Reply To: Steven Kates on Say's Law


OK, one final attempt at convincing you on Mill, and then I promise I am done bothering you on this topic. 🙂

Here is a timeline of Mill’s writing on Say’s Law:

1824: War Expenditure essay, in which he lays out his deductive proof for the impossibility of (ex ante) demand deficiency.

1844: Unsettled Questions essay, in which he reasserts the impossibility of demand deficiency, then shows how there really can be too much of everything (except money) in times of commercial crisis.

1848: Principles of Political Economy, his magnum opus. Chapter 14 of Book 3, titled Of Excess Of Supply, consists of four sections. The first three lay out essentially the same deductive proof as he gave in the War Expenditure essay, while the fourth has a discussion of commercial crisis, similar to the Unsettled Questions essay.

The secondary literature in the 20th century has almost entirely ignored the War Expenditure essay and the first three sections of the Principles chapter. They have would have us believe that Mill’s view on Say’s Law is contained in his description of commercial crisis in the Unsettled Questions essay and the last section of Principles, where he acknowledges that there “really is” general overproduction. They thus retroactively draft him onto Team Say’s Identity, where Say’s Law is defined in a manner that only strictly holds for barter.

There are several reasons why this is untenable:

1) Even if you only consider the Unsettled Questions essay, the standard interpretation is not particularly satisfactory, given Mill’s flat assertions at both the beginning and the very end of the essay that general overproduction is impossible. Kates notes that one commentator referred to this essay as “schizophrenic”.

2) In the context of Mill’s entire output, the Unsettled Questions essay is bookended by War Expenditure and Principles, in both of which he devotes considerable space to a deductive proof that general overproduction is impossible. The fact that it reappears in Principles rules out the possibility that it was merely a youthful digression, which he had abandoned by the 1840s. This reasoning needs to be accounted for as well in coming to terms with Mill’s position.

3) The Principles chapter opens with unequivocal rhetoric: “Because this phenomenon of over-supply[…]may exist in the case of any one commodity whatever, many persons, including some distinguished political economists, have thought that it may exist with regard to all commodities[…] [This] doctrine appears to me to involve so much inconsistency in its very conception, that I feel considerable difficulty in giving any statement of it which shall be at once clear, and satisfactory to its supporters.

After devoting sections 2 and 3 to proving that the ability to purchase and willingness to purchase, respectively, cannot be lacking, he concludes section 3 with equal force: “Thus, in whatever manner the question is looked at, even though we go to the extreme verge of possibility to invent a supposition favourable to it, the theory of general over-production implies an absurdity.”

Then, in section 4, he starts talking about commercial crisis (as in Unsettled Questions), the apparent exception where there really is too much of everything except money. But he is 100% explicit that this is not a contradiction of the reasoning contained in the first 3 sections. He opens section 4 by saying “What then is it by which men who have reflected much on economical phenomena[…]have been led to embrace so irrational a doctrine? I conceive them to have been deceived by a mistaken interpretation of certain mercantile facts.”

So there is really no justification for claiming that this discussion of commercial crisis, where there really is an overproduction of all things, is representative of his view on Say’s Law. He is very clear that this discussion is merely intended to show how it is that people continue to believe that general overproduction is possible, despite his logical proof to the contrary.

This has confused the heck out of 20th century commentators, especially Thomas Sowell, whose discussion of Mill is by far the weakest part of his book. How can Mill be describing how general overproduction really does happen in commercial crisis, but then saying that this is merely is merely “deceiving” people, and that general overproduction is really impossible? The answer, surely, centers on the ex ante/ex post distinction. Say’s Law, for Mill, was a denial of ex ante overproduction – this is clearly what his deductive proofs were intended to show. The fact that there can be (and often is) ex post overproduction is not relevant to this question, though it has led many people to be confused on the issue of ex ante overproduction.

So, yes, you found Mill describing how a commercial crisis (which is unique to a monetary economy) leads to ex post overproduction. But it does not follow that this represents Mill’s view on Say’s Law. In view of the considerations above, it clearly doesn’t. So I stand by my initial assessment. The claim that Mill interpreted Say as arguing purely in barter world is completely false.