WEBVTT NOTE 3. Keynes vs. Say's Law 1 00:00:00.000 --> 00:00:09.000 Chapter 3, Keynes vs. Say's Law 2 00:00:09.000 --> 00:00:14.000 Keynes' Greatest Achievement 3 00:00:14.000 --> 00:00:21.000 We come now to Keynes' famous refutation of Say's Law of Markets. 4 00:00:21.000 --> 00:00:33.000 All that it is necessary to say about this refutation has already been said by Benjamin M. Anderson Jr. and Ludwig von Mises. 5 00:00:33.000 --> 00:00:45.000 Keynes himself takes the matter so cavalierly that all he requires to refute Say's law to his own satisfaction is less than four pages. 6 00:00:45.000 --> 00:00:53.000 Yet some of his admirers regard this as alone securing his title to fame. 7 00:00:53.000 --> 00:01:04.000 Historians fifty years from now may record that Keynes's greatest achievement was the liberation of Anglo-American economics from a tyrannical dogma, 8 00:01:04.000 --> 00:01:13.000 and they may even conclude that this was essentially a work of negation unmatched by comparable positive achievements. 9 00:01:13.000 --> 00:01:19.840 Even, however, if Keynes were to receive credit for nothing else, his title to fame would 10 00:01:19.840 --> 00:01:21.160 be secure. 11 00:01:21.160 --> 00:01:27.680 Yet, the Keynesian attacks, though they appear to be directed against a variety of specific 12 00:01:27.680 --> 00:01:35.240 theories, all fall to the ground if the validity of Say's law is assumed. 13 00:01:35.240 --> 00:01:41.600 I think I am justified, therefore, in devoting a special chapter to the subject. 14 00:01:41.600 --> 00:01:48.440 It is important to realize, to begin with, as Mises has pointed out, that what is called 15 00:01:48.440 --> 00:01:55.720 Say's Law was not originally designed as an integral part of classical economics, but 16 00:01:55.720 --> 00:02:03.360 as a preliminary, as a refutation of a fallacy that long preceded the development of economics 17 00:02:03.360 --> 00:02:08.120 as a recognized special branch of knowledge. 18 00:02:08.120 --> 00:02:15.000 Whenever business was bad, the average merchant had two explanations at hand. 19 00:02:15.000 --> 00:02:22.040 The evil was caused by a scarcity of money and by general overproduction. 20 00:02:22.040 --> 00:02:29.440 Adam Smith, in a famous passage in The Wealth of Nations, exploded the first of these myths. 21 00:02:29.440 --> 00:02:34.980 Say devoted himself to a refutation of the second. 22 00:02:34.980 --> 00:02:41.820 For a modern statement of Say's Law, I turn to B. M. Anderson. 23 00:02:41.820 --> 00:02:48.080 The central theoretical issue involved in the problem of post-war economic adjustment 24 00:02:48.080 --> 00:02:54.320 and in the problem of full employment, says Anderson, in the post-war period, is the issue 25 00:02:54.320 --> 00:02:59.720 between the equilibrium doctrine and the purchasing power doctrine. 26 00:02:59.720 --> 00:03:06.160 Those who advocate vast governmental expenditures and deficit financing after the war as the 27 00:03:06.160 --> 00:03:13.860 only means of getting full employment, separate production and purchasing power sharply. 28 00:03:13.860 --> 00:03:19.560 Purchasing power must be kept above production if production is to expand in their view. 29 00:03:19.560 --> 00:03:24.080 If purchasing power falls off, production will fall off. 30 00:03:24.080 --> 00:03:29.560 The prevailing view among economists, on the other hand, has long been that purchasing 31 00:03:29.560 --> 00:03:32.320 power grows out of production. 32 00:03:32.320 --> 00:03:36.560 The great producing countries are the great consuming countries. 33 00:03:36.560 --> 00:03:43.160 The 20th century world consumes vastly more than the 18th century world because it produces 34 00:03:43.160 --> 00:03:46.080 vastly more. 35 00:03:46.080 --> 00:03:53.280 Supply of wheat gives rise to demand for automobiles, silks, shoes, cotton goods, and other things 36 00:03:53.280 --> 00:04:00.560 that the wheat producer wants. Supply of shoes gives rise to demand for wheat, for silks, 37 00:04:00.560 --> 00:04:07.440 for automobiles, and for other things that the shoe producer wants. Supply and demand 38 00:04:07.440 --> 00:04:14.140 in the aggregate are thus not merely equal, but they are identical, since every commodity 39 00:04:14.140 --> 00:04:21.340 may be looked upon either as supply of its own kind or as demand for other things. But 40 00:04:21.340 --> 00:04:32.340 But this doctrine is subject to the great qualification that the proportions must be right, that there must be equilibrium. 41 00:04:32.340 --> 00:04:40.340 Keynes's refutation of Say's law consists in simply ignoring this qualification. 42 00:04:40.340 --> 00:04:47.340 He takes as his first target a passage from John Stuart Mill. 43 00:04:47.340 --> 00:04:52.620 What constitutes the means of payment for commodities is simply commodities. 44 00:04:52.620 --> 00:04:58.100 Each person's means of paying for the production of other people consist of those which he 45 00:04:58.100 --> 00:05:00.500 himself possesses. 46 00:05:00.500 --> 00:05:05.900 All sellers are, inevitably, and by the meaning of the word, buyers. 47 00:05:05.900 --> 00:05:10.640 Could we suddenly double the productive powers of the country, we should double the supply 48 00:05:10.640 --> 00:05:16.220 of commodities in every market, but we should, by the same stroke, double the purchasing 49 00:05:16.220 --> 00:05:30.220 Everybody would bring a double demand as well as supply. Everybody would be able to buy twice as much, because everyone would have twice as much to offer in exchange. 50 00:05:30.220 --> 00:05:42.220 By itself, this passage from Mill, as B.M. Anderson has pointed out, does not present the essentials of the modern version of Say's law. 51 00:05:42.220 --> 00:05:57.220 If we doubled the productive power of the country, says Anderson, we should not double the supply of commodities in every market, and if we did, we should not clear the markets of the double supply in every market. 52 00:05:57.220 --> 00:06:04.220 If we doubled the supply in the salt market for example, we should have an appalling glut of salt. 53 00:06:04.220 --> 00:06:10.220 The great increases would come in the items where demand is elastic. 54 00:06:10.220 --> 00:06:17.220 We should change very radically the proportions in which we produced commodities. 55 00:06:17.220 --> 00:06:29.220 But as Anderson goes on to point out, it is unfair to Mill to take this brief passage out of context and present it as if it were the heart of Say's law. 56 00:06:29.220 --> 00:06:36.220 If Keynes had quoted only the three sentences immediately following, he would have introduced 57 00:06:36.220 --> 00:06:41.700 us to the conception of balance and proportion and equilibrium, which is the heart of the 58 00:06:41.700 --> 00:06:47.940 doctrine, a conception which Keynes nowhere considers in his general theory. 59 00:06:47.940 --> 00:06:55.140 Mill's next few lines, immediately following the passage torn from its context quoted above, 60 00:06:55.140 --> 00:06:57.460 are as follows. 61 00:06:57.460 --> 00:07:04.160 It is probable indeed that there would now be a superfluity of certain things. 62 00:07:04.160 --> 00:07:09.260 Although the community would willingly double its aggregate consumption, it may already 63 00:07:09.260 --> 00:07:15.780 have as much as it desires of some commodities, and it may prefer to do more than double its 64 00:07:15.780 --> 00:07:23.100 consumption of others, or to exercise its increased purchasing power on some new thing. 65 00:07:23.100 --> 00:07:28.580 If so, the supply will adapt itself accordingly, and the values of things will continue to 66 00:07:28.580 --> 00:07:32.480 conform to their costs of production. 67 00:07:32.480 --> 00:07:37.960 The doctrine that supply creates its own demand, in other words, is based on the assumption 68 00:07:37.960 --> 00:07:44.220 that a proper equilibrium exists among the different kinds of production, and among prices 69 00:07:44.220 --> 00:07:47.700 of different products and services. 70 00:07:47.700 --> 00:07:54.560 And it, of course, assumes proper relationships between prices and costs, between prices and 71 00:07:54.560 --> 00:07:56.940 wage rates. 72 00:07:56.940 --> 00:08:03.380 It assumes the existence of competition and free and fluid markets by which these proportions, 73 00:08:03.380 --> 00:08:08.740 price relations and other equilibria will be brought about. 74 00:08:08.740 --> 00:08:15.040 No important economist, to my knowledge, ever made the absurd assumption of which Keynes 75 00:08:15.040 --> 00:08:39.440 Say's law, to repeat, was contrary to the assertions of the Keynesians, not the cornerstone 76 00:08:39.440 --> 00:08:44.880 on which the great edifice of the positive doctrines of the classical economists was 77 00:08:44.880 --> 00:08:56.880 To resume the quotation from Mill, 78 00:09:14.880 --> 00:09:23.880 The creation of producers does not depend on how much money, but on how much of consumable articles they obtain for their goods. 79 00:09:24.880 --> 00:09:38.880 Besides, money is a commodity, and if all commodities are supposed to be doubled in quantity, we must suppose money to be doubled too, and then prices would no more fall than values would. 80 00:09:38.880 --> 00:09:48.880 In sum, Say's law was merely the denial of the possibility of a general overproduction of all goods and services. 81 00:09:48.880 --> 00:09:55.880 If you had presented the classical economists with the Keynesian case, if you had asked them, in other words, 82 00:09:55.880 --> 00:10:00.880 what they thought would happen in the event of a fall in the prices of commodities, 83 00:10:00.880 --> 00:10:08.880 If money wage rates as a result of union monopoly protected and insured by law remained rigid or rising, 84 00:10:08.880 --> 00:10:19.880 they would have undoubtedly replied that sufficient markets could not be found for goods produced at such economically unjustified costs of production, 85 00:10:19.880 --> 00:10:23.880 and that great and prolonged unemployment would result. 86 00:10:23.880 --> 00:10:29.880 Certainly this is what any modern subjective value theorist would reply. 87 00:10:30.880 --> 00:10:36.760 Ricardo's Statement 88 00:10:36.760 --> 00:10:44.600 We might rest the case here, but such a hullabaloo has been raised about Keynes's alleged refutation 89 00:10:44.600 --> 00:10:50.800 of Say's Law that it seems desirable to pursue the subject further. 90 00:10:50.800 --> 00:10:57.520 One writer has distinguished the four essential meanings of Say's Law as developed by Say 91 00:10:57.520 --> 00:11:02.120 and more fully by Mill and Riccardo. 92 00:11:02.120 --> 00:11:08.280 It may be profitable to take her formulation as a basis of discussion. 93 00:11:08.280 --> 00:11:13.040 The four meanings as she phrases them are 1. 94 00:11:13.040 --> 00:11:20.760 Supply creates its own demand, hence aggregate overproduction or a general glut is impossible. 95 00:11:20.760 --> 00:11:29.760 2. Since goods exchange against goods, money is but a veil and plays no independent role. 96 00:11:29.760 --> 00:11:46.760 3. In the case of partial overproduction, which necessarily implies a balancing underproduction elsewhere, equilibrium is restored by competition, that is, by the price mechanism and the mobility of capital. 97 00:11:46.760 --> 00:12:02.760 4. Because aggregate demand and supply are necessarily equal, and because of the equilibrating mechanism, output can be increased indefinitely and the accumulation of capital proceed without limit. 98 00:12:02.760 --> 00:12:12.340 I shall contend that of these four versions, 1, 3 and 4 are correct, properly interpreted 99 00:12:12.340 --> 00:12:19.700 and understood, that only version 2 is false as stated, and that even this is capable of 100 00:12:19.700 --> 00:12:23.340 being stated in a form that is correct. 101 00:12:23.340 --> 00:12:29.780 Now Ricardo clearly stated the doctrine in versions 1, 3 and 4, and though he implied 102 00:12:29.780 --> 00:12:45.780 M. Say has, most satisfactorily shown, that there is no amount of capital which may not 103 00:12:45.780 --> 00:12:51.680 be employed in a country, because a demand is only limited by production. 104 00:12:51.680 --> 00:12:58.020 No man produces but with a view to consume or sell, and he never sells but with an intention 105 00:12:58.020 --> 00:13:04.020 to purchase some other commodity, which may be immediately useful to him, or which may 106 00:13:04.020 --> 00:13:06.940 contribute to future production. 107 00:13:06.940 --> 00:13:12.820 By producing, then, he necessarily becomes either the consumer of his own goods, or the 108 00:13:12.820 --> 00:13:17.820 purchaser and consumer of the goods of some other person. 109 00:13:17.820 --> 00:13:23.340 It is not to be supposed that he should, for any length of time, be ill-informed of the 110 00:13:23.340 --> 00:13:29.260 the commodities which he can most advantageously produce, to attain the object which he has 111 00:13:29.260 --> 00:13:33.700 in view, namely the possession of other goods. 112 00:13:33.700 --> 00:13:39.860 And therefore it is not probable that he will continually produce a commodity for which 113 00:13:39.860 --> 00:13:42.300 there is no demand. 114 00:13:42.300 --> 00:13:48.480 There cannot then be accumulated in a country any amount of capital which cannot be employed 115 00:13:48.480 --> 00:13:56.820 productively until wages rise so high in consequence of the rise of necessaries and so little consequently 116 00:13:56.820 --> 00:14:03.520 remains for the profits of stock that the motive for accumulation ceases. 117 00:14:03.520 --> 00:14:09.680 While the profits of stock are high, men will have a motive to accumulate. 118 00:14:09.680 --> 00:14:16.040 Whilst a man has any wished-for gratification unsupplied, he will have a demand for more 119 00:14:16.040 --> 00:14:22.840 for Commodities, and it will be an effectual demand, while he has any new value to offer 120 00:14:22.840 --> 00:14:26.360 an exchange for them. 121 00:14:26.360 --> 00:14:30.600 Productions are always bought by productions, or by services. 122 00:14:30.600 --> 00:14:34.840 Money is only the medium by which the exchange is affected. 123 00:14:34.840 --> 00:14:40.600 Too much of a particular commodity may be produced, of which there may be such a glut 124 00:14:40.600 --> 00:14:46.520 in the market as not to repay the capital expended on it, but this cannot be the case 125 00:14:46.520 --> 00:14:50.140 with respect to all commodities. 126 00:14:50.140 --> 00:14:57.000 The italics above are my own, intended to bring out the fact that Ricardo by no means 127 00:14:57.000 --> 00:15:04.440 denied the possibility of gluts, but merely of their indefinite prolongation. 128 00:15:04.440 --> 00:15:10.000 In his Notes on Malthus, in fact, Ricardo wrote, 129 00:15:10.000 --> 00:15:15.300 Mistakes may be made, and commodities not suited to the demand may be produced. 130 00:15:15.300 --> 00:15:17.440 Of these there may be a glut. 131 00:15:17.440 --> 00:15:23.640 They may not sell at their usual price, but then this is owing to the mistake and not 132 00:15:23.640 --> 00:15:27.600 to the want of demand for productions. 133 00:15:27.600 --> 00:15:33.920 The whole of Ricardo's comment on this phase of Malthus's thought will repay study. 134 00:15:33.920 --> 00:15:40.920 I have been thus particular in examining this question of Say's law, wrote Ricardo, as 135 00:15:40.920 --> 00:15:49.220 it forms by far the most important topic of discussion in Mr. Malthus's work, i.e. Malthus's 136 00:15:49.220 --> 00:15:53.040 principles of political economy. 137 00:15:53.040 --> 00:16:01.160 It was Malthus who, in 1820, more than a century before Keynes, set himself to refuting Say's 138 00:16:01.160 --> 00:16:08.560 law. Ricardo's answer, most of which was not discovered or available until recent years, 139 00:16:08.560 --> 00:16:17.100 is devastating. If it had been earlier available in full, it would have buried Malthus's fallacious 140 00:16:17.100 --> 00:16:27.100 Refutation Forever. Even as it was, it prevented its exhumation until Keynes's time. 141 00:16:27.100 --> 00:16:33.100 Ricardo's answer was, it is true, weak or incomplete at certain points. 142 00:16:33.100 --> 00:16:40.100 Thus, he did not address himself to the problem of what happens in a crisis of confidence, 143 00:16:40.100 --> 00:16:45.100 when for a time, even the commodities that are relatively under-produced 144 00:16:45.100 --> 00:16:55.100 may not sell at existing price levels because consumers, even though they have the purchasing power and the desire to buy those commodities, 145 00:16:55.100 --> 00:17:01.100 do not trust existing prices and expect them to go still lower. 146 00:17:01.100 --> 00:17:10.100 But the basic truth of Say's Law, and Say's Law was only intended as a basic or ultimate truth, 147 00:17:10.100 --> 00:17:18.100 is not invalidated, but merely concealed by a temporary abnormal situation of this kind. 148 00:17:18.100 --> 00:17:26.100 This situation is possible only in those periods when a substantial number of consumers and businessmen 149 00:17:26.100 --> 00:17:31.100 remain unconvinced that bottom has been reached in wages and prices, 150 00:17:31.100 --> 00:17:37.100 or feel that their job or solvency may still be in danger. 151 00:17:37.100 --> 00:17:42.700 And this is likely to happen precisely when wage rates are artificially forced or held 152 00:17:42.700 --> 00:17:47.900 above the equilibrium level of marginal labor productivity. 153 00:17:47.900 --> 00:17:54.300 Again, it is true that Ricardo declares at one point, already quoted, that 154 00:17:54.300 --> 00:18:11.300 Money is only the medium by which the exchange is effected. If this is interpreted to mean, as Bernice Scholl interprets it, that money plays no independent role, then of course it is not true. 155 00:18:11.300 --> 00:18:28.300 But if it is interpreted to mean, if we for the moment abstract from money, we can see that in the ultimate analysis, goods exchange against goods, then it is both true and methodologically valid. 156 00:18:28.300 --> 00:18:57.300 Having recognized this truth, of course, we must in the solution of any dynamic problem, put money back into our equation or model, and recognize that in the modern world the exchange of goods is practically always through the medium of money, and that the interrelationship of goods and money prices must be right for Say's law to be valid. 157 00:18:57.300 --> 00:19:12.300 But this is merely to return to the qualification of correct price relationships and equilibrium that has always been implicit in the statement of Say's law by the leading classical economists. 158 00:19:14.300 --> 00:19:17.300 The Answer of Haberler 159 00:19:17.300 --> 00:19:31.300 Before leaving the subject, it may be important to address ourselves to some of the confusions about it, not of Keynes himself, but of the post-Keynesians. 160 00:19:31.300 --> 00:19:43.300 Professor Gottfried Haberler has been by no means uncritical of Keynes, but his discussion of Keynes's discussion of Say's law is peculiar. 161 00:19:43.300 --> 00:19:57.300 He presents part of the quotation I have already presented from Ricardo, on pages 37 through 38, but does so in truncated form, and ends with the sentence, 162 00:19:57.300 --> 00:20:02.300 Money is only the medium by which the exchange is effected. 163 00:20:02.300 --> 00:20:11.300 He then declares, The meaning of this original formulation of this law seems to me quite clear. 164 00:20:11.300 --> 00:20:17.300 It states that income received is always spent on consumption or investment. 165 00:20:17.300 --> 00:20:21.300 In other words, money is never hoarded. 166 00:20:21.300 --> 00:20:31.300 Now, the meaning of Ricardo's formulation of Say's law is already quite clear, particularly when it is given in full. 167 00:20:31.300 --> 00:20:41.300 It does not require any exegesis by Haberler or anyone else, and certainly no paraphrase that quite changes its meaning. 168 00:20:41.300 --> 00:20:53.300 Not only did Ricardo never explicitly assert the proposition that Haberler attributes to him, there is every reason to suppose that he would have repudiated it. 169 00:20:53.300 --> 00:21:02.300 At several points he actually describes what we today might call money hoarding and its effects. 170 00:21:02.300 --> 00:21:10.300 At many points in his notes on Malthus, he writes, regarding some view that Malthus attributes to him, 171 00:21:10.300 --> 00:21:29.500 Our conclusion, thus, Haberler goes on, is that there is no place and no need for Say's 172 00:21:29.500 --> 00:21:36.380 law in modern economic theory, and that it has been completely abandoned by neoclassical 173 00:21:36.380 --> 00:21:49.860 Summing up, we may say that there was no need for Keynes to rid neoclassical economics of 174 00:21:49.860 --> 00:21:55.860 Say's Law in the original straightforward sense, for it had been completely abandoned 175 00:21:55.860 --> 00:21:57.640 long ago. 176 00:21:57.640 --> 00:22:03.860 The short answer to this is that there is still need and place to assert Say's Law whenever 177 00:22:03.860 --> 00:22:15.260 It is itself, to repeat, essentially a negative rather than a positive proposition. 178 00:22:15.260 --> 00:22:19.620 It is essentially a rejection of a fallacy. 179 00:22:19.620 --> 00:22:27.020 It states that a general overproduction of all commodities is not possible. 180 00:22:27.020 --> 00:22:31.700 And that is all, basically, that it is intended to assert. 181 00:22:31.700 --> 00:22:39.460 Haberler is right in so far as he denies the belief of Keynes and such disciples as Sweezy 182 00:22:39.460 --> 00:22:47.460 that Say's Law still underlies the whole classical theory which would collapse without it. 183 00:22:47.460 --> 00:22:50.700 General Theory, page 19. 184 00:22:50.700 --> 00:22:57.700 It is true that Say's Law is not explicitly needed in the solution of specific economic 185 00:22:57.700 --> 00:23:03.420 problems if its truth is tacitly taken for granted. 186 00:23:03.420 --> 00:23:09.800 Mathematicians seldom stop to assert that two and two do not make five. 187 00:23:09.800 --> 00:23:16.740 They do not explicitly build elaborate solutions of complicated problems upon this negative 188 00:23:16.740 --> 00:23:18.460 truth. 189 00:23:18.460 --> 00:23:24.080 But when someone asserts that two and two make five, or that an existing depression 190 00:23:24.080 --> 00:23:30.440 is the result of a general overproduction of everything, it is necessary to remind him 191 00:23:30.440 --> 00:23:33.240 of the error. 192 00:23:33.240 --> 00:23:38.720 There is still another line of attack on Say's law, which Haberler, among others, seems to 193 00:23:38.720 --> 00:23:48.520 adopt, and this is to assert that in the sense in which Say's law is true, it is mere tautology. 194 00:23:48.520 --> 00:23:55.140 If it is tautological, it is so in the same sense in which basic logical and mathematical 195 00:23:55.140 --> 00:23:58.800 propositions are tautological. 196 00:23:58.800 --> 00:24:03.720 Things that are equal to the same thing are equal to each other. 197 00:24:03.720 --> 00:24:09.580 One does not need to say this as long as one does not forget it. 198 00:24:09.580 --> 00:24:17.080 To sum up, Keynes's refutation of Say's law, even if it had been successful, would not 199 00:24:17.080 --> 00:24:24.520 have been original. It does not go an inch beyond Malthus's attempted refutation more 200 00:24:24.520 --> 00:24:32.960 than a century before him. Keynes refuted, says Law, only in a sense in which no important 201 00:24:32.960 --> 00:24:37.480 economist ever held it. 202 00:24:37.480 --> 00:24:42.080 To Save is to Spend 203 00:24:42.080 --> 00:24:48.680 Asking the accusation of beating a dead horse, I should like to address myself to one more 204 00:24:48.680 --> 00:24:56.440 effort by Keynes to disprove Say's law, or what he calls a corollary of the same doctrine, 205 00:24:56.440 --> 00:24:59.440 page 19. 206 00:24:59.440 --> 00:25:06.080 It has been supposed, he writes, that any individual act of abstaining from consumption 207 00:25:06.080 --> 00:25:12.600 necessarily leads to, and amounts to the same thing as, causing the labor and commodities 208 00:25:12.600 --> 00:25:19.320 thus released from supplying consumption to be invested in the production of capital wealth. 209 00:25:19.320 --> 00:25:21.520 Page 19. 210 00:25:21.520 --> 00:25:28.000 And he quotes the following passage from Alfred Marshall's Pure Theory of Domestic Values, 211 00:25:28.000 --> 00:25:32.520 page 34, in illustration. 212 00:25:32.520 --> 00:25:38.720 The whole of a man's income is expended in the purchase of services and of commodities. 213 00:25:38.720 --> 00:25:45.320 It is indeed commonly said that a man spends some portion of his income and saves another. 214 00:25:45.320 --> 00:25:51.600 But it is a familiar economic axiom that a man purchases labor and commodities with that 215 00:25:51.600 --> 00:25:57.140 portion of his income which he saves just as much as he does with that he is said to 216 00:25:57.140 --> 00:25:58.500 spend. 217 00:25:58.500 --> 00:26:04.020 He is said to spend when he seeks to obtain present enjoyment from the services and commodities 218 00:26:04.020 --> 00:26:06.220 which he purchases. 219 00:26:06.220 --> 00:26:11.500 He is said to save when he causes the labor and the commodities which he purchases to 220 00:26:11.500 --> 00:26:17.460 be devoted to the production of wealth from which he expects to derive the means of enjoyment 221 00:26:17.460 --> 00:26:19.820 in the future. 222 00:26:19.820 --> 00:26:25.500 This doctrine, of course, goes much further back than Marshall. 223 00:26:25.500 --> 00:26:31.620 Keynes could have quoted his Bait Noir, Ricardo, to the same effect. 224 00:26:31.620 --> 00:26:39.020 Mr. Malthus, wrote Ricardo, never appears to remember that to save is to spend, as surely 225 00:26:39.020 --> 00:26:43.740 as what he exclusively calls spending. 226 00:26:43.740 --> 00:26:49.780 Ricardo went much further than this, and in answering Malthus answered one of Keynes's 227 00:26:49.780 --> 00:26:53.380 chief contentions in advance. 228 00:26:53.380 --> 00:26:59.960 I deny that the wants of consumers generally are diminished by parsimony, that they are 229 00:26:59.960 --> 00:27:05.820 transferred with the power to consume to another set of consumers. 230 00:27:05.820 --> 00:27:11.800 And on still another occasion, Ricardo wrote directly to Malthus. 231 00:27:11.800 --> 00:27:18.660 We agree, too, that effectual demand consists of two elements, the power and the will to 232 00:27:18.660 --> 00:27:19.660 Purchase. 233 00:27:19.660 --> 00:27:25.140 But I think the will is very seldom wanting where the power exists. 234 00:27:25.140 --> 00:27:31.880 For the desire of accumulation, i.e. saving, will occasion demand just as effectually as 235 00:27:31.880 --> 00:27:34.260 a desire to consume. 236 00:27:34.260 --> 00:27:41.060 It will only change the objects on which the demand will exercise itself. 237 00:27:41.060 --> 00:27:47.260 For the present, however, it may be sufficient merely to note Keynes's contention on this 238 00:27:47.260 --> 00:27:56.940 There will be plenty of opportunity for that later. 239 00:27:56.940 --> 00:28:03.980 As we shall see, Keynes himself alternates constantly between two mutually contradictory 240 00:28:03.980 --> 00:28:05.460 contentions. 241 00:28:05.460 --> 00:28:13.780 One, that saving and investment are necessarily equal, and merely different aspects of the 242 00:28:13.780 --> 00:28:28.280 the same thing, page 74, and 2, that saving and investment are two essentially different activities without even a nexus, page 21, 243 00:28:28.280 --> 00:28:35.280 so that saving not only can exceed investment, but chronically tends to do so. 244 00:28:35.280 --> 00:28:39.780 The second is the view which he chooses to support at this point. 245 00:28:39.780 --> 00:28:46.260 We shall have occasion to analyze both views later. For the present, it is sufficient merely 246 00:28:46.260 --> 00:28:51.260 to note the presence of this deep-seated contradiction in Keynes's thought.