Underconsumption Theories

UNDER- CONSUMPTION THEORIES A History and Critical Analysis by M.F. Bleaney 1976 INTERNATIONAL PUBLISHERS New York Library of Congress Cataloging in Publication Data Bleaney, Michael Francis Underconsumption theories. Bibliography. Includes index. 1. Business cycles. 2. Consumption (Economics) 3. Economics—History. I. Title. HB3721.B55 330.1 76-26935 ISBN 0-7178-0476-3 © M. F. Bleaney Produced by computer-controlled phototypesetting, using OCR input techniques, and printed offset by UNWIN BROTHERS LIMITED The Gresham Press, Old Woking, Surrey PREFACE AND ACKNOWLEDGEMENTS This book is intended as a Marxist analysis of underconsumption theories. It is at once a history and a critique — for underconsumption theories are by no means dead. Their influence may still be discerned in the economic programmes put forward by political parties and trade unions, and in articles and books on the general tendencies of capitalism. No final conclusion as to the correctness of underconsumption theories is reached, for too little theoretical work of the necessary quality has been carried out to justify such a conclusion. But the weight of the theoretical evidence would seem to be against them. Much of their attractiveness in the end stems from the links which they maintain with the dominant ideology of capitalist society and the restricted extent of the theoretical break required to arrive at an underconsumptionist position. This, in conjunction with certain obviously appealing conclusions which emerge from them, has sufficed to ensure their continuing reproduction in the working-class movement. Not all of the authors discussed here are in fact underconsumptionist — Karl Marx and Rosa Luxemburg, in particular, are not — but all of them have been accused of being so at one time or another. Two main strands of underconsumptionism are identified, whose main propositions are somewhat different. One strand — the Malthusian heritage — emphasises the absolute level of saving, while the other — stemming from Sismondi — emphasises the distribution of income per se as the cause of crises. One interesting question is why, in the general glut debate of the early nineteenth century, all those who argued for the possibility of a general glut should have been underconsumptionists. An explanation of this, in terms of the classical conception of investment and the relationship between Adam Smith and the Physiocrats, is given in Chapter Five. 3 4 This book is a revised and extended version of a Ph.D. thesis written for the University of Cambridge over the period 1971 to 1974. I should like to thank the Social Science Research Council, my parents and Clare College for financing my studies during this period. It would be impossible to do credit to all the discussions I have had which have helped me to develop the ideas presented here However, I should particularly like to mention the names of Maurice Dobb, Brenda Kirsch and Ronald Meek, who have read and criticised earlier drafts of the work. Above all, I owe a great debt to Bob Rowthorn, the supervisor of the research, whose continuous encouragement and incisive criticism have been invaluable. But any mistakes that remain are entirely my own responsibility. February 1976 M.F.B CONTENTS 1. What is Underconsumptionism? 9 2. The early British Underconsumptionists 22 3. J.C.L. Simonde de Sismondi 62 4. Rodbertus 79 5. Retrospect on the early Nineteenth Century 83 6. Karl Marx 102 7. The Russian Populists 120 8. J.A. Hobson 145 9. Rosa Luxemburg 186 10. Lesser Writers of the Inter-War Period 202 11. An Assessment of pre-Keynesian Underconsumption Theories 208 12. The Modern Scene 220 Bibliography 253 Index 259 5 One of the most dangerous by-products of a period of depression is the crop of false economic theories which win popular credence and gain political support. As in all previous depressions the commonest explanation which is offered to the mass of thinking people is some form of the underconsumption theory. In the last two years this theory has grown like a forest of mushrooms about us. It claims far more adherents than any other theory, and the voices of those who believe in it drown all other counsel in the ears of democratic peoples. Trade Unionists and employers alike, and even the authority of the Church itself are enlisted to support the demand that the purchasing power of the people shall be reinforced. E.F.M.Durbin, 1934 7 1 WHAT IS UNDERCONSUMPTIONISM? THE DEFINITION OF ‘UNDERCONSUMPTION THEORIES’ Underconsumption theories have a long history — and a long history of influence in the working-class movement — but in spite of this no general study of them has yet appeared. This book is intended to fill that gap. Orthodox economists have generally dismissed underconsumption theories with contempt, and in orthodox histories of economic theory underconsumptionist writers, with the excep- tion of Malthus, rarely receive more than a passing reference — if indeed they are mentioned at all. This might perhaps be explained by their proneness to elementary mistakes, but by itself that does not seem a sufficient explanation: if we think for instance of the way writers in the Marxist tradition and indeed Marx himself have been left out of consideration, it seems clear that in this case the block has been applied even before the question of technical errors has arisen. Marxist writers have been ignored because of their basic premises and the implications of their line of approach, and nowadays even many non-Marxists are prepared to admit that ideological factors have underlain the silence about Marxism in academic circles. It seems essential, then, to examine the possible ideological reasons why underconsumption theories might have been ignored by the mainstream of Western economic thought. In this connection, two things are immediately apparent. Firstly, underconsumption theories, even in their tamest ver- sions, have always retained a slant of criticism of capitalist production This slant exists independently of the ideology of the individual writer, since it arises out of one of the general features of underconsumption theories: their tendency to imply that ultimately capitalism cannot guarantee continuous full employment and rising living standards and is liable sooner or later to slip down into prolonged stagnation. Potentially, 10 Underconsumption Theories therefore, underconsumption theories have always been grist to the mill of popular anti-capitalist movements, and it should be added that in many variants they imply support for a strong and militant trade-union movement, a characteristic which threatens to undermine all the carefully constructed arguments, so common today, about the need for sacrifice and desertion of “the militants” at times of crisis. Therefore, without raising at this stage the question of the scientificity of underconsumption theories, it is clear that their ideological power, inserted into contemporary political struggles, is essentially at the service of the working class. Secondly, underconsumption theories, being explicit criti- cisms of the dominant schools of thought of their time, were bound to be treated as a negative development by those who saw in the increased sophistication and elaboration of these tendencies the growth of a truly scientific economics. It is still true, in spite of the crisis at present being experienced by bourgeois economics, that marginalism remains the only general theory which it has to put forward in opposition to Marxism, and that the dominant tendency is to treat the history of economic thought since Adam Smith as a struggle first of all to produce a consistent marginalist theory and then to develop it. Since underconsumptionism, like Marxism, contributed nothing to this process, it is regarded as legitimate for histories of economic thought to ignore it. These would seem to be the two main factors behind the lack of interest shown by orthodox economists in underconsumption theories and their history. It is not so clear, however, why no general Marxist study of underconsumptionism has yet appeared. In part, probably, this reflects the penetration of underconsumptionism into Marxist economic writing itself. Because, as will be shown below, many Marxist writers have absorbed elements of underconsumptionism into their own work, it has been difficult for Marxists to arrive at an adequate definition of underconsumptionism and to carry through a thorough analysis of it. For instance, passages in Marx definitely tend in an underconsumptionist direction, and the whole theory of the immiserisation of the proletariat has obvious underconsumptionist implications. Thus, although in general (although not entirely) the Marxist tradition has been hostile to underconsumptionism, it has had difficulty in settling accounts with it. What is Underconsumptionism? 11 DEFINITIONS The phrase ‘underconsumptionism’ is quite current in the literature on the history of economic thought, of all shades, but actual definitions of it are virtually absent. I propose to use the following definition, which accords as closely as can be expected with the general use of the term: An underconsumption theory is a theory of the capitalist economy which contains both of the following two elements: 1) the idea that a state of depression is not just a phase of the industrial cycle or the result of a temporary conjunction of circumstances but is the state towards which the economy naturally tends in the absence of offsetting factors; 2) the idea that this is the result of a persistent tendency towards insufficiency of demand for consumption goods. Both elements are necessary. It is quite possible to have a stagnationist theory of the capitalist economy which does not single out lack of demand for consumption goods as the cause — Steindl’s Maturity and Stagnation in American Capitalism, for example, deduces a tendency to stagnation by developing a theory of the investment behaviour of firms in response to such factors as the rate of profit, degree of capacity utilisation, and the degree to which investment can be financed from internal funds.

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