General gluts and laissez-faire

The European Society for the History of Economic Thought has proposed the following as an issue that might be investigated during its next meeting in May:

First, over the issue as to whether a market-based economy tends naturally to use its resources in the best possible way without any State intervention beyond that of providing basic infrastructure and protecting property rights: a matter of concern from the times of the General Glut controversy that saw Malthus opposed to Ricardo down to the debates that have marked the evolution of macroeconomics since the publication of Keynes’ General Theory.

I suppose with the words “from the times of” they are not with absolute certainty suggesting that there is any relationship between the general glut debate and laissez-faire, but let’s face it, they are. And I realise that just because I stated in my Say’s Law and the Keynesian Revolution that “the issue in regard to Say’s Law is not laissez-faire” (p 16) doesn’t mean (1) that anyone interested in this issue read the book or that (2) even if they read it, that they had accepted my argument even if they noticed it.

The conclusion reached at the end of the general glut debate was that demand did not affect the level of economic activity and therefore did not affect the level of unemployment. That may or not be true but was accepted almost without dissent from around 1808 through to 1936, during which time the role of the state became ever more large. In 1935, no one thought of economic policy as laissez-faire but there was even so an almost universal denial of overproduction as a cause of recession and mass unemployment. Indeed, just how far apart the two concepts are may be seen in this comment by John Stuart Mill, the most relentless defender of the impossibility of a general glut amongst classical economists, in his volume, On Socialism. How much farther from the notion of laissez-faire could this be:

The kind of policy described is sometimes possible where, as in the case of railways, the only competition possible is between two or three great companies, the operation being on too vast a scale to be within the reach of individual capitalists, and this is one of the reasons why businesses which require to be carried on by great joint-stock enterprises cannot be trusted to competition, but, when not reserved by the State to itself, ought to be carried on under conditions prescribed, and, from time to time, varied by the State, for the purpose of insuring to the public a cheaper supply of its wants than would be afforded by private interest in the absence of sufficient competition.

Thus roping the two together only demonstrates how little is understood about the nature of the general glut debate – which in our own time being about whether the GFC was due to demand deficiency and a stimulus is the proper response is the central economic question of our time. If I argue that the poor economic conditions of the present are not caused by an absence of demand that makes absolutely no claim about whether there are a chain of government policies and interventions that might help to improve the state of the economy. The possibility of general gluts and laissez-faire are independent concepts.

That governments may base their interventions on the belief that they have to increase aggregate demand is something else. But even if governments finally eventually do reduce their own level of expenditure and did somehow balance their budgets, the notion that we would then be living in a laissez-faire economy would remain unmistakeably wrong. They are not the same issue and should not be confused.