Re: Backed Money-Sproul/Tomasson re. Ricardo/Bentham

["Gunnar Tomasson" <tomasson@xxxxxxxx>]

----- Original Message -----
From: mike sproul <msproul@xxxxxxxx>
To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Sent: Friday, March 17, 2000 5:49 PM
Subject: Re: Backed Money-reply to tomasson


> Gunnar:
>
> Do you have a citation for the 1810 Bentham paper on the backing of
> money? Or possibly a citation for the critiques of Ricardo and
> James Mill?
>
> Thanks,
> Mike Sproul
>

Mike:

In a working paper from 1988, I listed my references as follows:

(1)  Jeremy Bentham's Economic Writings, Critical Edition Based on His
Printed Works and Unprinted Manuscripts, ed. by W. Stark, Three Volumes,
published for the Royal Economic Society by George Allen and Unwin Ltd.,
London, 1952.

(2)  The Works and Correspondence of David Ricardo, ed. by Piero Sraffa,
Vol. VI, Letters 1810-1815, Cambridge University Press for the Royal
Economic Society, 1952.

As I recall it, the actual text of Bentham's 1810 paper is not  included in
(1), but its essential arguments are mirrored in other works therein as well
as in Ricardo's lengthy review and criticism thereof in (2).

Below, I reproduce a brief section of my 1988 paper in which I outline some
of Bentham's monetary ideas.  Please note that my working paper's primary
purpose was to serve as vehicle, as it were, for my "walk-through" of
Bentham's ideas.

Gunnar


Classical macroeconomics

(i) The Ricardian "vice"

If Say's Law was a dragon that never was slain, the question arises how
classical economists of first rank dealt with the important issues which
Keynes sought to address in the General Theory.

Keynes himself observed that "the idea that we can safely neglect the
aggregate demand function is fundamental to the Ricardian economics, which
underlie what we have been taught for more than a century." [51]

Keynes went on to suggest that "Malthus.had vehemently opposed Ricardo's
doctrine that it was impossible for effective demand to be deficient; but
vainly."

As a result, Keynes concluded rhetorically, "Ricardo conquered England as
completely as the Holy Inquisition conquered Spain." [52]

In the personal letter to Hicks referred to in the preceding section,
however, Keynes was more reflective. Referring to Hicks' paper on "Mr Keynes
and the Classics" [53], he wrote:

"I found it very interesting and really have next to nothing to say by way
of criticism. From one point of view you are perhaps scarcely fair to the
classical view. For what you are giving is a representative belief of a
period when economists had slipped away from the pure classical doctrine
without knowing it and were in a much more confused state of mind than their
predecessors had been. The story that you give is a very good account of the
beliefs which, let us say, you and I used to hold. But if you were to go
further back, how far back I am not sure, you would have found a school of
thought which would have considered this an inconsistent hotch-potch." [54]

Hicks would later acknowledge the validity of Keynes' comments:

"Keynes was of course quite right to criticize my presentation of
'classical' theory," Hicks said. "It was polite of him to suggest that what
I gave was something which he himself had at one time believed; I much doubt
it!" [55]

Hicks' interpretation of Keynes' views on the subject matter is reaffirmed
by the letter itself, which shows Keynes actually embracing the cause of the
hypothetical classical economist:

"The inconsistency creeps in, I suggest, as soon as it comes to be generally
agreed that the increase in the quantity of money is capable of increasing
employment. A strictly brought up classical economist would not, I should
say, admit that. We used formerly to admit it without realizing how
inconsistent it was with our other premises." [56]

In other words, Keynes was guilty of the much maligned Ricardian "vice," as
it came to be called:

The intellectual aversion to indeterminate, i.e., inconsistent, propositions
parading under the banner of economic science.

(ii) A classical "Keynes"

The circumstances of the times, and Keynes' ability to give common sense
ideas the form of analytical economics, made the General Theory an effective
vehicle for bringing economic theory, for a moment, out of its ivory tower
into contact with the real world.

"We have to remember," Hicks concluded, "that the Keynesian Revolution was
not just a revolution in economic theory. Keynes was a prophet, or
propagandist; there were many audiences to which he was addressing himself.
He was selling his policy to politicians and public, by Essays in Persuasion
and by newspaper articles galore. The General Theory was his way of selling
his policy to professional economists. It is tailored, most skilfully
tailored, to their habit of mind.The General Theory is a brilliant squeezing
of dynamic economics into static habits of thought." [57]

Another such "prophet" had preceded Keynes, presenting the "simple
fundamental ideas" of the General Theory to the same audience some 130-140
years earlier. Lacking Keynes' skills at "tailoring" the message to "static
habits of thought," however, this author's impact on professional economists
has remained minimal.

A few years after Keynes' death, and at his personal urging, this
"prophet's" manuscripts on economic issues were published by the Royal
Economic Society. [58]

"A very superior man," was Adam Smith's reported view of this classical
"Keynes," [59] and David Ricardo thought very highly of his ideas. However,
James Mill, father of John Stuart Mill and Ricardo's mentor, exercised his
"authority" to suppress his writings.

The story involves a manuscript, written around 1800, translated into French
with a view to its publication on the continent. In 1810, the translator
approached James Mill for an "authoritative" view on the work's merits
before deciding on its publication.

Mill was not much impressed. Writing to Ricardo, he held the work to be "in
some respects.too elementary - in others too abstruse - the premises and
conclusions are not placed in the most lucid order, and the views are not
always correct." [60] "I do not think it will do for publication," he
concluded gravely, adding: "I shall thank you to jot down your remarks [on
the work] - and to make them pretty minute. Because as my opinion will be
followed.in regard to the propriety of publishing, I shall be glad to have
my opinion fortified by yours." [61]

In his reply letter, Ricardo showed his mind to be much more flexible on
issues of economic scholarship than might appear from the account that
Keynes would later give of his intellectual exchanges with Malthus. [62]

"I have read," Ricardo wrote, "more than half of the MS which you sent to me
with which I have been very much pleased. As far as I am able to judge it
contains some very able and just views of the subject on which it treats,
which I should be sorry should be wholly lost to the public; but at the same
time I am of opinion that it contains some radical defects which will
prevent it, as a whole, from effecting much good without considerable
alterations." [63]

Ricardo then listed some of these "radical defects," but concluded his
letter to James Mill as follows:

"These are a few of the principles which have struck me as radically wrong
in the work which I have perused. It contains however much that is excellent
and I should be sorry if we should lose what is good because some error may
be mixed with it." [64]

Mill's advice with respect to the "propriety" of the work's publication was
heeded. It would remain "wholly lost to the public" for another 142 years.

The author, "a very superior man," was Jeremy Bentham.

(iii) Bentham and Adam Smith

Bentham "sought to compass the whole field of ethics, jurisprudence, logic,
and political economy, and to deal with points of detail as well as
principles," it was later said of him. But, "to the last science his
contributions are of small account." [65]

In an age of narrow academic specialization and publish-or-perish mentality,
Bentham would also appear unusual in that he "did not write in order to
publish: he wrote primarily in order to clear his mind, and he left it
willingly to others to make books out of his materials." [66]

As for the source of Bentham's inspiration:

".the perusal of Adam Smith's Wealth of Nations was of decisive importance
for the later development of Bentham's economic thought.He read it and
re-read it until he was thoroughly familiar with the work.the Wealth of
Nations was Bentham's economic bible and he assimilated it until he thought
in its terms and spoke its language." [67]

Bentham himself acknowledged his intellectual debt to Adam Smith in a letter
written to Smith in 1787 as follows:

"Instead therefore of pretending to owe you nothing, I shall begin with
acknowledging, that, as far as your track coincides with mine, I shall come
much nearer the truth, were I to say I owed you everything." [68]

Indeed, the "simple fundamental ideas" concerning money, employment and
output which Bentham would later proceed to set forth, are to be found in
the Wealth of Nations. [69]

The roots of the Keynesian "revolution," that is, extend back to the very
creation of classical economics.

(iv) Bentham's ideas

Bentham's essay entitled "Institute of Political Economy" contains a formal
definition of its subject matter similar in essence to Keynes' concept of
the "Theory of Economics" and its application in the real world:

"Political economy," Bentham wrote, "is at once a science and an art. The
value of the science has for its efficient cause and measure the subserving
the art." [70]

Or, less formally, economic science must be rigorous in its analytical
aspects, or it is not deserving of that name. Economic science must be
applied with imagination in the real world, or it is a waste of time and
money.

In "The Institute of Political Economy," Bentham also outlined in summary
form the essence of the ideas on the analytical links between "fresh" money,
employment, output, and prices, whose "propriety" James Mill had questioned:

"If the fresh money, on the occasion of the first employment or expenditure
made of it, is employed in purchases, the immediate effect of which is to
make an immediate addition to the mass of really productive capital, it then
makes by the amount of such purchase a clear addition to the growing mass of
real wealth, beyond what would have existed otherwise." [71]

"If the fresh money, on the occasion of the first employment or expenditure
made of it, is employed in purchases, the immediate effect of which is not
to make any immediate addition to the mass of really productive capital, it
then makes no addition to the growing mass of real wealth." [72]

"No sooner, however, does it ["fresh money"] pass on from this its primary
destination (that of adding to real capital) to the other, viz. that of
adding to unproductive consumption, than its power of producing an addition
to the mass of the matter of real wealth is at an end: thenceforward and for
ever it keeps on contributing by its whole amount to the encrease of prices,
in the same manner as if from the mines it had come in the first instance
into an unproductive hand without passing through any productive one." [73]

The "simple basic ideas" of the Keynesian vision of the General Theory
having been stated, Bentham briefly set forth the basic Monetarist doctrine
later associated with Milton Friedman:

"In respect of the ratio of money to things vendible, of the aggregate of
the one to the aggregate of the other, the state of things most desirable
is - that it should continue the same at all times: no encrease at any one
time, no decrease at any other." [74]

(v) Bentham's achievement

Considering the amount of time and talent which has been expended in the
twentieth century to rediscover in garbled form the essential ideas which
Bentham elicited from Adam Smith's Wealth of Nations, his achievement must
be viewed as extra-ordinary.

This achievement, the author would submit, reflected two distinct mental
attributes.

The first was Bentham's uncommon ability to think through highly abstract
issues and arrive at the "apparatus of the mind" which may be the reward of
such endeavors.

Having thus fashioned "an apparatus of the mind, a technique of thinking"
with respect to the interactions between money, employment and output,
Bentham applied the second attribute to step outside the universe of
determinate relationships and reach "correct conclusions" with respect to
the real world.

Ricardo and Karl Marx, it may be noted, sought to achieve in the realm of
value theory what Bentham achieved in monetary theory. One reason why they
did not succeed, it would seem, is that value theory--price theory in modern
microeconomics--does not permit of determinate conclusions.

Keynes effectively arrived at Bentham's conclusions in the realm of the
"monetary theory of production," as he called it in the early 1930s. [75]
However, the "widow's cruse" become for him an Achilles Heel insofar as
their presentation was concerned.