Re: Monetary production versus monetary exchange economies

[Gunnar Tómasson <gunnar.tomasson@xxxxxxxxxxx>]

Re. the following:

It is certainly a century-old device to retroduce neoclassical
analytical devices into classical work that preceded it, but
there just aint not single macroeconomic "factor market" in
sight in the passage that you quote.  Indeed, the passage
that you quote is entirely compatible with positive profit
being recieved as a residual of revenues after making
explicit factor payments and purchases of intermediate
inputs.  Unless of course you ADD the premise that such
a residual would not be earned, impute that premise to
Smith, and then read the "distribute the revenue as
properly belongs to him" as not including profits.  But
then it is not the quote that is leading to the conclusion,
but the newly admitted premise, drawn from the neoclassical
school of twentieth century economics rather than the
classical school of the preceding century and more.
 

Virtually,

Bruce McFarling, Shortland, NSW
ecbm@xxxxxxxxxxxxxxxxxxx

Comment:

 

As once noted by Keynes, the fact that the classical writers did not spell out their monetary ideas in modern academic fashion should not be construed to imply that such ideas were absent from their writings - only that they were implicit rather than explicit so that modern readers who wish to get an appreciation of classical monetary theory must do some heavy intellectual lifting themselves in the form of culling key monetary ideas from classical texts.

 

Below are two sections of a working note on related issues which I did some twenty years ago after doing just that. 

 

The suggestion that

 

there just aint not single macroeconomic "factor market" in
sight in the passage that you quote [so that]

 

it is not the quote that is leading to the conclusion,
but the newly admitted premise, drawn from the neoclassical
school of twentieth century economics rather than the
classical school of the preceding century and more

 

is - as a moment's reflection should make clear - wholly inconsistent with Bentham's statement that 

 

"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." 

 

Gunnar

 

           

 

(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:

 

I.                    "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]

 

II.                  "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]

III.                "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]