We'll never know. He died in 1921. But a commenter on a fantastic post by Nick Rowe (see my next blog post) points out that Menger was very tapped into the idea of liquidity preference:"But the fact that different goods cannot be exchanged for each other with equal facility was given only scant attention until now. Yet the obvious differences in the marketability of commodities is a phenomenon of such far-reaching practical importance, the success of the economic activity of producers and merchants depending to a very great extent on a correct understanding of the influences here operative, that science cannot, in the long run, avoid an exact investigation of its nature and causes."
That screams "effective demand" of course. Would it have lead him all the way to a liquidity preference theory of the interest rate? If he didn't find his way there himself, it certainly seems like he would have liked a lot of what Keynes had to say.
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How does that scream anything more than goods have different amounts of marketability?
ReplyDeleteWhat are you talking about?
When the ability to sell a product is identified as a real problem, then one begins to recognize that supply doesn't create its own demand. The presence of an effective demand emerges as a problem. It's not exclusively a Keynesian insight but it is an insight that is integral to Keynesianism.
ReplyDeleteHe mentions nothing about demand or supply. I reiterate: What are you talking?
ReplyDeleteMenger is simply making the point that some good are more marketable than others and this leads to their facilitation in trade. You don't reference where you found the quote but I'd put money that he's taking about the origins of money due to marketability of economic goods - a direct Mengerian contribution.
about*
ReplyDeleteIt's from his Principles. As I said, I pulled it from the comment section of Nick Rowe's post so I'm not sure exactly where it is from in the text.
ReplyDeleteYours is an excellent guess. After all, it's money that makes liquidity and demand significant in Keynes as well.
I really should get around to reading that
ReplyDelete"When the ability to sell a product is identified as a real problem, then one begins to recognize that supply doesn't create its own demand."
ReplyDeleteI hope you're not abusing Say's Law (yet again). Any classical economist worth his salt would not claim that the supply of a good necessarily meant that it would find a buyer, but that production constituted purchasing power. It countered the absurd underconsumptionist/overproductionist fears that there would not be enough purchasing power "to buy back the product".
Supply constitutes demand, yes, but not necessarily what you would call "effective demand". Menger is simply extending the arguments laid out by JB Say and JS Mill (among many others) i.e. he is continuing in the tradition and expounding on the theories of the classicals, not making some proto-Keynesian argument.
"The presence of an effective demand emerges as a problem"
ReplyDeleteWhich comes about through entrepreneurial miscalculations in forecasting the wishes of consumers, something that was definitely recognised by the classical economists. It has also spawned a massive amount of literature within the Austrian school.
"This superabundance [of certain goods]... depends also upon the ignorance of producers or merchanges, of the nature and extent of the want in the places to which they sent their commodities. In later years there have been a number of hazardous speculations, on account of the many fresh connexions with different nations. There was everywhere a general failure of that calculation which was requisite to a good result." (from JB Say's treatise)
Sebastian -
ReplyDelete"Say's Law" means many things to many people. Context matters. Today it seems pointless to treat the phrase "Say's Law" as meaning anything other than the straw man that it has come to mean. It's a different question entirely whether Say believed Say's Law.
Menger has the nuggest of an effective demand argument here. It's insulting to the long line of economists that have hit on effective demand issues to simply call them "proto-Keynesian".
Say and Mill at times expressed effective demand type arguments. This is very well documented.
Your last comment was simply ridiculous.
ReplyDeleteSo what you are saying is that:
- Say's Law is the simple proposition that supply creates demand in the crude, unqualified sense in which it is now regarded in mainstream economics.
- the classical economists believed Say's Law.
This is clearly false. If Say's Law is as you describe, then the classicals (and Austrians) do not believe Say's Law to be true either - and for that matter, Say would not believe Say's Law either.
If you want to keep going on believing that the classicals Austrians "got it wrong" with Say's Law, you cannot simply substitute the modern definition into the classical literature and draw this conclusion. You are building your arguments on false premises - which is odd, given your protests against the "misinterpretations" of Keynes found on Mises.org etc.
Besides, as it stands, the verity of Say's Law has nothing to do with the tendency of a laissez-faire economy to tend towards full employment. This mistaken belief is a product of Keynes stating that the classicals believe D=f(N)=Z=f(N)[i.e. supply equals demand] and since, in the Keynesian world, the demand for commodities equals the demand for labour, there should be no unemployment.
When did I say the classics believed it? I said that's another question.
ReplyDeleteIf you want to keep going on believing that the classicals Austrians "got it wrong" with Say's Law, you cannot simply substitute the modern definition into the classical literature and draw this conclusion.
Right, that's exactly what I said shouldn't be done.
Reread my post, please. I said that Say and Mill both departed from this version of "Say's Law".
However, the classics (and the Austrians) do generally theorize as if we are always producing at full capacity, with the exception of frictions and adjustments.
As for Mill's fourth - we've been this way before, and just because you read it in Peter Klein and Hayek doesn't make you right.
ReplyDelete