the use of force and fraud, guarantees which rely in part on a contingent willingness of all participants, not based on repeated calculations of potential short-run gain, to play within the rules of the game. Malthus recognised this, as did many of his contemporaries.13 But he is distinctive among the second generation of classical economists in stressing this expli- citly. No doubt his training and participation in the ministry contributed to this concern. The progress of intellectual history suggests that this stress was not nugatory: we might have been better off, for example, if the Adam Smith of The Wealth of ~atio~~s had made this clearer.

Malthus’s Methodological and Macroeconomic Thought 137

Whereas Malthus differed from Smith with regard to the extent that society could be viewed as consisting of purely self-interested individuals, he differed from Ricardo on a related but more general methodological principle: the appropriate balance between aprioristic deductive methods, and an empirical inductive approach. Malthus’s views on this subject are of particular interest msofar as modern economists have enthusiastically embraced Ricardo’s ana- lytical method at the same time as they have rejected, equally enthusiastically, his theory of value (the labour theory). Malthus makes several thinly veiled criticisms of the Ricardian method:

To minds of a certain cast, there is nothing so captivating as simplification and generalisation. It is indeed the desirable and legitimate object of genuine philosophy, whenever it can be effected consistent with truth; and for this very reason. the natural tendency towards it has in almost every science with which we are acquainted led to crude and premature theories.”

Malthus admits that one may fall into the error of being both complex and wrong, citing Adam Smith’s conclusion that imports of corn could never affect the home market.‘” More frequently, however, he suggests, errors in political economy result because ‘the desire to simplify has occasioned an unwillingness to acknowledge the operation of more causes than one in the production of physical effects’,16 combined with an ‘unwillingness to bring theories to the test of experience’.17

Periodically in the history of economics this debate on method has resur- faced. The issue is not, like a question of logic, one which can be resolved once and for all, and it continues to plague the profession precisely because proponents of one methodological tendency keep recapitulating the excesses which in a previous cycle had engendered the extremism of proponents of the other. An awareness of past history and drawn battles tends to create a reluctance among many to dwell on these questions. Yet, to paraphrase an aphorism Malthus would have liked, these issues, like the poor, we shall always have with us. It is worthwhile to reconsider Malthus’s position, at the same time we recognise that this is not the first cycle of debate on method we

have passed through since he wrote. For an example of an earlier crest of anti-Ricardian methodological senti-

ment, one can turn to the autobiography of Richard T. Ely, one of the founders of the American Economic Association. In this work, Ely reminisced about prevailing attitudes during the 188Os, when that organis- ation was established.

At the time of the founding of the American Economic Association, and for a good many years afterward, we used to hear the term ‘orthodox’ applied as an estimate of the value of economic articles and treatises. Either it was said of a man that he was orthodox. or that he was not orthodox. In the first case the writer was ipso facto judged to be an able economist; in the second case, his work was regarded as valueless. The test of orthodoxy was this: Do you or do you not believe in laissez-faire? In other words. do you not agree that if the state refrains from all interference with industry. trade and labour conditions, society will be best organised? . This whole philosophy was deductively arrived at from definitions and axioms. Therefore it was not necessary to dig into facts.

138 Alexander James Field

Jean Baptiste Say once remarked, ‘Economics is not eager for facts.’ His position was accepted. Political Economy was regarded as a body of truths arrived at chiefly by deduction, based on certain traits of human nature and familiar observation, and was to be taught as an almost finished product.”

It is somewhat paradoxical to review the circumstances under which the American Economic Association was founded, considering the methodological attitudes of many of its current members.‘” Half a century later, in 1936, one hundred and sixteen years after the publication of Malthus’s Principles, Keynes supported the Malthusian methodological position in these tolerant but critical remarks on Ricardo:

Ricardo offers us the supreme intellectual achievement. unattainable by weaker spirits, of adopting a hypothetical world remote from experience as though it were the world of experience and then living it consistently. With most of his successors common sense cannot help breaking in - with injury to their logical consistency.2”

But more importantly, Keynes took a position against the very high intellectual premium placed by Ricardo and some modern economists on abstraction, which Keynes referred to as

symbolic pseudo-mathematical methods of formalising a system. . Too large a proportion of recent ‘mathematical’ economics are mere concoctions, as imprecise as the initial assumptions they rest on. which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.21

Not opposed to intellectual rigor, or to the use of mathematics where deemed appropriate, Keynes still placed great emphasis on the clarity of verbal exposition, a Cambridge tradition he inherited from Alfred Marshall.22 In a letter to his colleague A. L. Bowley dated 27 February 1906, Marshall suggested a six-stage procedure to be followed in reporting the results of one’s investigation. He opened by suggesting that

a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics, and [he continues, he] went more and more on the [following] rules:

(1) Use mathematics as a shorthand language rather than an engine of enquiry.

(2) Keep to them until you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in (4), then burn (3).‘”

This last step, he says, he did often.

Malthus’s Methodological and Macroeconomic Thought

3. Aggregate Demand

139

Malthus’s anticipation of Keynes on aggregate demand is well-travelled terrain, and our discussion here will be correspondingly limited. It is territory, nevertheless, that we must pass through in a tour of his macroeconomic and methodological thought and, in doing so, ask from the vantage point of current-day problems, whether the guide-books have perhaps overempha- sised the attractions in this area.

Malthus denied that an act of non-consumption (saving) was necessarily equivalent to an act of investment. He coined the term ‘effective demand’, and, unlike Ricardo, evidenced considerable concern that a flow of demand insufficient to remove the outputs of an economy from market shelves at cost covering prices might periodically lead to a deflationary cycle in which not only prices, but also output, employment and capacity utilisation rates would fall. As is well known, he defended conspicuous consumption on the part of the landed classes as a means of assuring that this would not eventuate.‘” In modern language, Malthus can be said to have anticipated Keynes’s concern that the IS schedule might be unstable, and/or ‘too far’ to the left.

On the question of whether less than full employment ‘equilibrium’ was possible, the progress of scientific inquiry has resolved some of the con- troversies engendered by Malthus’s writings on the subject. Economists now agree that in a monetary economy an excess supply of all commodities, as reflected in growing inventories in non-auction markets, can be counterbalanced by an excess demand for real balances. Assuming the deflationary impulse comes initially from the 1S side, bond prices rise and interest rates drop, raising the asset demand for money and creating an excess demand for real balances at the initial income level. Attempts by individuals to increase their cash balances by non-consumption result at the outset in accumulating goods on shelves: a general glut. Absent any increase in the nominal stock of money, an excess demand for real balances eventually leads to declines in employment and output, perhaps somewhat counterbalanced by declines in goods prices that may shift the LM curve to the right.2”

On the other hand, economists now understand that the possibility that all wage, rent and profit income will not be spent on final consumption goods does not inevitably lead to deflation, as Malthus sometimes seemed to imply. Marx in his tableaux of simple and expanded reproduction,Lh Keynes in the General Theory and Harrod-Domar in their growth models2’ all maintained that so long as resources freed by ex anre saving were matched by government deficits financed by bond issues or entrepreneurial expenditures for investment goods to help satisfy future demands for consumer goods, this need not necessarily happen. More particularly, insofar as Malthus’s arguments are concerned, it is obvious that lavish consumption expenditure on the part of landlords is not the only way to close a gap between Y and C. Economists now accept the counter-intuitive conclusion that in an underemployment context, the most effective antidote to excess capacity may be the creation of still more capacity. In these areas, some of the issues that puzzled and confused Malthus and his contemporaries no longer seem as opaque.


Malthus’s undeniable concern with the deflationary potential of an economy has been interpreted, however, as if the deflationary impulse came invariably from the IS side (to use modern Hicks/Hansen language). The centrality which recent historians of economic thought accorded the concept of effective demand as developed by Malthus and extended by Keynes is understandable when one considers that many of them were writing with the spectre of the Great Depression very much in the background. Because of the attention the concept focused on the consumption-income relation, consumption generally being less than income, concern about effective demand became almost synonymous with concern about the adequacy of effective or aggregate demand. In the Keynesian model, variation in the flow of effective demand below its full employment level, especially as it was affected by changes in investment, government spending and exports, provided a key to understanding fluctuations in economic quantities, as Keynes suggested in his ‘Notes on the Trade Cycle’,*’ and as others such as Samuel- son formalised in accelerator-multiplier models of the business cycle.2” On the other hand. the price increases which would result if aggregate demand exceeded the level necessary to insure full employment received less attention. The asymmetrical implications of aggregate demand exceeding or falling short of the level associated with non-inflationary full employment provide the key to understanding why the emphasis on effective demand. read adequacy of effective demand, seemed less central to some economists in the decade of the 1970s.

In 1936, Western economies, with the possible exception of Germany, were not pushing against full employment ceilings. The economic problem was not one of cyclical instability, but rather of massive deflation whose causes remain unclear. Even economists advancing monetarist explanations of the length and severity of the Great Depression do not seem to deny the traditional Schumpeterian view that its initial cause was attributable to an (unex- plained?. fortuitous?) shift in the IS schedule.

In spite of the almost universal acceptance that our most serious depression was triggered by forces operating on the IS schedule, many economists in the late 1960s and 1970s began to argue that the General Theory’s analysis of LM curve instability: the mechanisms whereby changes in money demand and supply through their effect on interest rates affected the real side of the economy, was at least as important as the analysis of IS curve instability associated with the emphasis on volatile autonomous expenditure. On the money demand side, Keynes had stressed that the demand to hold cash balances was not necessarily a stable function of GNI and interest rates. Instability in the demand to hold money as an asset and in the demand for transactions balances in secondary asset markets were both stressed in the Treatise, although Keynes concentrated his attention on the former in the General Theory.

On the money supply side, Keynes believed that the monetary authorities could (and in Keynes’s case should) affect not only nominal, but also real rates of interest. Unlike Wicksell, however, he rejected unequivocably any concept of a ‘natural rate’ determined by the ‘productivity’ of capital goods.


This difference with Wicksell should be stressed, although when one recog- nises that Wicksell’s cumulative process might end not only at a higher price level, but also at a lower natural rate of interest, that is, that the banking system could, by lowering interest rates and encouraging investment, ‘create’ physical capital by changing the rate of capital formation from what it otherwise would have been, then perhaps they do not seem so far apart.“”

In any case, if one carried the Keynesian analysis to its logical conclusion, there did not seem to be anything in the way of driving the marginal efficiency of capital (rate of return over cost) to zero. The logic of this argument presupposed, however, that the value of money in terms of command over real capital and consumer goods remained constant. Both theory and history suggest that (save in special circumstances)31 a continued policy of discounting or open market operations designed to lower interest rates is likely to result in eventual rises in the aggregate price level and the demand- ing of ‘inflation premia’ by new creditors. When this happens the monetary authorities start to lose control of the real rate of interest, in a manner reminiscent of the way Keynes’s workers found themselves unable to change real wages by changing nominal wages.“’

The relative lack of concern that Keynes evidenced toward the potential long-term effects of an expansionary monetary policy associated with mone- tised government deficits: namely the creation of inflationary expectations that might make it impossible to maintain low nominal interest rates - have had much to do with the re-examination of the General Theory in recent years associated with the development of rational expectations models. Policies originally designed to increase the rate of capital formation, increase consumption and eliminate the real income of rentiers have in certain historical periods succeeded in accomplishing one or several of these objectives. In retrospect, however, success appears to have been contingent on ‘surprising’ or ‘fooling’ various segments of the public regarding the future course of bond or goods prices. The succession of inflationary experiences has made it more difficult to continue policies that were, for a time, effective in meeting these objectives.

In reassessing the General Theory as the basis for a macroeconomic approach applicable to both inflationary and deflationary environments, one must of course grant the importance of the analysis of IS curve instability. But Keynes also stressed the impact of fluctuations in money supply and asset preference on the rate of interest, and the mechanisms whereby changes in the demand for and supply of money affected, through the interest rates, both the aggregate price level and the real structure of the economy. Derivatively, Malthus’s contribution to the development of modern macroeconomic needs to be reassessed. The Malthus-Keynesian analysis of effective demand, and the consumption function/ZS schedule which it drew attention to no longer seem quite as central as they did a decade or two ago. In contrast, there are elements of Malthus’s macroeconomic approach that deserve greater attention than they have heretofore received.


4. InterestlProfit Rate Determination and Its Influence on Growth and Instability

Malthus, as did Ricardo, viewed profits as the engine of capital accumulation. Retained earnings of proprietorships, partnerships and joint stock companies, rather than income not spent on consumption by ‘individuals’ (ci la Fisher) were in the classical model the source for most of the financial capital invested by entrepreneurs. As it did in Ricardo, the rate of profits provided the key to understanding the rate of capital accumulation, both in a financial sense, that is, in the sense of what determined the growth in the aggregate real value of private wealth holdings, and in the sense of the accumulation of material objects that could prove useful in future production. But whereas Ricardo viewed the rate of profit as determined fundamentally by technical and social conditions of production in agriculture and other basic industries, in a way that could not be much affected by monetary policy or financial disturbances, Malthus was more cautious.

Classical economists, and Malthus was no exception, treated profits as a residual determined by taking the gross value of national output, less rent, and subtracting from it all ‘advances’, including wages, purchased materials and depreciation. The profit rate for the economy as a whole was measured by the amount of profits divided by the stock of advanced capital, and was assumed equal in all sectors. Malthus, as did Ricardo, considered and measured profits and the profit rate at the level of the macroeconomy using the same concepts as did the individual entrepreneur,” who measured the profit rate as

Sales - Advances s4

Advances (1)

In his chapter on profits Malthus neither clearly distinguished between nor identified the interest rate with the profit rate. Nevertheless, he implied that if the capital or advances were not provided by the entrepreneur himself, the interest rate would approximate the rate of profit less an allowance to compensate for the rentier’s avoidance of some of the burdens of organis- ation, risk taking and superintendence. The classical treatment of the deter- minants of the profit rate in Malthus and Ricardo was clearly different from the neoclassical, in that it made no attempt to explain the interest/profit rate as the ‘marginal product’ of capital.

The total private wealth holdings in any modern economy consist of real ‘inside’ assets and government debt (outside assets).“’ To the entrepreneur, therefore, invested capital may represent everything from land to non- renewable resources to non-depreciating improvements to machinery and structures to inventories (finished goods not yet sold as well as goods in process) to animals, and in slave societies, even to labour,” as well as the outside assets of cash and treasury bills, notes or bonds. Neoclassical theorists usually chopped off both ends of this spectrum, and capital came to stand strictly for machinery and structures: physical long-lived fixed capital that entered production functions on an equivalent basis with labour. This was

Malt~L~~‘s ~et~~d~l~g~ca~ utrd ~acr#eco~~u~~c Th~~u~~t I43

certainly the intent and practice of Paul Douglas in The Theory qf Wages.” The exclusion of land as part of the asset base and rent as part of the property income numerator is a legitimate procedure. The exclusion of inventories is more questionable. Since all capital (like inventories) must be produced, the classical procedure of requiring that the interest/profit rate be paid and calculated on the entire capital stock, in the context of an implicit model in which no rigid distinctions are drawn between commodity outputs and inputs is, in a sense, more realistic.

Although Malthus followed Ricardo in his accounting procedures regarding the determination of the rate of profit, he stressed that factors other than technical change could influence the residual (sales - advances) in individual sectors and in the economy as a whole. In this sense he was more receptive than Ricardo to the possibility that sudden shifts in what we would now call liquidity preference schedules, or nominal money supply (as welt as the propensities to save and invest) could influence the interest/profit rate and thereby the real side of the economy. There is, to be sure, little discussion in Malthus of the causes or consequences of financial panics or liquidity crises. But at least their possible influence was not excluded. Monetary theorists in the Ricardian tradition typically rejected the notion that fluctuations in the demand for and supply of money could or wouid affect the real side of the economy, aside possibly in the short run. Malthus, and of course Keynes, left open this possibility.

Keynes, like other critics of neoclassical economics, recognised problems with a marginal productivity theory of the interest/profit rate. In his chapter on the marginal efficiency of capital, he criticised the marginal productivity approach as applied to capital:

There is, to begin with, the ambiguity whether we are concerned with the increment of physical product per unit of time due to the employment of one more physical unit of capital, or with the increment of value due to the employment of one more value unit of capital. The former involves difficulties as to the definition of the physical unit of capital which I believe to be both insoluble and unnecessary. It is of course possible to say that ten labourers will raise more wheat from a given area when they are in a position to make use of certain additional machines, but I know of no means of reducing this to an intelligible arithmetic ratio which does not bring in vatues.“x

Axe1 Leijonhufvud has drawn attention to the widely held but incorrect conviction that monetary policy, the operation of financial markets and the level of interest rates were relatively unimportant in Keynes’s analysis.3Y Although fluctuating ZS schedules might influence interest rates, under ‘nor- mal’ conditions, Keynes stressed fluctuating individual preferences for hold- ing a limited stock of liquid financial capital (money) as the foundation for his theory of the determination of short-run variations in the rate of interest. There is clear evidence that Keynes viewed an inadequate theory of the rate of interest and profit as the main flaw in the (neo)-classical approach.“”

Whereas Keynes was dissatisfied with the (neon-classicai proposition that the interest rate was strictly determined by an interaction of forces affecting


productivity (technology) and thrift (time preference), Malthus was dissatisfied with Ricardo’s almost exclusive emphasis on technology and fertility in the key basic industry - agriculture - as the determinant of the interest/ profit rate.

Although not opposed to abstraction, Keynes recognised that the formal categories with which one worked had to be drawn from a detailed knowledge of macroeconomic history, including current history. He, like Malthus, was profoundly skeptical of the proposition that the activity of theorising con- sisted more or less exclusively of the manipulation of categories formulated by others, or derived from a priori reasoning. And like Malthus, his theory of interest and profit rates reflected a sensitivity to the potential macroeconomic impact of disturbances in financial markets on such variables, a sensitivity lacking in Ricardo.41

5. Conclusions

In stressing some of the contributions of Malthus to the development of economic inquiry, I do not mean to overlook those passages which have not well stood the test of time. His unrelenting defence of the landlord class - probably the aspect of his economic writing that most aggravated Marx - still causes one to wince today.42 Using every sort of argument he could dredge up, Malthus rejected Ricardo’s argument that freeing the grain trade would maintain the profit rate at a higher level than would otherwise have been the case. Rather, he claimed that if England had devoted her energies to working up materials for export to buy foreign grain, the rate of profit would be lower!

Our present body of manufacturers, when they call for imported corn, think chiefly of the additional demand for their goods occasioned by the increased imports, and seem quite to forget the prodigious increase of supply which must be occasioned by the competition of so many more capitals and workmen in the same line of business.4’

The result would be ‘a greater mass of moveable capitals at a loss for employment, and a greater disposition in these capitals to emigrate than has actually taken place’.44 It is undoubtedly true that the repeal of the Corn Laws in 1846 and the gradual movement toward free trade in many European countries, at least up to 1879,4s coincided with historically unprecedented levels of capital exports from the United Kingdom to the rest of the world. These exports were necessary to counterbalance the large surplus which Britain ran on merchandise and services account, and prevent the accumulation in England of most of the world’s gold stock. But although Malthus’s position finds echoes in the writings of the anarchist Kropotkin46 towards the turn of the century, and although Hobson stressed underconsumption and a declining domestic rate of profit in explaining the export of capital, it is difficult to give much credence to Malthus’s implication that England as a whole would have been better off had she stuck with a protectionist policy.


The standard of living unambiguously appears to have risen between 1860 and the middle of the 189Os, if we believe Lewis, largely because of the beneficial factoral terms of trade between England and the rest of the world during these years.47 England’s participation in the international division of labour was made possible by dramatic technological change in the transport sector - the railroad and the steamship - but the triumph of free trade ideology a quarter century earlier was a necessary condition for this.

Malthus was on the losing side of this (as of many) arguments, although in this case, it is difficult to argue that the Ricardian position should not have triumphed. But as Ely, Keynes and many others noted, the Ricardian analysis is not necessarily correct at all times for all regions. Malthus was one of those who, as Keynes wrote at the conclusion of his ‘Notes on Mercantilism’, ‘preferred to see the truth obscurely and imperfectly rather than to maintain errors, reached indeed with clearness and consistency and by easy logic, but on hypotheses inappropriate to the fact.48 Sometimes he saw the truth very,

very obscurely indeed, but as I have suggested in this essay, there are elements, especially in his methodological and macroeconomic thinking, that still repay attention today.

Alexander James Field

The University of Santa Clara California

NOTES

1. T.R. Malthus, Principles of Political Economy, Considered with a View to Their Practical Application (London: John Murray, 1820). All page references are to this first edition.

2. D. Ricardo, Principles of Political Economy and Taxation (1817) (London: Dent, 1973).

3. For one of Marx’s milder remarks on Malthus, consider the following: ‘One cannot fail to recognise that both Mahhus’s Principles and the two other works mentioned, which were intended to amplify certain aspects of the Principles were largely inspired by envy at the success of Ricardo’s book and were an attempt by Malthus to regain the leading position which he had attained by skillful plagiarism before Ricardo’s book appeared.’ K. Marx, Theories of Surplus Value III (Mos- cow: Progress Publishers, 1971), p. 14.

4. J.M. Keynes, The General Theory of Employment, Interest, and Money (1936) (New York: Harcourt Brace, 1964), pp. 32, 362-4, 371.

5. W. Godwin, Enquiry Concerning Political Justice and Its Influence on Morals and Happiness (1793) (Toronto: University of Toronto Press, 1946).

6. Cited in W. Peterson, Malthus (Cambridge: Harvard University Press, 1979), p. 78. Source is A. Sauvy, Malthus et les deux Marx: Le probleme de la faim et de la guerre duns le monde (Paris: Gonthier, 1963), p. 44.

7. T. Lowi, The End of Liberalism (New York: W.W. Norton, 1969). 8. Malthus, op. cit., p. 3.


9. Ibid., p. 518.

10. In a famous section of The Wealth ofNations Smith tells us that ‘it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest. . .Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow citizens.’ Smith, The Wealth of Nations (New York: Modern Library, 1937), p. 14. Yet, in defence of Malthus, every time that we walk down the street and expect not to be shot we depend, in a sense, on the ‘benevolence’ of others. I do not wish however to overstress the differences with Smith. The construction used by Malthus and quoted in the paper is in fact originally Smith’s, What we see in the two authors is a difference in emphasis.

11. Examples are too numerous to cite, but can be found in the works of such authors as Gordon Tullock. See also A. J. Field, ‘The problem with neoclassical institutional economics’, Explorations in Economic History 18 (April 1981), 174-98.

12. For a recent example, written from a neo-Marxist perspective, see J. M. Weiner, ‘Class structure and economic development in the American South, 1865-1955’, American Historic& Review 84 (October 1979), 970-92.

13. In spite of his professed allegiance to the principle of laissez-faire, Malthus was a strong supporter of universal public schooling as a means of fostering social integration. The development of a centralised police and a massive publicly supported educational system in Ireland (which date from 1825 and 1831 respec- tively) reflected interventionist trends that were at the time somewhat attenuated in the mother country. See Peterson, Malthus, pp. 106-7. 124-5; Malthus. op. cit., p. 252.

14. Malthus, op. cit., p. 6. 15. Ibid., p. 21. 16. Ibid., p. 6. 17. Ibid., p. 10. 18. R. T. Ely. Ground Under our Feet (New York: Macmillan, 193X), pp. 126, 128. 19. ‘Report of organization of the American Economic Association,’ Publications of

the American Economic Association Vol. 1, No. 1 (Baltimore: John Murphy, 1887).

20. Keynes, General Theory, p. 192. 21. Ibid., pp. 297-8. 22. Leijonhufvud, it seems to me, is a trifle unfair when he remarks, without refer-

ences, that ‘the General Theory was in several respects, as has been frequently been said, ‘a badly written book.’ A. Leijonhufvud, On Keynesian Economics and the Economics of Keynes (New York: Oxford University Press, 1968), p. 10. Phyllis Deane also objects to the notion the book was badly written: P. Deane, The Evolution of Economic Ideas (Cambridge: Cambridge University Press, 197X), p. 189. footnote 31.

23. Cited in International Encyclopedia of the Social Sciences (New York: Macmillan, 1968), S.V. Marshall, Alfred.

24. Malthus, op. cit., p. 463. The term conspicuous consumption is of course Veb- len’s, but it fits. Malthus argued that countries needed a class of unproductive consumers.

25. The ISiLM analysis was first developed by J.R. Hicks in ‘Mr. Keynes and the ‘Classics’: a suggested interpretation’, Econometrica 5 (April 1937), 147-59. Hicks warned against misuse of this ‘skeletal’ framework. See Leijonhufvud, On Keynesian Economics, p. 4. ‘Those unfamiliar with the derivation and analysis of the IS and LM schedules would be best advised to consult an intermediate


macroeconomics text. IS and LM schedules are drawn (conditional on a goods price level) on a graph with the interest rate (r) measured on the vertical axis and nominal income (Y) measured on the horizontal axis. The IS schedule, usually downward sloping from left to right, plots the combinations of Y and r at which the flow of savings (a function of Y and perhaps r) will be equal to the flow of investment (a function of r). An IS schedule is conditional on a given set of expectations: Keynes stressed that these expectations might be quite volatile, causing the schedule to shift even in the absence of policy intervention. The LM

schedule, usually upward sloping from left to right, plots the combinations of Y and r at which the stock demand for money (a function of Y and r) equals the money supply (a stock fixed exogenously). The position of the LA4 schedule may be shifted to the right by expansionary monetary policy. or shift to the left as the result of an increase in (volatile) liquidity preference. The intersection of the two schedules determines a combination of Y and r that simultaneously equates investment and savings, and money demand and money supply.

26. K. Marx, Cupiral II (New York: International Publishers, 1967), chap. 21. 27. Deane, Evolution, pp. 197-9. 28. Chapter 22 of the General Theory. 29. P. Samuelson, ‘Interactions between the multiplier analysis and the principle of

acceleration’, Review of Economic Statistics 21 (May 1939), 75-8. 30. For a description of the ‘cumulative process’, see M. Blaug, Economic Theory in

Retrospect 3rd ed (Cambridge: Cambridge University Press, 1979), pp. 649-57. 31. The liquidity trap. 32. R. Dornbusch and S. Fischer, Macroeconomics (New York: McGraw Hill, 1978).

p. 517. 33. See Keynes’s Appendix on user cost, General Theory, pp. 66-73. 34. Malthus, op. cit., pp. 293-4. 35. Some economists, following Ricardo, do not treat outside assets as part of net

private wealth, arguing that it is counterbalanced by an anticipated stream of tax liabilities.

36. Considerations such as these led Donald Dewey to the conclusion that capital was really the sole productive factor. D. Dewey, Modern Capital Theory (New York: Columbia University Press, 1965), p. 25. Nevertheless, towards the end of this book Dewey bows to prevailing orthodoxy and considers two factor production functions (chap. 9). It is true of course that individual entrepreneurs may hold the financial liabilities of other entities, and treat them as assets, but when balance sheets are consolidated, such assets are not counted along with the real assets which they represent.

37. P. Douglas, The Theory of Wages (New York: Macmillan, 1934). See esp. p. 113, where he excludes land and working capital from the estimates of invested capital reported by manufacturing establishments as the first step in obtaining his index of capital input.

38. Keynes, General Theory, p. 138. 39. Leijonhufvud. On Keynesian Economics, p. 13. 40. J.M. Keynes, The Collected Writings of John Maynard Keynes (Cambridge:

Macmillan, 1973), Vol. 13, p. 489, cited in Deane, Evolution, p. 183. 41. Ricardo’s successful advocacy of the resumption of cash payments in 1819 was

followed by acute agrarian distress associated with the ensuing deflation. Ricar- do’s model told him there could be no association between these two develop- ments. and there is little evidence he ever considered the possibility that there


might be. See B. Gordon, Political E~onom.~ in Puri~ame~t (New York: Barnes and Nobles, 1976).

42. Malthus, op. cit., p. 182. 43. Ibid., Q. 331. 44. Lot. cit. 45. P. Bairoch, Commerce exterieur et divelopment economique de I’Europc au XIX’

siPcle (Paris: Mouton, 1976), p. 46. 46. P. Kropotkin, Fields, Factories and Workshops Tomorrow, ed. C. Ward (1899)

(New York: Harper and Row, 1974). 47. W.A. Lewis, The Evolution of the International Economic Order (Princeton:

Princeton University press, 1978). pp. 14-20. 48. Keynes, Generaal Theory, p. 371.

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Malthus's methodological and macroeconomic thought

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