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Malthus’ Theory of Gluts (Depressions)

Malthus’ Theory of Gluts (Depressions). Thomas Robert Malthus (1762-1834. Best known for his theory of population. Much less known is that Malthus was one of the first economists to address the phenomena of economic crises, which he referred to as gluts. . Historical Backdrop .

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Malthus’ Theory of Gluts (Depressions)

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  1. Malthus’ Theory of Gluts (Depressions)

  2. Thomas Robert Malthus (1762-1834 • Best known for his theory of population. • Much less known is that Malthus was one of the first economists to address the phenomena of economic crises, which he referred to as gluts.

  3. Historical Backdrop • The specific historical factor that Malthus was addressing was the depression following the Napoleonic wars beginning in 1820. • The depression lasted 7 years, and Ricardo admittedly had no clue as to its cause.

  4. Assumptions • Effective demand determines the level of output. • Effective demand = government spending + consumption spending (spending on consumption by landowners, capitalists, and workers) • Rejects Say's law: •  saving  consumption by capitalists  effective demand  output

  5. Assumptions (continued) • Land is fixed and differs in fertility • three classes: • landowners • capitalists • workers

  6. Short-run Implications: • The Corn Laws increase the price of agricultural products. This in turn makes profitable the cultivation of marginal (inferior) land. • This increases competition for more fertile lands, bidding up rents. •  rents  landowner spending  effective demand  output

  7. Policy recommendation: • Intervention. Keep the corn laws, thereby redistributing income to the landowners, increasing rents, and increasing spending. • landowners are the key to economic progress. • God has put the landowners here as the provider of culture and progress.

  8. Income distribution and production • Income distribution (relations in distribution) is a way to influence capital accumulation (and relations in production). • Relations in production and distribution are independent. • Distribution is used to influence production, but not the reveres.

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