Tuesday, April 30, 2013

Steve Keen on the Instability at the Heart of Capitalism

Steve Keen has written two articles here on the issue of stability in modern capitalism:
Steve Keen, “Instability may not be Optional,” Business Spectator, 23 April, 2013.

Steve Keen, “When Stability goes Belly Up,” Business Spectator, 29 April, 2013.
At the rotten heart of neoclassical economics (even the New Keynesian models) is the notion that, if only prices and wages were flexible enough, the economy would converge back to full employment equilibrium. Neoclassical economics thinks self-correction and a type of stability is a real world trait of market economies, but it is a false view.

I think Geoffrey M. Hodgson also makes an insightful observation about neoclassical economics:
“It really concedes too much to neoclassical theory to suggest that it has an adequate theoretical foundation upon which to build any pro- (or anti-) market policy. Neoclassical theory is essentially neither pro-market nor anti-market, because it has no adequate theory of markets at all. Instead of associating it with markets, it would be more accurate to say that neoclassical theory was blind to real markets, and consequently to their virtues or vices.” (Hodgson 2000: 321).
Finally, I am rather more optimistic than Keen is about the role of financial regulation in overcoming the dangers posed by financial systems.

Hodgson, Geoffrey M. 2000. “What Is the Essence of Institutional Economics?,” Journal of Economic Issues 34.2: 317–329.

Monday, April 29, 2013

Robert Murphy Takes Issue with my Reading of Empirical Data on the US Stimulus

For the interested reader, you can find his posts here:
“Just the Facts, Ma’am: “Testing” Keynesian Theory,” 29 April, 2013.

“Believing Is Seeing, Part II,” 29 April.
The unrealistic assumption that he appears to be making in his criticisms of me is this: that real output and private investment must have started expanding immediately after the stimulus began.

But it is obvious that government spending takes time to induce changes in private investment.

Why should there be an immediate and instant movement? I know of no Keynesian economist who has ever thought that there should be instant effects on private investment from stimulus.

With reference to the graph of US private-sector investment Murphy posts, I do not find it surprising that private investment continued to contract in 2008 and early in 2009. The shocks to business confidence were very severe indeed in 2008: probably worse than in any other recession after 1945.

But private sector investment did turn around in mid-2009: after 6 months or so of stimulus spending, which stabilised demand for products. There is a clear trend of rising private sector investment with rising government spending for years after mid-2009.

If private sector investment had continued to contract for years after the stimulus, then Murphy would have empirical evidence to support his anti-Keynesian, Austrian case. But that is not what the data show.

Thursday, April 25, 2013

Axel Leijonhufvud Interviews Hayek on the History of the Austrian School

This is an interview of Hayek by Axel Leijonhufvud, conducted in November 1978.

In Part 1 (which ends around 56.50), some points of interest are the Vienna university system that produced Hayek, methodology, the Geistkreis (an informal seminar founded by Hayek and Herbert Furth, which existed from 1921 to 1938), the Mises seminar at Vienna (in the 1920s and early 1930s), and Hayek’s personal assessment of Mises (from about 28.00).

Part 2 of the interview begins at 56.50, and deals with issues of methodology, the social sciences, and Hayek’s theory of mind.

What is most interesting are Hayek’s comments (from 40.43) on the history of the Austrian school in the 1920s and 1930s.

Here is a transcript:
“LEIJONHUFVUD: In economics, let me come back to a question we have touched upon before. In the twenties in Vienna, was there such a thing as an Austrian school in economics? Did you and your contemporaries perceive identification with a school?

HAYEK: Yes, yes. Although at the same time [we were] very much aware of the division between not only Meyer and Mises but already [Friedrich von] Wieser and Mises. You see, we were very much aware that there were two traditions—the [Eugen von] Böhm-Bawerk tradition and the Wieser tradition—and Mises was representing the Böhm-Bawerk tradition, and Meyer was representing the Wieser tradition.

LEIJONHUFVUD: And where did the line between the two go? Was there a political or politically ideological line involved?

HAYEK: Very little. Böhm-Bawerk had already been an outright liberal, and Mises even more, while Wieser was slightly tainted with Fabian socialist sympathies. In fact, it was his great pride to have given the scientific foundation for progressive taxation. But otherwise there wasn’t really—I mean, Wieser, of course, would have claimed to be liberal, but he was using it much more in a later sense, not a classical liberal” (Nobel Prize-Winning Economist: Friedrich A. von Hayek [1983], pp. 49–50).
In other words, there was a split in the Austrian school in the 1920s between
(1) the classical liberal wing of Eugen von Böhm-Bawerk and Mises (which evolved into modern American libertarianism), and

(2) the wing of von Wieser, whose members (or at least some of them) were leaning towards Fabian socialism, and was clearly becoming more like modern progressive liberalism or social democracy.
Another interesting exchange occurs from 50.10. According to Hayek, classical liberalism (or libertarianism) was not the major or defining ideology of early Austrian economists:
LEIJONHUFVUD: Now, in the twenties, were most of the economists in Vienna at that time liberals in the traditional sense?

HAYEK: No, no. Very few. Strigl was not; he was, if anything, a socialist. Shams was not. Morgenstern—was not. I think it reduces to Haberler, Machlup, and myself.

LEIJONHUFVUD: So my previous question was: Was there an Austrian school? and you said yes, definitely.

HAYEK: Theoretically, yes.


HAYEK: In that sense, the term, the meaning of the term, has changed. At that time, we would use the term Austrian school quite irrespective of the political consequences which grew from it. It was the marginal utility analysis which to us was the Austrian school.

LEIJONHUFVUD: Deriving from Menger, via either Wieser or Bohm-Bawerk?

HAYEK: Yes, yes.

LEIJONHUFVUD: The association with liberal ideological beliefs was not yet there?

HAYEK: Well, the Menger/Bohm-Bawerk/Mises tradition had always been liberal, but that was not regarded as the essential attribute of the Austrian school. It was that wing which was the liberal wing of the school.

LEIJONHUFVUD: And the Geistkreis was not predominately liberal?

HAYEK: No, far from it.

LEIJONHUFVUD: And what about Mises’s seminar?

HAYEK: Again, not. I mean you had [Ewald] Schams and Strigl there; and Engel-Janoschi, the historian; and Kaufmann, who certainly was not in any sense a liberal; Schutz, who hardly was—he was perhaps closer to us; Voegelin, who was not ….

LEIJONHUFVUD: So in the revival of interest in the Austrian school that has taken place in recent years in the United States …

HAYEK: It means the Mises school (Nobel Prize-Winning Economist: Friedrich A. von Hayek [1983], pp. 54–56).
According to Hayek, it was “marginal utility analysis” that was the defining attribute of the Austrian school, not Classical liberalism.

Hayek had studied under Friedrich von Wieser, and, as we have seen above, von Wieser was a type of progressive liberal who had been sympathetic to Fabian socialism.

In fact, in Hayek’s own words, he had studied under Wieser for this reason:
“I was personally a pupil of [sc. Eugen von Böhm-Bawerk’s] … contemporary, friend and brother-in-law, Friedrich von Wieser. I was attracted by him, I admit, because unlike most of the other members of the Austrian school, he had a good deal of sympathy with a mild Fabian socialism to which I was inclined as a young man. He in fact prided himself that his theory of marginal utility had provided the basis of progressive taxation, which then seemed to me one of the ideals of social justice”
F. A. Hayek, “Coping With Ignorance,” July 1978.
There is an untold story here of the interventionist and progressive liberal side of some of the early Austrians (see my posts below).

From 53.30, Hayek argues that methodological individualism leads to political liberalism (in its laissez faire form). Hayek also repudiates Mises’s apriorism as a methodology for economics.

For more on the early history of the Austrian school and on its interesting early “socialists” (or in modern political terminology “progressive liberals”), see my posts here:
“Why are there no Austrian Socialists?,” June 3, 2011.

“Friedrich von Wieser and Eugen von Philippovich von Philippsberg: Austrian Economists and Fabian Socialists,” October 21, 2010.
Nobel Prize-Winning Economist: Friedrich A. von Hayek. Interviewed by Earlene Graver, Axel Leijonhufvud, Leo Rosten, Jack High, James Buchanan, Robert Bork, Thomas Hazlett, Armen A. Alchian, Robert Chitester, Regents of the University of California, 1983.

Randall Wray on the Basics of MMT

L. Randall Wray is interviewed here on the basics of Modern Monetary Theory (MMT) in terms of its theory of the origins of money and the state.

N.B. There should be a Part 2 of this interview, but I am unable to find it.

Some of my posts on MMT and the history of money are below:
“The History of Modern Monetary Theory,” January 3, 2012.

“The Origin of Money and Coinage in Western Civilisation: The Case of Ancient Greece,” April 5, 2013.

“Randall Wray on MMT and the US Economic Crisis,” May 24, 2012.

Witt on Hayek’s Ideas of Competition and Market Order

Witt (2012) re-evaluates Hayek’s argument for a liberal, laissez faire political and economic system. Though it makes interesting reading, I have to say that, ultimately, Witt’s critique of Hayek is fairly shallow, and focusses mainly on Witt’s notion of the instabilities imposed by what he calls “innovation competition.”

Hayek’s mature arguments for his ideal system revolve around the notion of a “spontaneous order” in the free market, which in turn echoes Smith’s “invisible hand.” Supposedly, the market results in a “spontaneous” emergence of order that is opposed to conscious planning or deliberate design.

Hayek also invoked a type of evolutionary process in his belief that “spontaneous order” is at the heart of a market process (for a critique of this aspect of Hayek’s thought, see Hodgson 1991).

As I have shown in the previous post, Hayek’s “spontaneous order” concept is really an example of an “emergent property,” but Hayek missed an important aspect of emergent properties: that they can be the result of conscious direction and design, not just spontaneity (Lewis 2012: 374).

Hayek’s understanding of emergence and self-organisation was also flawed by a failure to understand destabilising feedback, as described by Witt:
“... the theory of self-organizing systems distinguishes two types of processes implied by non-linear dynamics … : self regulating processes (negative feedback) and temporarily self-amplifying processes (positive feedback). The former stabilizes given states of order. The latter can destabilize an existent state of order beyond a critical threshold and induce a transition to a new state of order. (In the transition between the old and the new state of order, an instability is passed, a phenomenon called phase transition in physics.)” (Witt 2012: 126).
Witt regards the processes induced by “innovation competition” as destabilising, and part of Schumpeter’s vision of the “creative destruction” side of capitalism.

Witt sees another aspect of Hayek’s defence of the market order as involving an “epistemic argumentation in support of market liberalism.” This is the familiar idea of the market coordinating dispersed knowledge, above all, by the price system.

Witt argues that Hayek’s emphasis on competition as a “discovery procedure” via the price system merely focussed on one type of competition: price and cost competition (Witt 2012: 125). There is another profoundly important type of competition Hayek neglects, which is “innovation competition.”

This relates to “economically relevant technological knowledge” such as new production techniques, new goods, and new resources (Witt 2012: 125–126). The process by which innovation affects an economy can result in serious destabilising forces.

A further problem from “innovation competition” could be “negative externalities” resulting from new technologies in terms of health or environmental side effects.

Witt considers the case of chlorofluorocarbons (CFCs), which were a chemical innovation and one which had a severe negative externality in form of stratospheric ozone layer depletion (Witt 2012: 132). Interventions to deal with this were necessary, and the whole general problem suggests that government interventions can and should deal with negative externalities.

In short, Hayek has failed to consider negative and destabilising aspects of emergent market processes.

Hodgson, G. M. 1991. “Hayek’s Theory of Cultural Evolution: An Evaluation in the Light of Vanberg’s Critique,” Economics and Philosophy 7: 67–82.

Lewis, Paul. 2012. “Emergent Properties in the Work of Friedrich Hayek,” Journal of Economic Behavior and Organization 82.2–3: 368–378.

Witt, U. 2013. “Competition as an Ambiguous Discovery Procedure: A Reappraisal of Hayek’s Epistemic Market Liberalism,” Economics and Philosophy 29: 121–138.

Wednesday, April 24, 2013

Lewis on Emergent Properties in Hayek’s Work

Lewis (2012) is an interesting study of how two of Hayek’s most important ideas – (1) spontaneous order and (2) his theory of the human mind – are examples of emergent properties, even though Hayek failed to properly recognise the latter idea (although the statement in Hayek 1967: 26 comes close).

An emergent property can be said to be a phenomenon of an aggregate in which the units of the aggregate have complex interactions producing a novel property not displayed by any unit in isolation and possibly not deducible from the behaviour or nature of individual units. While the emergent property is causally dependent on the existence of lower level elements, it is also caused by the relational state or interactions of those lower level elements. An aggregate or whole entity possessing an emergent property can be called a “higher-level entity” (Lewis 2012: 369).

It is clear that emergent properties are important in the natural sciences (Anderson 1972) and in the social world.

Hayek’s theory of mind was presented in The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology (1952). Here Hayek recognised that the brain is composed of neurons and their firings, and complex neural networks.

Hayek’s argues that external stimuli are classified and generated into a type of “sensory order” by the brain as a “structured entity.” This process is produced by the whole “structured entity” and cannot be reduced to the behaviour of individual neurons (Lewis 2012: 371). Therefore Hayek’s “sensory order” is an emergent property.

As for the notion of spontaneous order, Hayek sees the rules of property, contract, tort law, profit and loss and the price system as helping to produce an order in economic life that can be understood as an emergent property (Lewis 2012: 373). In other words, people and their relational interactions under a complex institutional system are both necessary to explain spontaneous order (Lewis 2012: 373–374).

Lewis also points out that, strictly speaking, Hayek’s “spontaneous order” notion and the idea of an “emergent property” are distinct, since Hayek neglects “directed social order or organisation” (institutions), which can also produce “emergent properties” (Lewis 2012: 374). For example, the level of “productivity facilitated by the division of labour within a firm” is not merely spontaneous, but directed. Hayek’s “spontaneous order” concept is flawed, in that many elements of market order are caused by deliberate, conscious direction and design, not spontaneity (Lewis 2012: 374).

Another crucial idea related to “emergent properties” is “downward causation.” A higher-level emergent entity can influence, shape and direct lower-level entities (Lewis 2012: 375).

For example, social rules can shape how people interact, and cause the “habits and dispositions” under which people behave (Lewis 2012: 375).

Lewis argues that in fact “Hayek is committed, if only implicitly, to the view that higher-level emergent phenomena possess the emergent causal power to react back on and shape the parts from which they are formed” (Lewis 2012: 376). That is to say, Hayek is committed to a methodology and ontological view of the world (including the social world) that contains not only individuals, but also social relations and entities with “macro-level emergent [sc. downwards] causal powers” (Lewis 2012: 377).

In short, Hayek cannot invoke and defend some crude “methodological individualism” without severe contradiction. What he really requires is a “methodological pluralism.”

For more on methodological individualism, see my critical posts here:

“Hodgson on Methodological Individualism,” April 3, 2013.

“Greedy Reductionism, Science and Economics,” April 2, 2013.

“King on Post Keynesian Approaches to Microfoundations,” April 1, 2013.

“Hodgson on the Essence of Old Institutional Economics,” April 4, 2013.
Anderson, P. W. 1972. “More is Different: Broken Symmetry and the Nature of the Hierarchical Structure of Science,” Science 177.4047: 393–396.

Hayek, F. A. von. 1952. The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology. Routledge, London.

Hayek, F. A. 1967. Studies in Philosophy, Politics and Economics. Routledge and Kegan Paul, London.

Lewis, Paul. 2012. “Emergent Properties in the Work of Friedrich Hayek,” Journal of Economic Behavior and Organization 82.2–3: 368–378.

Monday, April 22, 2013

A Brighter Future for the US?

It is looking that way for these reasons:
(1) the news that the US may become an exporter of energy and have energy independence in the coming decades, perhaps even with an era of cheap energy for the US itself; and

(2) the revolution in automation and robotics, and the return of manufacturing to the West from East Asia.
In brief, a report from the International Energy Agency (IEA) predicts that, with domestic oil production soaring, the US will possibly become the largest oil producer in the world by 2020, and by 2035 it could become virtually energy independent.

That also means that the US trade deficit will fall significantly.

The cheap energy will also feed into and reinforce the second factor above: the return and invigoration of domestic manufacturing, which will be effected by the increasingly cheap and effective forms of industrial automation, especially robotics.

There should be some return of manufacturing to the US and Western nations from East Asia and other developing, low wage countries, as production costs – above all, labour costs – fall significantly. If cost of production differences are not great, why not produce in the huge consumer markets of North America and Europe?

A third related issue is what this means for the rise of China. It was always nonsensical to suppose that superpower status has no relation to economic power. And the US’s status as the world’s superpower will be strongly reinforced, not weakened, by the emergence of energy independence and the return of manufacturing.

It has got to the point now that the idea that China is somehow destined to be the world’s new superpower is assumed by many people when discussing this issue. The RMB is touted as soon to be the world’s new reserve currency, and so on. But there is no inevitability about any of this, and there are many reasons to be rather sceptical.

For one, how can China be a superpower with a domestic currency functioning as a reserve currency when its financial and real asset markets are severely closed off to outside investors? Why hold RMBs, if you do not have a wide range of assets to buy with them, in order to get a return, and to repatriate your money quickly and easily?

The strength of the US is precisely its relatively free and vast financial and real asset markets that provide resting places for savings held in US dollars.

And here is the paradox: if China allows a highly liberalised capital account, liberalised asset markets, and deregulated finance sector, it could be digging its own grave, for the tight control of these things is actually the foundation of its economic stability.

In trying its hand at superpower status, a country like China could be setting itself up as new “lost decade” Japan.

Oil and Energy
“US is on Fast-Track to Energy Independence: Study,” 11 February 2013

“IEA Report: USA set to become Number One Oil Producer by 2020–Energy Independent by 2035, ” http://www.forbes.com/sites/rickungar/2012/11/12/iea-report-usa-set-to-become-number-one-oil-producer-by-2020-energy-independent-by-2035/

Robert J. Samuelson, “The U.S. may become energy-independent after all,” 11/14/2012

US Manufacturing
“Coming home: A growing number of American companies are moving their manufacturing back to the United States,” 19 January, 2013

Matias Vernengo, “Is China the new #1?,” April 9, 2012

Matias Vernengo, “Is China Buying the World?,” October 20, 2012

Matias Vernengo, “Is China really opening the capital account?,” March 6, 2012

Matias Vernengo, “Michael Pettis on the Chinese Growth Model,” March 28, 2013

Matias Vernengo, “On China and Jobs,” October 4, 2011

Matias Vernengo, “Is Growth in China Investment-Led?,” June 17, 2011

James Galbraith on the Causes of Japan’s Lost Decade

I do not think I am exaggerating when I say that James Galbraith is profoundly insightful in this passage:
“... in the late 1980s, Japan entered economic crisis for reasons of its own. Deregulation of the Japanese capital asset markets set off what was, and would remain until the NASDAQ, the largest speculative bubble in human history, combining speculation in stocks and speculation in real estate to an astonishing degree. Valuations in both became wholly unhinged. At the peak of the bubble, it was notoriously suggested that the Imperial Palace in Tokyo was worth more than the entire state of California. Given the demand for Japanese assets, the yen revalued; Japanese manufacturing at the lower end, in textiles and electronics, went into depression and migrated to less expensive shores in China and South Asia. The crash came in 1988, precipitating a deep recession in domestic demand from which the Japanese economy as a whole did not begin to recover for over a decade. This dimmed the luster of the Japanese model for American observers, even as they largely overlooked the obvious point: there is evidently no development path that an unfettered, liberated, free capital asset market cannot screw up.” (Galbraith 2008: 79–80).
By “capital asset market,” Galbraith of course means “financial asset market” – that is, the banking and financial sectors and the stock, share, and secondary financial asset markets.

First, many Western economists mistook Japan’s industrial policy as some sort of cause of its 1990s lost decade, or at least assumed (falsely) that Japanese industrial policy was discredited because of it. That was profoundly mistaken: it was financial liberalisation and deregulation that were the fundamental causes of the 1990s lost decade.

Asset bubbles can be created in virtually any monetary system, but especially when the financial sector is left to do what it likes: just think of Tulip mania, the numerous bubbles of the 19th century (such as the disastrous Australian property bubble of the 1880s), and of course the late 1920s stock market bubble in the US.

Secondly, and here is my fundamental point: what Galbraith describes above in Japan is the essence of the rise and fall of neoliberalism over about the past 30 years.

Ineffectively regulated financial asset markets cause catastrophe; they always have and probably always will; and one important reason why the post-WWII golden age of capitalism (1946–1970s) had such stability was the proper regulation of the finance sector. When 1980s and 1990s liberalisation of the financial sector occurred in the West, disaster emerged again, just as it did before the 1930s.

It was also Thatcher’s UK that was a trailblazer in this respect: Thatcher’s financial deregulation – an important element of which was the Big Bang (1986) – contributed to the so-called Lawson boom (1986–1988), at the centre of which was a debt-financed property bubble. When this collapsed in the late 1980s, a debt deflation ensued in the UK in the early 1990s recession (Stewart 1993: 56–57, 101–102).

Japan and Thatcher’s UK were harbingers of the tremendous disasters that occurred later in Clinton’s bubble years and the US real estate bubble in 2000s.


Galbraith, J. K. 2008. The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. Free Press, New York.

Stewart, Michael. 1993. Keynes in the 1990s: A Return to Economic Sanity. Penguin, Harmondsworth.

Saturday, April 20, 2013

Endogenous Money 101

Money is at the centre of all modern capitalist economies. Understanding its nature and origins is therefore of great importance. At the heart of Post Keynesian monetary theory is the idea of endogenous money.

This is opposed to the mainstream exogenous money supply theory: the idea that the central bank has direct control over the money supply and its growth. The latter theory is wrong, and I review that major points of endogenous money below.

I. History and Development of the Endogenous Money Theory
Endogenous money theory can be traced back to the 19th-century Banking school (Wray 1998: 32–33), and to Knut Wicksell and Schumpeter (Howells 2006: 53). The Continental European monetary circuit theorists also supported the idea of endogenous money.

Keynes in the General Theory of Employment, Interest, and Money (1936) treated the money supply as exogenous, but in A Treatise on Money (1930) and his article “Alternative Theories of the Rate of Interest” (Keynes 1937), he had recognised the concept (Arestis 1992: 180). In the latter work, Keynes had stressed the finance motive as a basis of endogenous money (Keynes 1937).

King (2002: 161) contends that Richard Kahn and Joan Robinson were the first to develop the Post Keynesian theory of endogenous money, even if in a somewhat limited and incomplete manner.

Nicholas Kaldor continued to develop the theory in his polemics against monetarism (King 2002: 166–167), and particularly in his now classic book The Scourge of Monetarism (Oxford and New York, 1982).

The fierce debate with monetarists actually inspired Post Keynesians to clarify and formulate a more rigorous endogenous money theory (King 2002: 172). The result was a better theory, but also a debate between so-called “horizontalists” and “verticalists” (see section III below).

II. Endogenous Money
Money in the modern world is mostly credit money. To understand this, we must understand how money is measured.

To take the US as an example, there are two main ways to measure money supply, as follows:
(1) High-powered money (= monetary base, base money, M0)
The “money base” consists of currency in circulation and bank reserves (both required and excess reserves). The monetary base includes all cash and coins, even vault cash at banks, as well as deposits that banks hold at the Fed (which are reserves).

(2) Broad Money (M1, M2, M3)
M1 includes:
(1) currency in circulation outside bank vaults (and also excluding bank reserves),
(2) checking/transactions accounts (or demand deposits) and other checkable accounts, and
(3) travellers checks.
M1 excludes vault cash and bank reserves at the central bank. The largest component in M1 consists of the demand deposits of banks. This used to be called “book money” or “bank money,” and is a form of “credit money.” The demand deposit is simply the debt owed to the bank client by the bank in a mutuum contract (or loan for consumption). The “demand deposit” is the “monetised” debt of the bank: a debt that functions as money. (On M2 and M3, see note below.*)
When cheques, debit cards, electronic funds transfer at point of sale cards, or UK “chip and PIN” cards are used in purchases, this is an example of a sale made by means of bank money. Although final clearing between banks is effected by transfers of high powered money (which these days happens much faster than in the past, because of information technology), nevertheless the “bank money” or “demand deposit” money is used extensively in everyday transactions.

This “demand deposit” money is, as noted above, a major component of the money supply, and it is created by banks in response to the demand for it.

The major factors in money creation are
(1) the new creation of demand deposits by banks when a client “deposits” base money in the bank. The money deposited becomes the property of the bank and then in return the client gets a debt instrument or “demand deposit,” which can also be understood as “bank money”;

(2) the creation of demand deposit accounts for those obtaining credit from banks.
In conventional theory, base money creation caused by the central bank, via the money multiplier, is seen as the causal mechanism in the movement of the price level.

The reverse is true:
changes in prices of factor inputs → more demand for credit money from businesses → money supply growth.
That this happens before final output is produced misleads economists who think the direction of causation is as follows:
money supply growth → more demand for credit money from businesses → price changes
But Moore’s empirical work showed that changes in the money supply are induced by changes in economic activity (King 2002: 175). If demand for further credit is not met, then economic activity and investment are stifled.

The cause of credit money growth can be related to the various motives for holding money when that money is derived from bank credit:
(1) transactions motive – money is created from credit demand for money for capital goods or consumption goods purchases, or to pay off debt and other obligations (e.g., taxes);
(2) precautionary motive – money can be created to meet demand for money to hold as a hedge against future uncertainty;
(3) speculative motive – money is created to meet the demand for money to speculate on asset prices; and
(4) finance motive – money is created from the demand for factor inputs for investment, either capital goods or the wage bill for labour.
Since both default of borrowers and the negative effects of speculation are two major elements that destabilise market economies, it follows that regulating the quality of loans and cutting off the flow of credit to speculators are two main aims of any successful financial regulation.

III. Horizontalists versus Structuralists
Basil Moore’s Horizontalists and Verticalists: The Macroeconomics of Credit Money (Cambridge and New York, 1988) was an important statement of the “horizontalist” viewpoint, which contends that banks passively supply the quantity of credit demanded, and the central bank accommodates the banks’ demand for high-powered money.

Opponents of this view were called “Structuralists,” and they argued that central banks are not as passive as the “Horizontalists” maintained, and that greater emphasis needs to be put on financial innovation and liquidity preference.

The resulting debate that emerged focussed on the question whether the money supply curve is horizontal or slopes upwards (Keen 2011: 359). I will not go into the details of this issue, but note how Steve Keen concludes that the debate actually
“ … put the empirically accurate findings of Post Keynesian researchers into the same methodological straightjacket that neoclassical economics itself employed: the equilibrium analysis of intersecting supply and demand curves. Though this was hardly the intention of the originators of endogenous money analysis, it effectively made monetary analysis an extension of supply and demand analysis.

Participants in this debate were aware of the limitations of this approach – as Sheila Dow observed, ‘[T]he limitations of a diagrammatic representation of a non-deterministic organic process become very clear. This framework is being offered here as an aid to thought, but it can only cope with one phase of the process, not with the feedbacks’ (Dow 1997, p. 74). But one of the great ironies of economics is that, because critics of neoclassical economics were themselves trained by neoclassical economists, most critics weren’t trained in suitable alternative modeling methods, like differential equations or multi-agent simulation.” (Keen 2011: 359).
Keen sees the solution in models of money creation that capture feedback effects (Keen 2011: 360), and has provided his own developed money model derived from the Monetary Circuit School and Minsky’s Financial Instability Hypothesis (Keen 2011: 360–368).

IV. Conclusion
This is the key point:
Normally money creation is credit-driven. This means that most money is created by private banks and its quantity is determined by the private demand for it. This is the essence of endogenous money.
Of course, none of this denies that money can also be created in other ways.

Let us summarise the ways money can be created:
(1) creation of credit money by the banking and financial institutions;

(2) creation of other credit money by means of negotiable debt instruments by private sector agents;

(3) creation of high powered money by the central bank through open market operations or discount window lending, and occasionally by unconventional means such as monetising a budget deficit.
But the crucial point is that the fundamental impetus, drive and cause of most money creation is demand from the private sector. The broad money stock of any capitalist nation is fundamentally driven by demand from bank clients for credit or demand deposits.

Some would say that even the money base is largely endogenous too, given that the central bank must accommodate the banks’ demand for high-powered money to avoid financial crises and banking panics.

But even in abnormal times, such as we have seen from 2008 onwards, when highly unconventional and radical open market operations have been performed by central banks in the form of Quantitative Easing (QE), the creation of vast excess reserves has not induced a sufficient level of private investment or economic activity to create full employment. The reason is that most businesses and consumers do not wish to hold any greater levels of money in the form of debt, since they are over-indebted, engaged in deleveraging, or affected by pessimistic expectations about the future.

This failure of the QE in the UK and the US (and before them in Japan) is explained precisely by endogenous money theory.

But governments can, and do, have influence on the monetary and credit systems of an economy. Central banks control the interest rate, which is, above all, the price of credit money.

From the 1930s to the 1980s, many countries had policies of financial regulation that included many of the following:
(1) Interest rate ceilings;
(2) Liquidity ratio requirements;
(3) Higher bank reserve requirements;
(4) Capital Controls (that is, restrictions on capital account transactions);
(5) Restrictions on market entry into the financial sector;
(6) Credit ceilings or restrictions on the directions of credit allocation;
(7) Separation of commercial from investment (“speculative”) banks;
(8) Government ownership or domination of the banks. (Ito 2009: 431–433).
Many of these controls were abolished as financial liberalization and capital account liberalization became widely adopted in the 1980s and 1990s.

The result has been a return to the pre-1940s type of business cycle in which asset bubbles and the wealth effect from speculative activity have driven capitalist boom phases, and financial crises and debt deflation have driven busts.

* M2 and M3 merely include increasingly less liquid forms of money, such as time deposits, money market deposits, and savings deposits. Thus M2 is as follows:
M1 supply + money held in money market funds + savings accounts + small certificates of deposit (CDs).
M3 is simply M2 plus large CDs. The M3 measure was discontinued by the Federal Reserve in 2006.


Arestis, Philip. 1992. The Post-Keynesian Approach to Economics: An Alternative Analysis of Economic Theory and Policy. Edward Elgar Publishing, Aldershot, Hants, England.

Arestis, P. and M. Sawyer (eds.). 2006. A Handbook of Alternative Monetary Economics. Edward Elgar, Cheltenham, UK and Northampton, Mass.

Chick, Victoria. 1983. Macroeconomics after Keynes: A Reconsideration of the General Theory. Phillip Allan, Oxford.

Chick, Victoria. 1986. “The Evolution of the Banking System and the Theory of Saving, Investment and Interest,” Économies et Sociétés no. 3: 111–126.

Chick, Victoria. 1992. “The Evolution of the Banking System and the Theory of Saving, Investment and Interest,” in Philip Arestis and Sheila Dow (eds.), On Money, Method and Keynes: Selected Essays. Macmillan, Basingstoke. 193–205.

Davidson, Paul. 2011. Post Keynesian Macroeconomic Theory: Foundation for Successful Economic Policies for the Twenty-First Century (2nd edn). Edward Elgar Publishing, Cheltenham.

Dow, S. C. 1997. “Endogenous Money,” in G. C. Harcourt and P. A. Riach (eds.), A “Second Edition” of The General Theory (vol. 2), Routledge, London. 61–78.

Eichner, Alfred S. 1991. The Macrodynamics of Advanced Market Economies (rev. edn). M. E. Sharpe, Armonk.

Fontana, Giuseppe. 2009. Money, Uncertainty and Time, Routledge, London and New York.

Graziani, Augusto. 2003. The Monetary Theory of Production, Cambridge University Press, Cambridge.

Howells, P. 2006. “The Endogeneity of Money: Empirical Evidence,” in P. Arestis and M. Sawyer (eds.), A Handbook of Alternative Monetary Economics. Edward Elgar, Cheltenham, UK and Northampton, Mass. 52–68.

Kaldor, N. 1982. The Scourge of Monetarism, Oxford University Press, Oxford and New York.

Keen, S. 2011. Debunking Economics: The Naked Emperor Dethroned? (rev. and expanded edn). Zed Books, London and New York.

Keynes, John Maynard. 1930. A Treatise on Money. Macmillan, London.

Keynes, John Maynard. 1964 [1936]. The General Theory of Employment, Interest, and Money. Harvest/HBJ, New York and London.

King, J. E. 2002. A History of Post Keynesian Economics since 1936. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.

Lavoie, Marc. 1992. Foundations of Post-Keynesian Economic Analysis. Edward Elgar Publishing, Aldershot, UK.

Moore, B. J. 1988. Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge University Press, Cambridge and New York.

Palley, Thomas I. 1996. Post Keynesian Economics: Debt, Distribution, and the Macro Economy. St. Martin’s Press, New York.

Rochon, Louis-Philippe and Sergio Rossi (eds.). 2006. Endogenous Money: The Evolutionary Versus Revolutionary Views, Centro di studi bancari, RME Lab, Vezia.

Rochon, Louis-Philippe. 1999. Credit, Money, and Production: An Alternative Post-Keynesian Approach, Edward Elgar, Cheltenham, UK and Northampton, MA, USA.

Rousseas, Stephen. 1998. Post Keynesian Monetary Economics (3rd end.), Macmillan, London.

Setterfield, M. (ed.). 2006. Complexity, Endogenous Money and Macroeconomic Theory: Essays in Honour of Basil J. Moore, Edward Elgar, Cheltenham, UK ; Northampton, MA.

Wray, L. Randall. 1990. Money and Credit in Capitalist Economies: The Endogenous Money Approach, E. Elgar, Aldershot, Hants, England and Brookfield, Vt., USA.

Wray, L. Randall. 1998. Understanding Modern Money: The Key to Full Employment and Price Stability, Edward Elgar, Cheltenham.

Wray, L. Randall. 2012. “Money,” in J. E. King, The Elgar Companion to Post Keynesian Economics (2nd edn.). Edward Elgar, Cheltenham. 401–409.

Wray, L. Randall (ed.). 2012a. Theories of Money and Banking. Edward Elgar, Cheltenham.


Arestis, P. and P. Howells. 1996. “Theoretical Reflections on Endogenous Money: The Problem with ‘Convenience Lending,’” Cambridge Journal of Economics 20: 539–552.

Arestis, P. and I. Biefang-Frisancho Mariscal. 1995. “The Endogenous Money Stock: Empirical Observations from the United Kingdom,” Journal of Post Keynesian Economics 17.4: 545–559.

Bell, S. 2001. “The Role of the State and the Hierarchy of Money,” Cambridge Journal of Economics 25.2: 149–163.

Chick, Victoria and Sheila Dow. 2002. “Monetary Policy with Endogenous Money and Liquidity Preference: A Nondualistic Treatment,” Journal of Post Keynesian Economics 24.4: 587–607.

Cottrell, Allin. 1994. “Endogenous Money and the Multiplier,” Journal of Post Keynesian Economics 17.1: 111–120.

Dalziel, Paul. 1996. “The Keynesian Multiplier, Liquidity Preference, and Endogenous Money,” Journal of Post Keynesian Economics 18.3: 311–331.

Dalziel, Paul. 1999–2000. “A Post Keynesian Theory of Asset Price Inflation with Endogenous Money,” Journal of Post Keynesian Economics 22.2: 227–245.

Fand, David I. 1988. “On the Endogenous Money Supply,” Journal of Post Keynesian Economics 10.3: 386–389.

Fontana, G. 2000. “Post Keynesians and Circuitists on Money and Uncertainty: An Attempt at Generality,” Journal of Post Keynesian Economics 23.1: 27–48.

Fontana, G. 2002. “The Making of Monetary Policy in Endogenous Money Theory: An Introduction,” Journal of Post Keynesian Economics 24.4: 503–509.

Fontana, G. 2003. “Post Keynesian Approaches to Endogenous Money: A Time Framework Explanation,” Review of Political Economy 15.3: 291–314.

Fontana, G. 2004. “Rethinking Endogenous Money: A Constructive Interpretation of the Debate Between Horizontalists and Structuralists,” Metroeconomica 55.4: 367–385.

Fontana, G. 2004. “Hicks on Monetary Theory and History: Money as Endogenous Money,” Cambridge Journal of Economics 28.1: 73–88.

Fontana, Giuseppe and Alfonso Palacio-Vera. 2003. “Is There an Active Role for Monetary Policy in the Endogenous Money Approach?,” Journal of Economic Issues 37.2: 511–517.

Fontana, Giuseppe and Venturino, Ezio. 2003. “Endogenous Money: An Analytical Approach,” Scottish Journal of Political Economy 50: 398–416.

Howells, Peter G. A. 1995. “The Demand for Endogenous Money,” Journal of Post Keynesian Economics 18.1: 89–106.

Howells, P. 2006. “The Endogeneity of Money: Empirical Evidence,” in P. Arestis and M. Sawyer (eds), A Handbook of Alternative Monetary Economics, Edward Elgar, Cheltenham, UK and Northampton, Mass. 52–68.

Howells, Peter G. A. 1997. “The Demand for Endogenous Money: A Rejoinder,” Journal of Post Keynesian Economics 19.3: 429–435.

Ito, H. 2009. “Financial Repression,” in K. A. Reinert, R. S. Rajan et al. (eds), Princeton Encyclopedia of the World Economy. Princeton University Press, Oxford and Princeton, N.J.

Jarsulic, Marc. 1989. “Endogenous Credit and Endogenous Business Cycles,” Journal of Post Keynesian Economics 12.1: 35–48.

Kaldor, N. 1939. “Speculation and Economic Activity,” Review of Economic Studies 7: 1–27.

Keynes, J. M. 1937. “Alternative Theories of the Rate of Interest,” The Economic Journal 47.186: 241–252.

Kydland, F. E. and E. C. Prescott. 1990. “Business Cycles: Real Facts and a Monetary Myth,” Federal Reserve Bank of Minneapolis Quarterly Review 14.2: 3-18.

Lavoie, Marc. 1984. “The Endogenous Flow of Credit and the Post Keynesian Theory of Money,” Journal of Economic Issues 18.3: 771–797.

Lavoie, Marc. 1985. “The Post Keynesian Theory of Endogenous Money: A Reply,” Journal of Economic Issues 19.3: 843–848.

Lavoie, Marc. 1985. “Credit And Money: Overdraft Economies, And Post-Keynesian Economics,” in M. Jarsulic (ed.), Money and Macro Policy, Kluwer-Nijhoff, Boston; Kluwer Academic Pub., Hingham, MA. 63-84.

Lavoie, Marc. 1996. “Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk,” Scottish Journal of Political Economy 43.3: 275-300.

Musella, Marco. 1999. “Endogenous Money and Credit,” in P. A. O’Hara (ed.), Encyclopedia of Political Economy. Volume 1. A–K. Routledge, London and New York. 259–261.

Meulendyke, Ann-Marie. 1988. “Can the Federal Reserve Influence Whether the Money Supply Is Endogenous? A Comment on Moore,” Journal of Post Keynesian Economics 10.3: 390–397.

Moore, Basil J. 1979. “The Endogenous Money Stock,” Journal of Post Keynesian Economics 2.1: 49–70.

Moore, Basil J. 1997. “Reconciliation of the Supply and Demand for Endogenous Money,” Journal of Post Keynesian Economics 19.3: 423–428.

Musella, M. 2001. “Endogenous Money and Credit,” in P. Anthony O’Hara (ed.), Encyclopedia of Political Economy. Volume 1. A–K, Routledge, London and New York. 259–261.

Paganelli, Maria Pia. 2006. “Hume and Endogenous Money,” Eastern Economic Journal 32.3: 533–547.

Palacio-Vera, Alfonso. 2001. “The Endogenous Money Hypothesis: Some Evidence from Spain (1987–1998),” Journal of Post Keynesian Economics 23.3: 509–526.

Palley, T. I., 2002, “Endogenous Money: What It is and Why It Matters,” Metroeconomica 53: 152–180.

Palley, Thomas I. 1987–1988. “Bank Lending, Discount Window Borrowing, and the Endogenous Money Supply: A Theoretical Framework,” Journal of Post Keynesian Economics 10.2: 282–303.

Palley, Thomas I. 1991. “The Endogenous Money Supply: Consensus and Disagreement,” Journal of Post Keynesian Economics 13.3: 397–403.

Palley, Thomas I. 1996. Post Keynesian Economics: Debt, Distribution, and the Macro Economy, St. Martin’s Press, New York.

Palley, Thomas I. 1997. “Endogenous Money and the Business Cycle.” Journal of Economics 65.2: 133–149.

Piegay, P. 2003. “Post Keynesian Controversies on Endogenous Money: An Alternative Interpretation,” in L.-P. Rochon and S. Rossi (eds), Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, Edward Elgar Publishing, Cheltenham, UK and Northampton, Mass.

Pollin, Robert. 1991. “Two Theories of Money Supply Endogeneity: Some Empirical Evidence,” Journal of Post Keynesian Economics 13.3: 366–396.

Rochon, Louis-Philippe. 1999. “The Creation and Circulation of Endogenous Money: A Circuit Dynamique Approach,” Journal of Economic Issues 33.1: 1–21.

Rochon, Louis-Philippe. 2000. “The Creation and Circulation of Endogenous Money: A Reply to Pressman,” Journal of Economic Issues 34.4: 973–979.

Setterfield, M. 2000. “Expectations, Endogenous Money, and the Business Cycle: An Exercise in Open Systems Modeling,” Journal of Post Keynesian Economics 23.1: 77–105.

Shanmugam, B., Nair, M. and Ong, W. L. 2003. “The Endogenous Money Hypothesis: Empirical Evidence from Malaysia (1985–2000),” Journal of Post Keynesian Economics 25.4: 599–611.

Wray, L. Randall. 2003–2004. “Loanable Funds, Liquidity Preference, and Endogenous Money: Do Credit Cards Make a Difference?,” Journal of Post Keynesian Economics 26.2: 309–323.

Wednesday, April 17, 2013

Bibliography on Methodological Individualism

I have posted here on the subject of methodological individualism:

“Hodgson on Methodological Individualism,” April 3, 2013.
Since I intend to examine the subject more closely in the future, I post a critical, extended bibliography below.


Agassi, Joseph. 1960. “Methodological Individualism,” The British Journal of Sociology 11.3: 244-270.

Boettke, Peter J. (ed.). The Legacy of Friedrich von Hayek (vol. 2). Edward Elgar, Cheltenham.

Christainsen, Gregory B. 1994. “Methodological Individualism,” in Peter J. Boettke (ed.), The Elgar Companion to Austrian Economics. E. Elgar, Aldershot. 11-16.

Efaw, Fritz. 1994. “Toward a Critical History of Methodological Individualism,” Review of Radical Political Economics 26.3: 103-110.

Evans, A. J. 2010. “Only Individuals Choose,” in Peter R. Boettke (ed.), Handbook on Contemporary Austrian Economics. Edward Elgar, Cheltenham and Northampton, Mass. 3–13.

Hayek, Friedrich A. 1992. “Methodological Individualism,” in Peter G. Klein. The Collected Works of F. A. Hayek. Volume 4. The Fortunes of Liberalism: Essays on Austrian Economics and the Ideal of Freedom. University of Chicago Press, Chicago. 160-161.

Heertje, Arnold. 2004. “Schumpeter and Methodological Individualism,” Journal of Evolutionary Economics 14: 153–156.

Hodgson, Geoffrey Martin. 1986. “Behind Methodological Individualism,” Cambridge Journal of Economics 10: 211-224.

Hodgson, Geoffrey Martin. 2004. The Evolution of Institutional Economics. Routledge, London.

Hodgson, Geoffrey Martin. 2007. “Meanings of Methodological Individualism,” Journal of Economic Methodology 14.2: 57–68.

Kincaid, Harold. 2004. “Methodological Individualism and Economics,” in Alain Marciano, John B. Davis and Jochen Runde (eds.), The Elgar Companion to Economics and Philosophy. Edward Elgar, Cheltenham, U.K. and Northampton, Mass. 299-314.

Lachmann, Ludwig, M. 1977. “Methodological Individualism and the Market Economy,” in Ludwig M. Lachmann, Capital, Expectations, and the Market Process: Essays on the Theory of the Market Economy (ed. by Walter E. Grinder). Sheed Andrews and McMeel, Kansas City.

Lange-von Kulessa, Juergen. 1997. “Searching for a Methodological Synthesis - Hayek’s Individualism in the Light of Recent Holistic Criticism,” Journal of Economic Methodology 4.2: 267-287.

Lukes, Steven. 1968. “Methodological Individualism Reconsidered,” The British Journal of Sociology 19.2: 119-129.

McKenna, Edward J. and Diane Zannoni. 1997-1998. “Post Keynesian Economics and the Philosophy of Individualism,” Journal of Post Keynesian Economics 20.2: 235-249.

Prychitko, David L. 1999. “Methodological Individualism and the Austrian School: A Note on its Critics,” in Peter J. Boettke (ed.). The Legacy of Friedrich von Hayek (vol. 2). Edward Elgar, Cheltenham. 121-129.

Udehn, L. 2002. “The Changing Face of Methodological Individualism,” Annual Review of Sociology 28: 479–507.

Udehn, Lars. 2002a. Methodological Individualism: Background, History, and Meaning. Routledge, New York.

Zwirn, Gregor. 2007. “Methodological Individualism or Methodological Atomism: The Case of Friedrich Hayek,” History of Political Economy 39.1: 47-80.

Jan Kregel on Financial Liberalisation in China

Jan Kregel gives a talk below called “China in the World: Growth, Adjustment, and Integration,” given at the Institute for New Economic Thinking’s “Changing of the Guard?” conference held in Hong Kong.

The talk from about 27.55 discusses issues of financial regulation, liberalisation, real estate speculation, and the emerging shadow banking system in China and its role in Chinese economic development.

One important point brought out is how China’s stimulus after 2008 was implemented via funding from its banking system, something Western nations are not able to do with such lesser control over their financial systems.

Tuesday, April 16, 2013

Gold Bubble About to Collapse?

The short answer is that one cannot predict the price of gold in 1 year, 2 years, 5 years or 10 years with an objective probability score, but the recent crash does not seem to augur well.

Presumably, a lot of smug smiles have been wiped off the faces of hordes of goldbugs, along with the value of their asset portfolios! Austrians and libertarians are starting to look like the fools we always suspected they were, with their hyperinflation hysteria and exaggerated predictions about the price of gold.

Notice the rout in the graph below.

And it is an incredibly steep rout at that! To put things in historical perspective, we can see the long-term price graph from 1968 to 2013 below.

The soaring price after 2008 so obviously looks like a bubble, and the crash, which (admittedly) might or might not continue, may signal that the gold bubble has finally popped, just as the last bubble did in 1980. After the last crash, gold was in a bear market for nearly 20 years.

If something like that happens now, many people will be left facing massive losses on their gold.

Paul Krugman, Gold Does Not Glitter, April 15, 2013.

Monday, April 15, 2013

The Nature of Time, Science and Economics

This is a post that delves into many non-economic subjects, so skip it if you find science and philosophy tedious!

I. Time and the Future in Economic Life
The future and the nature of time have a fundamental role to play in economics. I will briefly sketch the Post Keynesian view. In a highly complex system that is open like a human economic system, where specific variables are determined by possibly millions of decentralised decisions, where there is both endogenous and exogenous change, and complex negative and positive feedback, it is the case that fundamental uncertainty will be faced about some specific future values of relevant variables.

Fundamental uncertainty means that calculable, objective numeric probabilities are not possible about many specific future values of variables in the system subject to the processes described above (that is, you cannot calculate an objective probability like the a priori probability of rolling a 6 in a fair game of dice for future values of variables).

The future is seen as open and not predetermined (Dunn 2008: 106). Human agents have a role in inventing and creating the future by their actions and decisions (Dunn 2008: 106).

It is obvious that there are both stated concepts and unstated ontological assumptions here, which are as follows:
(1) a real thing called time that passes, or dynamic time;
(2) a moving present and dynamic world;
(3) a future that appears to be (but perhaps not necessarily is) not yet existent;
(4) a future that is not predetermined in an unalterable way, but is created by contingent human action.
The notions of time and the future are fundamental. But what does science say about these things?

II. The Scientific Theories of Time
We have three main theories of the nature of time:
(1) Presentism
This is the view that only the present – that is, the present instantaneous world – exists. Only the present has real existence. The past and future are unreal. Reality is the three dimensional spatial world with its dynamic time element, or (depending on one’s view) the human perception of it.

(2) the Growing block Universe
The Growing block universe theory assumes that only the past and present are real. But the past is “lifeless and inactive” and consciousness and the “flow of time” are only active in the present. To some extent, the Growing block universe appears to be a variant of Presentism. It is also called the “Crystallizing Block Universe” or “Emergent Block Universe” theory.

(3) Eternalism
This is the view that all events, things and objects (including people and living things) in the past and future have real existence. Past, present and future are all equally real. For some reason, human beings have the perception of a “moving present.”
It is obvious that “Presentism” is what seems to be the intuitively correct and commonsensical view of time, although the “Growing block universe” is also compatible, even if somewhat counterintuitive in its belief that the past has a kind of real existence.

Certainly, the view of uncertainty in Post Keynesian economics and of the unknowable future seem consistent with, and perhaps necessitate, a “Presentist” or “Growing block universe” view of time: only the present (and possibly the past) exists, and the future does not. The future is created, as time passes. In economic life, human choice has a causal role in shaping one of many possible futures.

The trouble is that many mainstream physicists think that the Eternalist view is true.

And the issue goes much deeper than just interesting consequences of Einstein’s theories of relativity. Briefly, Einstein showed that the amount of time that elapses for an object is dependent on both its velocity and/or its interaction with gravitational fields. If, for example, one accelerates to close to the speed of light, time slows down (that is, “time dilation” occurs), and one is projected forwards in time relative to other objects travelling at a lower velocity, simply because physical and chemical processes slow down as velocity increases. From this, it follows that absolute Newtonian time is ultimately unreal. Or perhaps what Newton imagined as absolute time can only be strictly limited to spaces and objects with homogenous or near homogenous velocities or gravitational fields.

But the mainstream view of time is more radical than these findings from relativity theory, though certainly partly derived from them. What is asserted is this: the universe is thought to be a four-dimensional block or “block universe,” containing everything from the Big Bang to the end of the universe and all things that have ever existed or will ever exist. The forward direction or “arrow” of time is illusory because the whole universe is ultimately static, and if one could view it from “outside,” there is no point anywhere in the universe that can be objectively called the present.

Perhaps you think I exaggerate? Just observe the respected physicist Paul Davies proclaim that the flow of time is an illusion (Davies 2002). A strident statement of the same ideas can be found in Julian B. Barbour’s The End of Time: The Next Revolution in Our Understanding of the Universe (New York, 2000).

According to these ideas, the universe is ultimately timeless and static.

Pushed to its limit, a consequence of this theory is that the “block universe” is eternal and had no actual beginning in time, no subsequent development or growth, and no end, for that would require that there was in fact once a moving present, and would imply “Presentism” or the “Growing block universe” view.

If it is true that the universe is eternal, what sense is there in talking of the Big Bang as the causal origin of the universe or of subsequent causal developments and evolution of the universe? Or of an end? Such talk is inaccurate and actually appears unjustified and untrue, if the universe was eternal, timeless and not, strictly speaking, the creation of an unfolding present from a beginning at the Big Bang.

III. The Consequences of Eternalism
Under the Eternalist view, the “block universe” just is, always was, and always will be. Like the traditional god of Western theism, the “block universe” is just eternal and (possibly) uncreated.

What does the Eternalist “block universe” theory of reality entail about human consciousness, decision-making and existence?

First, it appears to deny free will. How is our vision of an economic future created by conscious human choice that is real and contingent and that could have been different consistent with the “block universe”? It seems utterly inconsistent. The perception of free will and real choice in action are illusions. The future is written already.

The second question is this: what is a conscious human mind under the Eternalist view? I digress at length on this point.

Our mind appears to be an entity extended in the “block universe.” But the “block universe” is normally thought of as a timeless, static and unchanging entity. How can humans have a conscious perception of a dynamic universe changing in a moving present?

One answer offered is that all moments of conscious life are equally real. The mathematician Rudolf von Bitter Rucker puts it this way:
“What I want to say is that each of us is a certain spacetime pattern in the block universe. Today, or the day of my birth, or the day of my death—all are equally real, all are different pieces of the block universe. I will never stop living this instant. This instant will never cease to exist; this instant has always existed.” (Rucker 1984: 145).
If this were so, then why don’t you have direct access to all past conscious experiences and all future conscious experiences simultaneously in the way you have direct access to the present conscious moment? Or alternatively, why no memories of the future?

Another equally strange interpretation of conscious life and the perception of the present in the Eternalist “block universe” theory is the “eternal return” theory: to put it in simple terms, it is the notion that after death you actually experience your life again, and also exactly as it was before, and yet again after another experience of death, and so on and on, ad infinitum.

To elaborate, there is an infinite “stream” of conscious “yous” following one upon the other, in every instant of the discrete conscious moments of life, and eternally.

As a rough analogy, if each discrete conscious moment of life can be conceived as a frame in a film running in a stream of 1 frames per second, then, if there are 1,000,000 frames to one’s life, it is as if there will always and eternally be 1,000,000 movies playing simultaneously, but each will be running one second out of sync with previous one, with a projection of each and every different frame appearing simultaneously on all screens at any second.

The experience we have now is but one of the movies being projected, and it exists simultaneously with all the other movies running at different points in the sequence of frames: that is, a vast number of conscious “yous” experience a moving present at different points.

That is to say,
(a) You (1) are now reading this sentence;

(b) You (1) have now moved on to reading this sentence, but there is another You (2) who is real and conscious right now reading sentence (a);

(c) You (1) are now reading this, but You (2) is reading (b), and another You (3) is reading (a), and so on ad infinitum.*

*Or are You (1), You (2) and You (3) all just the same person?
Did you read these three sentences? You will now have the conscious experience of reading those same three sentences at this point in your life again and again for eternity, if the “eternal return” theory is true. (Leave my blog immediately if you think you should be doing more important things whose conscious experience will recur cyclically to you in perpetuity!)

If science might confirm – in any sense – the idea of life after death, then this is the only plausible hypothesis ever put forward. If you have a happy and enjoyable life, then you might take solace in such a view. After all, you are eternal!

But if your life is not happy and indeed for anyone whose life is unhappy, unfair and involves suffering, most people will complain that it is a most distressing and disturbing theory of existence.

I have not seen any detailed treatment of the philosophical and ethical implications of the “eternal return” theory (although my reading is limited), because, if it were true, it seems to have extraordinary implications.

But to return to my main point. The problems I identified above do not seem to be resolved by the “eternal return” idea of the perception of one “moving present” amongst an infinitive set of such conscious “presents.” It still does not explain why no one can remember the future or have access to all conscious moments – past, present and future simultaneously. And, above all, how can a dynamic process like an experience of conscious life and moving time be derived from a universe that is timeless and static?

IV. Conclusion
An Eternalist “block universe” theory of time seems incompatible with many conceptions of time and the future assumed by economics, and even (curiously) explanations about the origins of physical and biological phenomena and the direction of causality assumed in science itself.

I return to the question of how the assumptions of economics and social sciences (and common sense), which appear to assume “Presentism,” are to be reconciled with the “Eternalism” of the natural sciences.

There are possible explanations, as follows:
(1) Eternalism is true, and an explanation of its difficulties does exist, but has not been found. This would necessitate radical rethinking of aspects of social sciences, philosophy and even causal explanations in science itself;

(2) the current Eternalist “block universe” theory is wrong. Empirical sciences only ever produce theories that are provisionally true, so perhaps with further future evidence it will emerge that “Presentism” or the “Growing block Universe” theory is true. I will just note that I personally suspect that the “Growing block Universe” theory is the true description of reality.

(3) there is of course another most curious escape hatch. If the static universe is unchanging (by definition) and there is no flow of time, then our mental life cannot be caused by evolving physical events in, or emergent properties of, the brain and its processes. In other words, a materialistic/physicalist explanation of the mind as dependent on changing brain states is impossible. Therefore the human mind – and all its mental life including the perception of a flow of time – is explained by some other process, possibly only explicable in terms of dualism or idealism. Matter and mind are separate. Whatever reality we exist in is all in the mind and not causally related to the material world. So all the findings of modern sciences on time are irrelevant.

I suppose this might appeal to you, if you are a theist or partial to idealism! Alternatively, if our mental life is caused by dynamic physical events in and emergent properties of the brain and its parts, this suggests that a static, timeless universe is not a true description of reality.
At this point, one might be tempted to throw up one’s arms, and admit that one needs a degree in physics and years of research to have anything worthwhile and informed to say about such problems.

If one wants to defend a “Growing block Universe” view, then perhaps a satisfactory resolution can be found in this theory, because it assumes a real flow of time and a future that does not yet exist.

Finally, I post a video below with a talk by the cosmologist George Ellis defending the “Crystallizing Block Universe” theory (his version of the “Growing block Universe” or “Emergent Block Universe” view of time).

I will just note how from 4.30 he describes something that strikes me as remarkably consistent with the Post Keynesian vision of the economic and social world.

George Ellis asserts that at the macro level of the universe with its complex systems (that is, neither quantum nor micro levels of reality) it is remarkable how limited precise scientific prediction is: even the natural sciences cannot precisely predict the past or future from present and past data for many complex macro level phenomena.

From 11.25 onwards, we get a most interesting example of this: the structure and disposition of current galaxies was causally dependent on quantum fluctuations after the Big Bang. But even if one knew everything about those quantum fluctuations, science could not predict the details of the current structure of the universe. See also Ellis and Rothman (2010) for a defense of the “Crystallizing Block Universe” theory.

I add another video below by the Cambridge philosopher Huw Price on the block universe.


Barbour, Julian B. 2000. The End of Time: The Next Revolution in Our Understanding of the Universe. Oxford University Press, New York.

Callender, Craig. 2010. “Is Time an Illusion?,” Scientific American 302.6: 58–65.

Carroll, Sean. “Ten Things Everyone Should Know About Time,” September 1, 2011

Davies, Paul. 2002. “That Mysterious Flow,” Scientific American 287.3: 40–47.

Dunn, Stephen P. 2008. The ‘Uncertain’ Foundations of Post Keynesian economics: Essays in Exploration. Routledge, London and New York.

Ellis, George F. R. and Tony Rothman. 2010. “Time and Spacetime: The Crystallizing Block Universe,” International Journal of Theoretical Physics 49.5: 988-1003.

Lynds, P. 2003. “Subjective Perception of Time and a Progressive Present Moment: The Neurobiological Key to Unlocking Consciousness,” http://cogprints.org/3125/

Maudlin, Tim. 2009. The Metaphysics within Physics. Oxford University Press, Oxford.

Maudlin, Tim. 2012. Philosophy of Physics: Space and Time. Princeton University Press, Princeton, N.J.

Rucker, Rudy von Bitter. 1984. The Fourth Dimension: A Guided Tour of the Higher Universes. Houghton Mifflin, Boston, Ma.

Sukys, Paul. 1999. Lifting the Scientific Veil: Science Appreciation for the Nonscientist. Rowman & Littlefield, Lanham, MD.

Saturday, April 13, 2013

Say’s Law: An Overview and Bibliography

I think an overview is in order in light of Robert Murphy’s confusing post here, which seems (as far as I can see) to agree that a “general glut” or failure of aggregate demand is possible, contrary to the extreme form of Say’s law, but in a bizarre argument invoking “present and future goods” and the notion that “leisure is a present consumption good.”

Say’s law of course is defined in various ways, but the two main definitions are as follows:
(1) Say’s Identity
According to Baumol (1977: 146), this
“is the assertion that no one ever wants to hold money for any significant amount of time, so that, as a result, every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value”; and
(2) Say’s Equality
Again, according to Baumol (1977: 146), Say’s Equality
“admits the possibility of (brief) periods of disequilibrium during which the total demand for goods may fall short of the total supply, but maintains that there exist reliable equilibrating forces that must soon bring the two together.”
The issue of how Jean-Baptiste Say (1767–1832) himself defined the law is complicated by the fact that Say produced various editions of his Treatise on Political Economy and different treatments of the law, as follows:
(1) the first edition of Say’s Traité d’économie politique (1803; or the Treatise on Political Economy in English) has only a brief and not properly formulated version of the law;

(2) the second edition of Traité d’économie politique/Treatise on Political Economy (published in 1814) has the first proper formulation of Say’s law (Baumol 1977: 147).

(3) a summary of the law appears in Say’s Catechism of Political Economy (1816: 103–105).

(4) in the fourth edition of Traité d’économie politique/Treatise on Political Economy (1819) Say revised his remarks on the law in important ways (Heertje 2004: 41).
It seems widely accepted today that Say’s role in formulating the law is overrated. That is, both Thweatt (1979: 92–93) and Baumol (2003: 46) conclude that Adam Smith was in fact the real father of what is recognisably Say’s law in Classical economics, with the major work in developing the idea conducted by James Mill (1808), not necessarily Jean-Baptiste Say himself.

So let us look at how Say’s law was formulated by the Classical economists, as defined by Thomas Sowell (1994: 39–41). Sowell defines it as these propositions:
(1) The total factor payments received for producing a given volume (or value) of output are necessarily sufficient to purchase that volume (or value) of output [an idea in James Mill].

(2) There is no loss of purchasing power anywhere in the economy. People save only to the extent of their desire to invest and do not hold money beyond their transactions need during the current period [James Mill and Adam Smith].

(3) Investment is only an internal transfer, not a net reduction, of aggregate demand. The same amount that could have been spent by the thrifty consumer will be spent by the capitalists and/or the workers in the investment goods sector [John Stuart Mill].

(4) In real terms, supply equals demand ex ante [= “before the event”], since each individual produces only because of, and to the extent of, his demand for other goods. (Sometimes this doctrine was supported by demonstrating that supply equals demand ex post.) [James Mill.]

(5) A higher rate of savings will cause a higher rate of subsequent growth in aggregate output [James Mill and Adam Smith].

(6) Disequilibrium in the economy can exist only because the internal proportions of output differ from consumer’s preferred mix—not because output is excessive in the aggregate” [Say, Ricardo, Torrens, James Mill] (Sowell 1994: 39–41).
Why is Say’s law false?

One fatal flaw is the underlying assumption, which is clear in the work of Jean-Baptiste Say himself, that money cannot provide direct utility:
“For, after all, money is but the agent of the transfer of values. Its whole utility has consisted in conveying to your hands the value of the commodities, which your customer has sold, for the purpose of buying again from you; and the very next purchase you make, it will again convey to a third person the value of the products you may have sold to others.” (Say 1821a: 164–165).
This is made clear to us by Say’s statement: “[sc. the] whole utility [sc. of money] has consisted in conveying to your hands the value of the commodities.” This is a world where nobody holds money for significant periods of time because money can have no utility, except in what it can purchase in terms of commodities. But that is not the world we live in. We live in a world of uncertainty. In the face of uncertainty, money can yield direct utility (Graziani 2003: 11). Therefore people can and do hold money for significant periods!

First, “Say’s Identity” simply ignores the reality of people holding money without purchasing goods and services because of uncertainty (Keynes’s precautionary motive), or what Keynes called idle money hoards. It also ignores the spending of money on secondary financial or real asset markets or holding of money idle for this reason (Keynes’s speculative motive).

In any real world economy, money from income streams from production, either to capitalists or workers, can become diverted to asset markets and may not be spent on goods. For this reason alone, Say’s law is a grossly unrealistic picture of market economies. Capitalists themselves have subjective expectations about the future and the future profitability of investment, and when their expectations are shattered, they will not necessarily invest out of retained earnings.

Secondly, “Say’s Equality” already admits the possibility of general gluts.

But a further serious problem with both versions of Say’s law is the assumption of universal or near universal flexprice markets, when vast numbers of industrial, service, retail and even capital goods markets are fixprice, and administered prices are the norm. In modern capitalist economies, supply and demand are equated by changes in employment and output, not by flexible prices. (And also the whole simplistic economic model of Say’s law does not have a place for endogenous money and banks that create credit money for investment.)

Lastly, as a matter of historical interest, eventually it appears that Jean-Baptiste Say actually repudiated the strong form of Say’s law we call “Say’s Identity” in his letters to Malthus.

More detailed discussion is here:
“The Myth of Say’s Law,” October 7, 2010.

“F. H. Hahn in a Candid Moment on Neo-Walrasian Equilibrium ,” January 29, 2011.

“Say’s Law Presupposes Aggregate Demand as a Meaningful Concept,” May 28, 2011.

“Say Repudiated Say’s Law,” December 1, 2011.

“Jean Baptiste Say on Failures of Aggregate Demand,” December 1, 2011.

“Jean-Baptiste Say and “Say’s Law,” September 14, 2012.

“The Origin of Say’s Law in Adam Smith and James Mill,” September 14, 2012.

“Bibliography on Say’s Law,” September 16, 2012.

“A Note on Prices and Say’s Law,” December 11, 2012.

“World GDP versus Total Value of Financial Asset Market Exchanges,” February 21, 2013.
I also reproduce my extended bibliography on Say’s law below.


Anderson, William L. 2009. “Say’s Law and the Austrian Theory of the Business Cycle,” Quarterly Journal of Austrian Economics 12.2: 47–59.

Aspromourgos, Tony. 2009. The Science of Wealth: Adam Smith and the Framing of Political Economy. Routledge, London.

Balassa, Bela A. 1959. “John Stuart Mill and the Law of Markets,” Quarterly Journal of Economics 73.2: 263–274.

Baumol, William J. 1977. “Say’s (at Least) Eight Laws, or What Say and James Mill May Really Have Meant,” Economica n.s. 44.174: 145–161.

Baumol, William J. 1999. “Retrospectives: Say’s Law,” Journal of Economic Perspectives 13.1: 195–204.

Baumol, William J. 2003. “Retrospectives: Say’s Law,” in S. Kates (ed.), Two Hundred Years of Say’s Law: Essays on Economic Theory’s Most Controversial Principle, Edward Elgar Pub, Cheltenham and Northampton, Mass. 39–49.

Becker, Gary and William J. Baumol. 1952. “The Classical Economic Theory: The Outcome of the Discussion,” Economica 19: 355–376.

Blaug, M. 1996. Economic Theory in Retrospect (5th edn). Cambridge University Press, Cambridge.

Blaug, Mark. 1997. “Say’s Law of Markets: What did it mean and Why should We Care?,” Eastern Economic Journal 23.2: 231–235.

Clower, Robert W. and Leijonhufvud, Axel. 1973. “Say’s Principle, What It Means and Doesn’t Mean,” Intermountain Economic Review 4: 1–16.

Clower, Robert W. and Leijonhufvud, Axel. 1984. “Say’s Principle, What it Means and Doesn’t Mean,” in Donald A. Walker (ed.), Money and Markets: Essays by Robert W. Clower. Cambridge University Press, Cambridge. 145–165.

Cottrell, Allin. 1998. “Keynes, Ricardo, Malthus and Say’s Law,” in James C.W. Ahiakpor (ed.), Keynes and the Classics Reconsidered. Kluwer Academic, Boston, Mass. and London. 63–75.

“Debunking Economics, Part VIII: Macroeconomics, or Applied Microeconomics?,” Unlearning Economics, 26 August, 2012.

Gootzeit, M. 2003. “Savings, Hoarding and Say’s Law,” in S. Kates (ed.), Two Hundred Years of Say’s Law: Essays on Economic Theory’s Most Controversial Principle. Edward Elgar, Cheltenham and Northampton, Mass. 168–186.

Gordon, B. J. 1965. “Say’s Law, Effective Demand, and the Contemporary British Periodicals, 1820–1850,” Economica 32: 438–446.

Graziani, A. 2003. The Monetary Theory of Production. Cambridge University Press, Cambridge.

Groenewegen, P. D. 1977. The Economics of A. R. J. Turgot. Martinus Nijhoff, The Hague.

Heertje, A. 2004. “On Say’s Law,” in Tony Aspromourgos and John Lodewijks (eds.), History and Political Economy. Essays in Honour of P.D. Groenewegen. Routledge, London. 44–56.

Hollander, S. 2005. “Review of Two Hundred Years of Say’s Law: Essays on Economic Theory’s Most Controversial Principle,” History of Political Economy 37.2: 382–385.

Horwitz, Steven. 2003. “Say’s Law of Markets: An Austrian Appreciation,” in S. Kates (ed.), Two Hundred Years of Say’s Law: Essays on Economic Theory’s Most Controversial Principle. Elgar, Cheltenham, UK and Northampton, Mass. 82–98.

Hutt, William Harold. 1974. A Rehabilitation of Say’s Law. Ohio U.P., Athens, Ohio.

Johnson, Ivan C. 2001. “A Reappraisal of the Say’s Law Controversy,” Quarterly Journal of Austrian Economics 4.4: 25–53.

Jonsson, Petur O. 1995. “On the Economics of Say and Keynes’ Interpretation of Says’s Law,” Eastern Economic Journal 21.2: 147–155.

Jonsson, Petur O. 1997. “On Gluts, Effective Demand, and the True Meaning of Say’s Law,” Eastern Economic Journal 23.2: 203–218.

Jonsson, Petur O. 1998. “Keynes, Ricardo, Malthus and Say’s Law: Comment,” in James C.W. Ahiakpor (ed.), Keynes and the Classics Reconsidered. Kluwer Academic, Boston, Mass. and London.75–84.

Kates, Steven. 1994. “The Malthusian Origins of the General Theory or How Keynes came to write a Book about Say’s Law and Effective Demand,” History of Economics Review 21: 10–20.

Kates, Steven. 1995. “Crucial Influences on Keynes’s Understanding of Say’s Law,” History of Economics Review 23: 74–82.

Kates, Steven. 1996. “Keynes, Say’s Law and the Theory of the Business Cycle,” History of Economics Review 25: 119–126.

Kates, Steven. 1997. “A Discussion of Say’s Law: The Outcome of the Symposium,”Eastern Economic Journal 23.2: 237–239.

Kates, Steven. 1997. “On the True Meaning of Say’s Law,” Eastern Economic Journal 23.2: 191–202.

Kates, Steven. 2002. “Economic Management and the Keynesian Revolution: The Policy Consequences of the Disappearance of Say’s Law,” International Journal of Applied Economics and Econometrics 10.3: 463–479.

Kates, Steven (ed.). 2003. Two Hundred Years of Say’s Law: Essays on Economic Theory’s Most Controversial Principle, Edward Elgar Pub, Cheltenham; Northampton, Mass.

Kates, Steven. 2005. “‘Supply Creates Its Own Demand’: A Discussion of the Origins of the Phrase and of its Adequacy as an Interpretation of Say’s Law of Markets,” History of Economics Review 41: 49–60.

Kates, Steven. 2007. “Mill, McCracken and the Modern Interpretation of Say’s Law,” History of Economics Review 46: 32–38.

Kates, Steven. 2008. “A Letter from Keynes to Harlan McCracken dated 31st August 1933: Why the Standard Story on the Origins of the General Theory needs to be Rewritten,” History of Economics Review 47: 39–53.

Kates, Steven. 2010. “Why Your Grandfather’s Economics was better than yours: On the Catastrophic Disappearance of Say’s Law,” Quarterly Journal of Austrian Economics 13.4: 3–28.

Keen, S. 2003. “Nudge Nudge, Wink Wink, Say No More,” in S. Kates (ed.), Two Hundred Years of Say’s Law: Essays on Economic Theory’s Most Controversial Principle. Elgar, Cheltenham, UK and Northampton, Mass. 199–209.

Kent, Richard J. 2005. “Keynes and Say’s Law,” History of Economics Review 41: 61–76.

Lange, O. 1942. “Say’s Law: A Restatement and Criticism,” in O. Lange, F. McIntyre and T. O. Matema (eds), Studies in Mathematical Economics and Econometrics: In Memory of Henry Schultz. University of Chicago Press, Chicago. 49–68.

Lange, Oskar. 1994. “Say’s Law: A Restatement and Criticism,” in Tadeusz Kowalik (ed.), Economic Theory and Market Socialism: Selected Essays of Oskar Lange. Elgar, Aldershot, U.K. 213–232.

Mill, James. 1808. Commerce Defended. An Answer to the Arguments by which Mr. Spence, Mr. Cobbett, and Others, have Attempted to Prove that Commerce is not a Source of National Wealth. C. and R. Baldwin, London.

Mises, L. 2005 [1950], “Lord Keynes and Say’s Law,” Mises Daily, April 25, 2005, http://mises.org/daily/1803

Say, Jean Baptiste. 1803. Traité d’économie politique, ou, Simple exposition de la manière dont se forment, se distribuent et se consomment les richesses (1st edn.). De Chapelet, Paris.

Say, Jean Baptiste. 1814. Traité d’économie politique, ou, Simple exposition de la manière dont se forment, se distribuent et se consomment les richesses (2nd edn.). Antoine-Augustin Renouard, Paris.

Say, J. B. 1816. Catechism of Political Economy, or, Familiar Conversations on the Manner in which Wealth is Produced, Distributed, and Consumed in Society (trans. J. Richter). Sherwood, Neely, and Jones, London.

Say, Jean Baptiste. 1817. Traité d’économie politique, ou, Simple exposition de la manière dont se forment, se distribuent et se consomment les richesses (3rd edn.). Chez Deterville, Paris.

Say, Jean Baptiste. 1819. Traité d’économie politique, ou, Simple exposition de la manière dont se forment, se distribuent et se consomment les richesses (4th edn.). Deterville, Paris.

Say, Jean Baptiste. 1821. A Treatise on Political Economy, or, The Production, Distribution, and Consumption of Wealth (trans. from 4th edn by C.R. Prinsep with notes by the translator, with a translation of the introduction and additional notes by C. C. Biddle). Wells and Lilly, Boston.

Say, Jean Baptiste. 1821a. A Treatise on Political Economy, or, The Production, Distribution, and Consumption of Wealth (trans. from 4th edn by C.R. Prinsep). Longman, Hurst, Rees, Orne And Brown, London.

Say, J. B. 1821b. Letters to Mr. Malthus: On Several Subjects of Political Economy, and on the Cause of the General Stagnation of Commerce. To Which is added A Catechism of Political Economy, Sherwood, Neely, and Jones, London.

Say, Jean Baptiste. 1826. Traité d’économie politique, ou, Simple exposition de la manière dont se forment, se distribuent et se consomment les richesses (5th edn.). Rapilly, Paris.

Shoul, B. 1957. “Karl Marx and Say’s Law,” Quarterly Journal of Economics 71.4: 611–629.

Skinner, A. S. 1967. “Say’s Law: Origins and Content,” Economica 34: 153–166.

Silva, Antonio Carlos Macedo e. 2004. “From Say’s Law to Keynes, from Keynes to Walras’s Law: Some Ironies in the History of Economic Thought,” in L. Randall Wray and Mathew Forstater (eds.). Contemporary Post Keynesian Analysis. Edward Elgar, Cheltenham, UK and Northampton, Mass. 310–332.

Skinner, A. S. 1969. “Of Malthus, Lauderdale and Say’s Law, Lauderdale and Say’s Law,” Scottish Journal of Political Economy 16.2: 177–195.

Smith, A. 1811. An Inquiry into the Nature and Causes of the Wealth of Nations (11 edn; vol. 1), Oliver D. Cooke, Hartford.

Sowell, T. 1972. Say’s Law: An Historical Analysis. Princeton University Press, Princeton, N.J.

Sowell, T. 1974. Classical Economics Reconsidered. Princeton University Press, Princeton, N.J. and London.

Sowell, T. 1994. Classical Economics Reconsidered (2nd ed.). Princeton University Press, Princeton, N.J.

Spengler, Joseph J. 1945. “The Physiocrats and Say’s Law of Markets,” Journal of Political Economy 53: 193–211, 317-347.

Thweatt, W. O. 1979. “Early Formulators of Say’s Law,” Quarterly Review of Economics and Business 19: 79–96.

Thweatt, W. O. 1980. “Baumol and James Mill on ‘Say’s’ Law of Markets,” Economica n.s. 47.188: 467–469.