Daniele Besomi wrote:
> James, the three words you marked as 'anticipations' all concerned the intention of consuming. Ricardo here is trying to prove Say's law. He says: Production gives rise to consumption because the purchasing power created by the act of producing will be spent. This is the sense of Ricardo's statement (not what I think, but what Ricardo is saying in this passage). If purchasing power was not spent, THIS statement by Ricardo would not hold.  Underconsumptionists believed this to be a possibility, Ricardo thought it would defeat the purpose of production. I am not discussing who was right. I am saying that if you introduce the possibility that the producer, after haviing sold his product, changes his mind with respect to the original anticipation that he was doing so with the purpose of buying something else, you are introducing the possibility that the underconsumptionists were right.
>
> In other words, all I am saying is that the THIS passage does not warrant your interpretation of Ricardo talking in terms of anticipations. If you think he does so elsewhere, you quoted the wrong passage
>
> Daniele Besomi

I invite Daniele to read Ricardo's statement carefully again. His claim 
that the three words that I marked as "anticipations" all concerned the 
intention of "consuming" is incorrect. Ricardo says a person produces 
"with a view to consume or *sell*, and he never sells, but with an 
intention to purchase some other commodity, which may be immediately 
useful to him, or which may *contribute to future production*" (my 
emphasis). Here we can recognize both consumption (immediate 
satisfaction), saving (acquisition of producer's goods or interest- or 
profit-earning assets), as well as acquiring cash (for the immediate 
utility derived from its possession). Also remember that "money must 
itself be considered a commodity" (J.S. Mill, 1874, p. 71). Adam Smith 
earlier explained that

"In order to avoid the inconveniency of [barter], every prudent man in 
every period of society, after the first establishment of the division 
of labour, must naturally have endeavoured to manage his affairs in such 
a manner, as to have at all times by him, besides the peculiar produce 
of his own industry, a certain quantity of some one commodity or other, 
such as he imagined few people would be likely to refuse in exchange for 
the produce of their industry." (/WN/, 1: 26–7)

And what is that commodity other money (cash)?

Here also is the extended version of Ricardo's explanation of the 
adjustment process in the same chapter 21 that I earlier summarized:

"The rate of interest, though ultimately and permanently governed by the 
rate of profit, is however subject to temporary variations from other 
causes. With every fluctuation in the quantity and value of money, the 
prices of commodities naturally vary. They vary also ... from the 
alteration in the proportion of supply and demand, although there should 
not be either greater facility or difficulty of production. When the 
market prices of goods fall from an abundant supply, from a diminished 
demand, or from a rise in the value of money, a manufacturer naturally 
accumulates an unusual quantity of finished goods, being unwilling to 
sell them at very depressed prices. To meet his ordinary payments, for 
which he used to depend on the sale of his goods, he now endeavours to 
borrow on credit, and is often obliged to give an increased rate of 
interest. This, however, is but of temporary duration; for either the 
manufacturer’s expectations were well grounded, and the market price of 
his commodities rises, or he discovers that there is a permanently 
diminished demand, and he no longer resists the course of affairs: 
prices fall, and money and interest regain their value. (1: 297–98)

I might also add that in chapter 19 of his /Principles/, Ricardo 
addresses the consequences of a change in the "taste and caprice of 
purchasers" (p. 263) on the fortunes of producers or sellers. 
Furthermore, "The commencement of war after a long peace, or of peace 
after a long war, generally produces considerable distress in trade. It 
changes in a great degree the nature of the employments to which the 
respective capitals [funds] of countries were before devoted; and during 
the interval while they are settling in the situations which new 
circumstances have made most beneficial, much *fixed capital* is 
unemployed, perhaps wholly lost, and labourers are *without full 
employment*" (p. 265; my emphasis). This should further answer Mason 
Gaffney's query regarding fixed capital. Contrast Ricardo's explanation 
with Keynes's (1936, 26) claim that Say's law (or the classics) always 
assumed that "there is no obstacle to full employment."

As I explain in my 2003 essay in Steve Kates's edited book, the three 
obstacles to Keynes's understanding that the law of markets is valid and 
it applies at all times include his mistaken belief that the classics 
assumed (1) there is never involuntary unemployment, (2) all market 
prices adjust instantaneously, and (3) there is no hoarding of income in 
cash. None of these claims is true. We just have to read the classical 
literature carefully to understand what they wrote.

James Ahiakpor
> On 4-feb-2014, at 22:04, "James C.W. Ahiakpor" <[log in to unmask]> wrote:
>
>> Daniele Besomi wrote:
>>> James C.W. Ahiakpor wrote:
>>>> But I think we can recognize the role of anticipations in David Ricardo's discussion of Say's law in chapter 21, pages 290-92, of his /Principles/, including:
>>>>

>>>> "M. Say has ... most satisfactorily shewn that there is no amount of capital [funds or savings] which may not be employed in a country, because demand is only limited by production. No man produces, but with a view [anticipation?] to consume or sell, and he never sells, but with an intention [anticipation?] to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person. It is not to be supposed that he should, for any length of time, be ill-informed of the commodities which he can most advantageously produce, to attain the object which he has in view [anticipation?], namely, the possession of other goods; and therefore, it is not probable that he will continually produce a commodity for which there is no demand.... Too much of a particular commodity may be produced, of which there may be such a glut in the market, as not to repay the capital [funds] expended on it; but this cannot be the case with respect of all commodities."
>>> This seems to me to be too clever by half. If all the things marked as 'anticipations' in this passage were true anticipations, that is, predictions or expectations not realized with certainty, Say's law would NOT hold on EVERY occasion in which things do not turn out as anticipated.
>>>
>>> Daniele Besomi
>> You're too quick to declare "victory" here, Daniele.  The person who produces more than he anticipated would be bought at current prices would face the choice to lower prices and clear the excess -- in the short run.  Or else, as Ricardo also explains, he may hold on to some unsold inventories and borrow funds to sustain his own desired level of consumption.  That increased demand for loanable funds would the cause interest rates to rise.  The rise of interest rates would put pressure on the seller quickly to decide to reduce prices or reduce the rate of production.  But the important point to note is that the excess supply causes prices to fall while the excess demand for credit (than formerly) causes interest rates to rise  -- in the short run.
>>
>> Say's Law or the law of markets is about the interconnectedness of all markets for produced goods and services.  It explains the causes of changing relative prices and interest rates from changing excess supplies and demands.  You incorrectly seem to think that it does not apply to situations of disappointed expectations such that the rates of production may decline (and unemployment rise) or prices fall or losses are made.  This is how Keynes thought that the Great Depression was proof of the invalidity of Say's Law.  But he was wrong.
>>
>> James Ahiakpor
>>
>> -- 
>> 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)


-- 
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)