I have been following with much interest the discussion on "why teach
the history of error?". I had intended to contribute by adding to this
discussion no more than the following quotation from William James:
"You can give humanistic values to almost anything by teaching it
historically. Geology, economics, mechanics, are humanities when
taught with reference to the successive achievement of the geniuses to
which these sciences owe their being. Not taught thus, literature
remains grammar, art a catalogue, history a list of dates, and science
a sheet of formulas, and weights and measures."
What I would have then said was that economics, when taught in the
absence of its history, is a quite barren subject. Without some study
of the history of economics, students are being short changed on what
ought to be seen as a very important part of their education.
What I was not going to say was what I felt more deeply. That is that
there is a very large amount to be learned in even thinking about the
ideas we have discarded. More importantly, I was not going to say that
at least in some instances, there are ideas that have fallen by the
wayside which may even be more valid and useful than the ones we find
in our textbooks today.
Mohammed Gani by citing my book in his criticism of Say's Law has
brought me into this discussion to pursue, briefly, that last point.
My own introduction to Say's Law may be instructive. It came about
because I was reading John Stuart Mill's Principles (1848) and came
across the best refutation I have ever read of Keynes's General Theory
(1936). Not only did I find the arguments so compelling that I stopped
seeing myself as "Keynesian" virtually from that moment, but I also
realised that the arguments on both sides had a long history and had
been debated for more than a century before Keynes wrote. Keynes
overturned an older basis for economic thought with another ancient
economic principle, but one which had been roundly rejected for more
than a century at the time the General Theory was written.
It also led me to the issue which was to be the subject of my thesis,
published in 1998 as Say's Law and the Keynesian Revolution. The
series of essays published in 2003 and cited by Mohammed Gani was
intended to be an even-handed assessment of where Say's Law stood
exactly 200 years after the publication of Say's Treatise. But if you
want a full-scale defence of Say's Law, you should go to that earlier
work.
And there you will find the following points (amongst many others):
Say's Law was the base framework for "macroeconomics" from the start
of the nineteenth century through until the publication of the General
Theory in 1936. Virtually every mainstream economist during that time
accepted Say's Law, not passively, but actively, formally and
explicitly. The list includes, but is by no means restricted to, all
of the following: Say, James Mill, Ricardo, Senior, McCullough, John
Stuart Mill, Marshall, Jevons, Walras, Wicksell, Haberler and Hawtrey.
No one called it Say's Law, a phrase from the 1920s. The related
propositions of Say's Law were, instead, the near-universally accepted
basis for the theory of the cycle and were seen as essential to an
understanding of unemployment. As a series of concepts, it was basic
textbook theory and was discussed in just about every introductory
text on economics published right up to the 1930s. Say's Law was thus
not some hazy long-abandoned theory of the early nineteenth century.
It was the absolute mainstream right up until the moment it was
displaced by the economics of the General Theory.
The phrase "supply creates its own demand" is not an adequate
interpretation of what those who held Say's Law to be true had in
mind. Basing criticisms of Say's Law on those words will ensure that
even if the argument satisfies the author, it will have no
relationship to the meaning of the Law of Markets held by those who
thought it was valid. For those interested, the next issue of the
History of Economics Review, which I believe will be released this
month, contains an article of mine on this very question: "'Supply
Creates its Own Demand': A Discussion of the Origins of the Phrase and
of its Adequacy as an Interpretation of Say's Law of Markets".
The development of Say's Law, moreover, had nothing to do with trying
to understand barter economies. Since Lange and Keynes that is how
Say's Law is frequently taught but it is not right. Say himself, in
his own discussion, was dealing with the problem of a shortage of
money and whether that would be an adequate explanation for slow
sales. Discussions of the business cycle, built on Say's Law, never
intimated that it was an abstraction without real world application to
a money economy. Those who wanted to undermine the Law of Markets may
have seen this as a useful line of attack, but it has nothing to do
with its actual meaning as an economic principle.
Let me end with this. For myself, if you want to study the history of
error, you need go no further than any modern macroeconomics text
based on C+I+G+X-M or IS-LM or AS-AD, which are all theoretical
developments derived from Keynes's 1936 attack on Say's Law. It may be
the mainstream but if you see things the way I do, descriptions of
reality based on these models are one error piled on another. One day
all of these may be added to the boneyard of discarded theories (is
any theory immortal?). Right now, however, they are the theoretical
basis for quite a good deal of economic policy, even though some
people, and not just me, think they are invalid as a means to
understand how economies in the real world actually work.
Steve Kates
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