David Ricardo took most of his insights on monetary analysis from David 
Hume's /Political Discourses/ (1752), particularly "Of Money," "Of 
Interest," and "Of the Balance of Trade."  In these, Hume explains the 
effect of hoarding on prices: the increased demand to hoard results in 
the fall of prices.  In terms of the quantity theory of money, that 
means an increased demand for money results in the rise of the value of 
money (inverse of the price level), given the supply.  In terms of the 
law of markets, the demand to hold more money (cash) out of current 
incomes must be at the expense of purchasing produced goods and 
services.  That is why their prices would fall.  Ricardo (3: 172) even 
ascribes timidity on the part of the non-bank public as a cause of 
increased hoarding.  Thus, a shaken confidence can lead to an increased 
demand for cash and result in an excess supply of goods and services, 
thus making full meaning of the law of markets at any moment.  J.S. Mill 
explains this very well for a period of commercial crisis:

"At such times there is really an excess of all commodities above the 
money demand: in other words, there is an under-supply of money.  From 
the sudden annihilation of a great mass of credit, every one dislikes to 
part with ready money, and many are anxious to procure it at any 
sacrifice.  Almost everybody therefore is a seller, and there are 
scarcely any buyers: so that there may really be, though only while the 
crisis lasts, an extreme depression of general prices, from what may be 
indiscriminately called a glut of commodities or a dearth of money.  But 
it is a great error to suppose, with Sismondi, that a commercial crisis 
is the effect of a general excess of production. ... its immediate cause 
is a contraction of credit, and the remedy is, not a diminution of 
supply, but the restoration of confidence." ( /Works/, 3: 574)

I also take note of the fact that J.-B. Say did not claim to have 
discovered a new theory of markets but was drawing upon explanations of 
market behavior as written up before his time:

"Since the time of Adam Smith, political economists have agreed that we 
do not in reality buy the objects we consume, with the money or 
circulating coin which we pay for them.  We must in the first place have 
bought this money itself by the sale of productions of our own.  To the 
proprietor of the mines whence this money is obtained, it is a 
production with which he purchases such commodities as he may have 
occasion for: to all those into whose hands this money afterwards 
passes, it is only the price of the productions which they have 
themselves created by means of their lands, capital, or industry.  In 
selling these, they exchange first their productions for money; and they 
afterwards exchange this money for objects of consumption.  It is then 
in strict reality with their productions that they make their purchases; 
it is impossible for them to buy any articles whatever to a greater 
amount than that which they have produced either by themselves, or by 
means of their capitals and lands." (Say 1821, 2; Letter to Malthus)

So, if Say later should falter in his interpretation of the market 
process, as Barkley Rosser insists that he did, that wouldn't change my 
understanding of the law of markets.  I have included contributions to 
the consistent explanations of the law by James Mill, David Ricardo, 
J.S. Mill, and Alfred Marshall in my "Say's Law: Keynes's Success with 
its Misrepresentation" in /Two Hundred //Years of Say's Law/, edited by 
Steve Kates (2003, chapter 7).  Why Barkley Rosser can't seem to reason 
that an excess demand for some commodities (out of earned incomes) must 
result in an excess supply of some other commodities, out of the 
totality of all produced goods and services, including money, at any 
period of time, is beyond me.  But that is precisely what Mill (3: 572 
and 1874, 71) explains, as I previously quoted.

Besides, public works must be funded by taking funds that otherwise 
would have been employed by private producers.  In the presence of 
increased hoarding (reduced savings), those funds shrink for the economy 
as a whole.  A government's dipping into those funds, from its advantage 
of lower default risk than private borrowers, simply means that the 
reduced amount of savings (or financial capital) would be diverted more 
into employment by the less efficient sector of the economy (government 
bureaucrats). How does that promote greater prosperity in the period of 
a recession?

James Ahiakpor

Rosser, John Barkley - rosserjb wrote:
> Giancarlo,
>      While James Akhiapor reports Ricardo as saying that hoarding is 
> the third form of "spending" of "income net of taxes," beyond 
> consumption and savings "(purchase of interest-or-divident-earning 
> assets)" he never says another word about hoarding and simply proceeds 
> to go on about how savings involves "reproductivity."  In short, he 
> simply ignores the issue that hoarding is a real drain that undermines 
> Say's Law. As it is, and as I have repeatedly pointed out here, Say 
> himself recognized this problem and knew that his "law of markets" did 
> not hold in the short run, himself even providing examples of how this 
> happens.  He also agreed with Malthus rather than Ricardo during the 
> debates over the recession following the Napoleonic Wars that public 
> infrastructure spending should be used to help offset the rise in 
> unemployment.
>
> The bottom line is that one can argue that Say held that is "law of 
> markets" held in the medium and long terms, but not in the short term, 
> as Akhiapor argues necessarily follows from Ricardo's argument.  
> Perhaps Ricardo thought that it did, but Say did not.
> ------------------------------------------------------------------------
> *From:* Societies for the History of Economics [[log in to unmask]] on 
> behalf of Giancarlo de Vivo [[log in to unmask]]
> *Sent:* Wednesday, January 29, 2014 2:22 PM
> *To:* [log in to unmask]
> *Subject:* Re: [SHOE] L'offre crée même la deman de: Say 1 814 -2014
>
> James Ahiakpor seems to think that it is wrong to maintain with Keynes 
> that saving is "not spending": according to him even hoarding is 
> spending. Does he mean that if I bury a hundred dollars in my mattress 
> I am _spending_ the sum? This is new to me and would very much 
> appreciate if he could enlarge on the point, and also give me a 
> reference to passages of Ricardo where he maintains the same, as 
> Ahiakpor writes. He also seems to identify saving with accumulation of 
> capital. If he means accumulation of REAL capital, does he mean that 
> if I buy a Credit Default Swap as hedge against Greece's sovereign 
> bankruptcy I am adding to the stock of real capital?
>
> Giancarlo de Vivo
>
>
> Il giorno 28/gen/2014, alle ore 19.33, James Ahiakpor ha scritto:
>
>> Ricardo understood correctly that income net of taxes is spent in 
>> three ways, (a) consumption, (b) saving (purchase of interest- or 
>> dividend-earning assets), and (c) hoarding in cash.  Regarding 
>> Malthus's fears that there may be a deficiency of demand because of 
>> too much saving, Ricardo remarked: "Mr. Malthus never appears to 
>> remember that to save is to spend, as surely, as what he exclusively 
>> calls spending" (2: 449).  Modern interpreters of the classical 
>> literature who interpret saving to mean simply "not spending," as 
>> Keynes incorrectly introduced into the language of economics, are apt 
>> to side with Malthus in that debate.  But those who understand saving 
>> to mean spending one's income "reproductively" or the transfer of 
>> one's income to borrowers who spend it correctly side with Ricardo.  
>> Such it is that J.S. Mill pointed out that "Nothing can be more 
>> chimerical than the fear that the accumulation of capital [savings] 
>> should produce poverty and not wealth, or that it will ever take 
>> place too fast for its own end" (1874, p. 73).
>> Furthermore, moderns who use Keynes's definition of investment to 
>> mean only the purchase of producer's goods find a problem with the 
>> explanation that savings always equal investment.  But not those who 
>> understand investment to mean the purchase of financial assets or the 
>> employment of savings or loanable funds in the sphere of production, 
>> as the classics and early neoclassicals such as Alfred Marshall, used 
>> the term.  Such understanding recognizes investment in the sphere of 
>> production to take the form of fixed capital and circulating capital, 
>> the latter including the wages fund and cash-on-hand.  Unfortunately, 
>> given the persistence of Keynes's definitions of terms, contrary to 
>> those of the classicals, the confusion in understanding the classical 
>> literature, including the law of markets, endures.
>> And then there are those who persist in ignoring J.S. Mill's 
>> explanation regarding the law of markets that "In order to render the 
>> argument for the impossibility of an excess of all commodities 
>> applicable to the case in which a circulating medium is employed, 
>> money must itself be considered a commodity.  It must, undoubtedly, 
>> be admitted that there cannot be an excess of all other commodities, 
>> and an excess of money at the same time" (1874, p. 71).  Also, "it is 
>> sheer absurdity that all things should fall in value, and that all 
>> producers should, in consequence, be insufficiently remunerated" 
>> (3:572).  That is why an excess demand for money translates into an 
>> excess supply of other commodities such that prices fall while the 
>> value of money increases.
>> The law of markets applies at all times, not only in the medium term 
>> and long run.
>> James Ahiakpor
>>
>>
>> On Mon, Jan 27, 2014 at 6:00 PM, Lilia Costabile <[log in to unmask] 
>> <mailto:[log in to unmask]>> wrote:
>>
>>     Malthus reasoned quite well in his  rejection of  Say's Law. This
>>     law consists of two propositions. First, supply creates an income
>>     equivalent to its value. Second: all income is spent.
>>
>>     Malthus accepted the first, but not the second proposition:
>>     ”Effectual demand consists of two elements, the power and the
>>     will to purchase…I by no means think that the power to purchase
>>     necessarily involves a proportionate will to purchase; and I
>>     cannot agree with Mr.Mill …that, with reference to a nation,
>>     supply can never exceed demand. A nation must certainly have the
>>     power of purchasing all that it produces, but I can easily
>>     conceive it not to have the will”. (Malthus, letter to Ricardo,
>>     September 11, 1814 , in Ricardo, The Works and Correspondence,
>>     edited by P.Sraffa, vol VI,132).
>>
>>      By contrast, Ricardo accepted both propositions, as his reply to
>>     Malthus shows very clearly: “We all agree that effectual demand
>>     consists of two elements, the power to purchase and the will to
>>     purchase, but I think that the will is very seldom wanting when
>>     the power exists… we all wish to add to our enjoyments or to our
>>     power. Consumption adds to our enjoyment, accumulation to our
>>     power, and they equally promote demand” p.133).
>>
>>     Ricardo thought that income is entirely spent, for either
>>     consumption or investment purposes, i.e. he conceived that
>>     savings (income not spent for consumption  purposes) is entirely
>>     converted into investments . Consequently, he argued that "demand
>>     is only limited by production" (Ricardo, The Works…, vol.1,
>>     p.290). He admitted that demand may fall short of supply only on
>>     individual markets (excess supply on one market would be
>>     compensated by excess supply in other markets), in such a wise
>>     that sectoral disproportions were possible, but not a general
>>     excess of supply over demand.
>>
>>     Contrary to Ricardo, Malthus saw that investment may not fill the
>>     gap between income and consumption, when investment outlets are
>>     lacking. See, e.g. “Where are the understocked employments which,
>>     according to this doctrine [Ricardo’s theory of disproportions,
>>     NdR] ought to be numerous and fully capable of absorbing all
>>     redundant capital, which is confessedly glutting the markets of
>>     Europe in so many different branches of trade?”(Malthus,
>>     Principles of Political Economy…2nd ed.1836, p.420).
>>
>>      On this difference between Malthus and Ricardo see also Keynes,
>>     “Thomas Robert Malthus. The first of our Cambridge economists”
>>     (in Keynes,Essays in Biography)
>>
>>     Lilia Costabile
>>
>>     Il giorno Jan 27, 2014, alle ore 8:45 PM, Giancarlo de Vivo
>>     <[log in to unmask] <mailto:[log in to unmask]>> ha scritto:
>>
>>>     I am afraid that Malthus (at least at one point) agreed with
>>>     Ricardo that public spending would not create additional work
>>>     (see his letter to Ricardo in vol. XI of Sraffa's edition of
>>>     Ricardo's Works, p.x-xi): "I quite agree with you in thinking
>>>     that the funds raised for the support of the poor (though
>>>     perhaps necessary at the moment) essentially interfere with
>>>     other employments". But Malthus at difference with Ricardo was
>>>     eminently inconsistent (as Stigler wrote: "[Malthus] had one
>>>     great weakness - he could not reason well. He could not
>>>     construct a  theory that was consistent with either itself or
>>>     the facts of the world" (AER 1953, p. 591).
>>>
>>>
>>>     Giancarlo de Vivo
>>>
>>>     Il giorno 27/gen/2014, alle ore 18.41, Rosser, John Barkley -
>>>     rosserjb ha scritto:
>>>
>>>>     However, while Say asserted that "the law of markets" holds in
>>>>     the medium to long run, he recognized that it might not in the
>>>>     short run, and in fact at the moment of post-Napoleonic War
>>>>     crisis, he supported public works spending to help overcome the
>>>>     rise in unemployment, and in that regard sided with Malthus
>>>>     over Ricardo in the policy debate of that time.
>>>>     ------------------------------------------------------------------------
>>>>     *From:*Societies for the History of Economics [[log in to unmask]
>>>>     <mailto:[log in to unmask]>] on behalf of E.Schoorl
>>>>     [[log in to unmask] <mailto:[log in to unmask]>]
>>>>     *Sent:*Monday, January 27, 2014 3:01 AM
>>>>     *To:*[log in to unmask] <mailto:[log in to unmask]>
>>>>     *Subject:*Re: [SHOE] L’offre crée même la dema nde: Say 1814-2014
>>>>
>>>>      Say's Own Law (1814)
>>>>
>>>>     Mu"nchau in the FT suggests: 'It is that official economic
>>>>     thinking in Paris has not progressed in 211 years.' He clearly
>>>>     refers to the first edition of Say's Treatise (1803). Baumol
>>>>     (Economica 1977) has plausibly argued that Say's Own Law only
>>>>     appears in the second edition of 1814, stating that in the long
>>>>     run, demand will be able to keep up with enormous increases in
>>>>     output. This may seem a truism today, but it was a burning
>>>>     question at the beginning of the Industrial Revolution.
>>>>     My recent Say biography 'Revolutionary, Entrepreneur, Economist
>>>>     (Routledge 2013)' corroborates Baumol's interpretation by
>>>>     quoting from Say's correspondence with his relative Michel
>>>>     Delaroche. Say asks his comment on the manuscript version of 'a
>>>>     chapter containing very fundamental matters ... too imperfectly
>>>>     discussed in my first edition.'
>>>>     And in another letter: 'If such a chapter would be generally
>>>>     recognised, people would know the origin of one of the causes
>>>>     of the present lack of sales, and of the one threatening us.
>>>>     ... What an indignation people would feel if they knew the
>>>>     entire present misfortune.'
>>>>     Official economic thinking or not, this dates back exactly two
>>>>     centuries, not 211 years.
>>>>
>>>>     Evert Schoorl
>>>
>>>     ******************************
>>>
>>>     Giancarlo de Vivo
>>>
>>>     Dipartimento di Economia, Management, Istituzioni
>>>     Università di Napoli "Federico II"
>>>     via Cinthia - Monte S. Angelo
>>>     80126 Napoli
>>>
>>>     tel. +39.081.675049 <tel:%2B39.081.675049>
>>>
>>>
>>>
>>
>>
>>
>>
>> -- 
>> James C.W. Ahiakpor, Ph.D.
>> Professor
>> Department of Economics
>> California State University, East Bay
>> Hayward, CA 94542
>> 510-885-3137
>> 510-885-7175 (Fax; Not Private)
>
> ******************************
>
> Giancarlo de Vivo
>
> Dipartimento di Economia, Management, Istituzioni
> Università di Napoli "Federico II"
> via Cinthia - Monte S. Angelo
> 80126 Napoli
>
> tel. +39.081.675049
>
>
>


-- 
James C.W. Ahiakpor, Ph.D.
Professor
Department of Economics
California State University, East Bay
Hayward, CA 94542

(510) 885-3137 Work
(510) 885-7175 Fax (Not Private)