History of Economic Analysis part 31 doc

The discussion on the related problem of child labor was still less productive of
analytic performance. Children had always worked with their parents on the farm and,
under the system of domestic industry, in the home. The spread of factories merely
created new opportunities for the employment of children at a very early age in the
tending of simple machines and induced a new practice of binding out the children of
paupers to cotton manufacturers in order to reduce the poor rate. Those writers who were
impressed by the incidental horrors or by the obvious consequences for the health of the
race were few indeed The large majority accepted child labor, not only as a matter of
course but with approval—as a sound discipline and as a solution of many of the
worker’s problems. Some seventeenth-century writers hailed it as a boon to the masses
and seem to have considered the children’s earnings as a net addition to the family
income of workers, without taking account of the effects that the competition of the
children must produce on the wages of adults. This theory, which was held by
Yarranton,
8
qualifies well as an example of ideological distortion of vision. But it also
qualifies as an example of early economic reasoning that in spite of its crudity contained
an element of truth. If we choose to disregard everything except money income, then it is
likely that in the conditions of that time child labor did result in a gain to the working
class—though this gain was certainly less than the amount of the children’s earnings—
and did promote Yarranton’s ideal of cheapness and plenty. This attitude changed but
slowly in the eighteenth century, and humanitarian feelings had more to do with it than
had economic analysis. Many instances could be adduced of writers who mention full
employment of children at as early an age as possible—at six or even four years—with
unqualified satisfaction; or who at least accepted it unquestioningly as the normal state of
things.
9
Arthur Young’s estimates of the normal budget of a rural laborer’s family take it
for granted that the chief breadwinner could not have provided a minimum of existence
for his family without the earnings of his wife and children.
But fact-finding activity was in a much better situation, and its results constitute, in the

field of labor economics, the most important achievement of that epoch. The outstanding
performance was Eden’s,
10
which in scope and method has no equal in the English or any
other literature of the period. Of particular interest for us is the fact that the author,
although he disclaimed any intention beyond what fact-finding implies (he offers some
interesting discussions, nevertheless), was fully aware of the importance of his facts, not
only for the purpose of legislative and administrative practice but also for economic
analysis. He worked, as he said himself, as one of the ‘hewers of stone and drawers of
8
Andrew Yarranton (1616–84), England’s Improvement by Sea and Land (1677). Both the man
and the book we shall meet again in ch. 7. It is of some interest to note that in his advocacy of
extensive employment of children Yarranton pointed to German practice as an example to be
followed.
9
To quote at least one instance, in his Tour thro’…Great Britain (1724–7), vol. III, Daniel Defoe
noted that in some English villages through which he traveled there were no children to be seen—
inferring with pleasure that they were all at work as they should be. The same attitude is in
evidence in his Plan of the English Commerce (1728).
10
Sir Frederick Morton Eden (1766–1809), The State of the Poor: or an History of the Labouring
Classes in England from the Conquest to the Present Period; in which are particularly considered
their Domestic Economy…; and the various Plans which, from time to time, have been proposed
and adopted for the Relief of the Poor…(3 vols., 1797; abridged ed. by A.G.L.Rogers, 1928). The
price and wage data and the budget study in the third volume are particularly important.
History of economic analysis 262
water’ without whom ‘the edifice of political knowledge cannot be reared.’ It is of the
utmost importance to bear in mind, if the history of economics is to be understood, that,
though the greatest figure, he was not alone in that field. Davies’ collection of family
budgets of agricultural laborers and his careful analysis of his data were conceived in the

same spirit,
11
and so was Richard Burn’s History of the Poor Laws, 1764. Work of this
type paved the way toward the legislative developments of the nineteenth century.

11
David Davies, The Case of Labourers in Husbandry stated and considered, in three Parts: Part
I. A View of their Distressed Condition. Part II. The Principal Causes of their Growing Distress
and Number… Part III. Means of Relief Proposed. The budgets are given in the Appendix. The
work was (partially) published in 1795.
A few more titles of English books that are of some interest from either the factual or the analytic
standpoint may serve as pointers for the interested reader. Their choice must be understood,
however, to be the result of very unsystematic browsing: L.Lee, Remonstrance…touching the
Insupportable Miseries of the Poore of the Land (1644)—a scheme of re-employment by means of
semipublic workshops; Roger North, A Discourse of the Poor…(1753); Anon., Observations on the
Number and Misery of the Poor…(1765); Anon., Observations on the Present State of the Poor of
Sheffield…(1774); Anon. [R.Potter], Observations on the Poor Laws, on the Present State of the
Poor, and on Houses of Industry (1775). John Howlett’s (see above, sec. 1) interesting argument
concerning enclosures should be particularly noticed: Enquiry into the Influence which Enclosures
have had upon the Population of this Kingdom, 1786, and The Insufficiency of the Causes to which
the Increase of our Poor and of the Poor’s Rates have been Commonly Ascribed (1788).
Population, returns, wages, and employment 263
CHAPTER 6
Value and Money
1

1. REAL ANALYSIS AND MONETARY ANALYSIS
WE HAVE already touched upon this subject in Chapter 4 when discussing Quesnay’s
work. It is now time to go a little more deeply into it in order to visualize as clearly as we
can a doctrinal development that has acquired additional interest for the student of

modern economics owing to the fact that Monetary Analysis has once more conquered in
our own time. Let us first of all re-define the meaning of these two approaches.
Real Analysis
2
proceeds from the principle that all the essential phenomena of
economic life are capable of being described in terms of goods and services, of decisions
about them, and of relations between them. Money enters the picture only in the modest
role of a technical device that has been adopted in order to facilitate transactions. This
device can no doubt get out of order, and if it does it will indeed produce phenomena that
are specifically attributable to its modus operandi. But so long as it functions normally, it
does not affect the economic process, which behaves in the same way as it would in a
barter economy: this is essentially what the concept of Neutral Money implies. Thus,
money has been called a ‘garb’ or ‘veil’ of the things that really matter, both to
households or firms in their everyday practice and to the analyst who observes them. Not
only can it be discarded whenever we are analyzing the fundamental features of the
economic process but it must be discarded just as a veil must be drawn aside if we are to
see the face behind it. Accordingly, money prices must give way to the exchange ratios
between the commodities that are the really important thing ‘behind’ money prices;
1
[Although this chapter was apparently written rather early, it was unfinished and not typed at the
death of J.A.S. The manuscript pages were unnumbered and sometimes there were two or three
versions of the same page. This chapter was put together with the assistance of Arthur W.Marget.]
2
The phrase is not very felicitous. In particular, it invites confusion with another of the many
meanings of the word ‘real.’ Real Analysis stands for emphasis upon real in the sense of non-
monetary processes. But we commonly use the word ‘real’ for monetary quantities that have been
‘corrected’ for changes in some price level. For instance, we speak of real income when we mean
money income divided by a cost of living index. Such ‘corrected’ monetary quantities are,
however, still monetary quantities and are, along with uncorrected ones, used also in Monetary
Analysis. Therefore our distinction must not be identified with the distinction between analysis in

terms of dollars of constant purchasing power and analysis in terms of ‘current’ dollars. Moreover,
we are defining both Real and Monetary Analysis as pure types in order to convey an important
truth. In actual practice, neither type is ever pure. Hence the contrast between them is less sharp
than we are forced to make it. There are many midway houses. And neither Real nor Monetary
Analysis can ever get along without using concepts and arguments that strictly speaking belong to
the other. Sponsors of Real Analysis have often used a monetary capital concept; sponsors of
Monetary Analysis always use the essentially ‘real’ concept, Employment.
income formation must be looked upon as an exchange of, say, labor and physical means
of subsistence; saving and investment must be interpreted to mean saving of some real
factors of production and their conversion into real capital goods, such as buildings,
machines, raw materials; and, though ‘in the form of money,’ it is these physical capital
goods that are ‘really’ lent when an industrial borrower arranges for a loan. The
specifically monetary problems can then be treated separately, much as we treat many
other things separately, for example, insurance.
Monetary Analysis, in the first place, spells denial of the proposition that, with the
exception of what may be called monetary disorders, the element of money is of
secondary importance in the explanation of the economic process of reality. We need, in
fact, only observe the course of events during and after the California gold discoveries to
satisfy ourselves that these discoveries were responsible for a great deal more than a
change in the significance of the unit in which values are expressed. Nor have we any
difficulty in realizing—as did A.Smith—that the development of an efficient banking
system may make a lot of difference to the development of a country’s wealth. To some
extent, these and other things can be, and have been, recognized within the pale of Real
Analysis. We may even hold monetary theories of business cycles or of interest without
leaving its precincts. The reader should observe, however, that one cannot go very far on
this route without becoming aware of the fact that the monetary processes that account
for conspicuous ‘disturbances’ do not cease to act in even the most normal course of
economic life. We are thus led, step by step, to admit monetary elements into Real
Analysis and to doubt that money can ever be ‘neutral’ in any meaningful sense. In the
second place, then, Monetary Analysis introduces the element of money on the very

ground floor of our analytic structure and abandons the idea that all essential features of
economic life can be represented by a barter-economy model. Money prices, money
incomes, and saving and investment decisions bearing upon these money incomes, no
longer appear as expressions—sometimes convenient, sometimes misleading, but always
nonessential—of quantities of commodities and services and of exchange ratios between
them: they acquire a life and an importance of their own, and it has to be recognized that
essential features of the capitalist process may depend upon the ‘veil’ and that the ‘face
behind it’ is incomplete without it. It should be stated once for all that as a matter of fact
this is almost universally recognized by modern economists, at least in principle, and that,
taken in this sense, Monetary Analysis has established itself.
[(a) Relation of Monetary Analysis to Aggregative or Macroanalysis.]
Monetary Analysis, as usually understood, means more than this: in the third place, it
means in addition Aggregative Analysis or, as it is sometimes called, Macroanalysis,
3

that is to say, analysis that attempts to reduce the variables of the economic system to a
small number of social aggregates, such as total income, total consumption, total
investment, and the like. Quesnay’s tableau is the outstanding example for the alliance
between Monetary and Aggregative Analysis. The alliance is not a logical necessity but is
nevertheless close: it is possible, as we have put it, to introduce money on the ground
floor of general economic analysis without adopting the aggregative view. But monetary
3
This term is due to Professor Ragnar Frisch.
Value and money 265
aggregates are homogeneous, whereas most nonmonetary ones are but meaningless heaps
of hopelessly disparate things; and if we wish to work with a small number of variables,
we can hardly help resorting to monetary ones. And since this alliance with the
aggregative approach actually runs through the whole history of Monetary Analysis, we
shall henceforth restrict this term to analysis in terms of aggregates
4

—mainly, as we have
seen in our study of the tableau, streams of expenditure. It was pointed out there that
analysis of this type does not do away with real analysis, but only confines it to the
description of the behavior of individual households and individual firms. The point is, to
repeat, that the social totals that result from this behavior are then dealt with as such and
without referring back again, at every step, to the individual acts or decisions behind
them. For instance, investment as a social total is the algebraic sum of a great many
individual—positive or negative—investments. Monetary Analysis leaves the explanation
of these to the Theory of Individual Households and Firms, and concerns itself only with
that algebraic sum on the hypothesis that this is all that matters for the economic process
as a whole and that all the effects on the economic process as a whole that emanate from
the multitude of individual investment decisions are measured by their algebraic sum.
5
It
cannot be emphasized too strongly that Monetary Analysis that accepts this hypothesis is
not in as safe a position as is Monetary Analysis that does not. For it can be strictly
proved that this hypothesis is in general contrary to fact. For our purpose, it is, however,
sufficient to illustrate this by the example just mentioned. Suppose that, for any given
year, the investment decisions of all firms sum up to zero. It stands to reason that the
course of events to be expected from this will not depend solely on this fact but also on
the component individual decisions: the effect will be different, for instance, if all firms
have actually decided to invest nothing, that is, to leave their capital commitments
unchanged, from what it would be if some of them had decided to make positive

4
Some readers may welcome illustration from the leading system of Monetary Analysis of today,
the Keynesian system. Readers entirely unfamiliar with the latter are requested to neglect this note.
The chief variables of that system are quantity of money (sum total of cash balances demanded and
supplied), national income, con-sumption, and investment, all measured either in money or in
wage-units (the money wage of an ideal unit of labor). To these monetary aggregates correspond

equal aggregative ‘schedules’ that embody assumptions about the behavior of households and firms
in the aggregate: the schedule of marginal propensity to consume, the schedule of liquidity
preference, and the schedule of marginal efficiency of capital (see below, Part V, ch. 5). Individual
prices do not enter explicitly, apart from the rate of interest. It will be observed, however, that,
though rate of interest is not an aggregative quantity, it fits well into a system of aggregative
quantities because, unlike any other individual price, it can be readily put into a meaningful relation
to them: a relation between the price of wheat and total investment does not, in general, make
sense; but the relation between the interest rate and sum total of net investment does. We must
hence extend our idea of aggregative variables so as to cover any nonaggregative ones that may
have to be introduced into an aggregative system. The wage rate is the most important other
instance.
5
This point of view has been formulated by Joan Robinson, with unsurpassable energy and
brilliance, in ‘The Theory of Money and the Analysis of Output,’ Review of Economic Studies,
October 1933. From the standpoint defined in the text, the ‘theory of money’—what we call
Monetary Analysis—in fact becomes identical with the theory of social aggregates and, ultimately,
of total output in terms of the monetary values of consumption and investment.
History of economic analysis 266
investments while others had decided to reduce their capital commitments by the same
amounts. Moreover, effects—on the economic process as a whole—will differ according
to the ‘real’ nature of the investments of the individual concerns and, in particular,
according to whether these investments are complementary to, or competitive with, each
other. It is true that, so far as the immediate effects of firms’ expenditure as such are
concerned, our algebraic sum still tells us something. This is precisely why Monetary
Analysis is not valueless. But it is not more than a part of the theory of the economic
process as a whole and becomes seriously misleading if applied alone.
6

[(b) Monetary Analysis and Views on Spending and Saving.]
In the fourth place, as we have also seen in the case of Quesnay, Monetary Analysis is

associated, not by logical necessity but nevertheless closely, with a characteristic set of
views about Spending and Saving and, in connection with these, about monetary and
fiscal policy. In fact, so soon as we see the economic process—primarily or
exclusively—as a system of streams of expenditures, we shall be tempted to expect all
sorts of disturbances from any obstruction to the even flow of these streams and, vice
versa, to attribute any disturbance we observe in the economic process to such
obstructions—as at least its proximate cause. The way in which households and firms
handle their money and react to monetary magnitudes will thus acquire importance
independently of the commodity aspect of their actions. In particular, we may be led to
attach more importance to people’s ‘making full use of the income they receive from
firms,’ that is, to their spending it promptly on products of these firms than to the
commodities they acquire in so doing and the prices at which they acquire them. By the
same token, we may be led to identify Saving with obstruction to that flow of expenditure
and, in the limiting case, to see it in the role of economic Disturber General. Thus,
Monetary Analysis not only qualifies well as a tool for economists who are ‘spenders’
and ‘anti-savers’ independently of any theory but also tends to produce in the minds of its
votaries the ‘spending’ and ‘anti-saving’ attitude by focusing attention on the process of
the generation of monetary income behind which everything else disappears from sight.
Having cleared the ground, we must now follow the fortunes of Real and
6
In partial recognition of this, modern votaries of Monetary Analysis, and in particular its leading
exponent, Lord Keynes, frequently introduce a most significant restriction: they assume the
organization and technique of production and the capital equipment as given (in the short run), thus
reducing the problem before them to the question what determines (in the short run) the degree of
utilization of a given industrial apparatus; and, in further simplification, they identify this greater or
smaller degree of utilization with greater or smaller employment of labor so that increase or
decrease of industrial investment simply means a greater or smaller wage bill. It is easy to see that,
in this special case, plus and minus investments are much more nearly compensatory in their effects
than they are in the general case and that hence their algebraic sum comes much nearer to
expressing adequately this total effect on the economic process. But the reader should observe (a)

that the restrictive assumption in question excludes the very essence of capitalist reality, all the
phenomena and problems of which—including the short-run phenomena and problems—hinge
upon the incessant creation of new and novel capital equipment, and (b) that, because of this, a
model framed upon this restrictive assumption has next to no application to questions of practical
diagnosis, prognosis, and, above all, economic policy unless reinforced by extraneous
considerations.
Value and money 267
Monetary Analysis during the epoch under consideration. Let us face at once the chief
difficulty of this task. It arises from the circumstance that we meet the ideas underlying,
or associated with, Monetary Analysis, as it were, on two levels—on a prescientific and
on a scientific one. Ever since wages began to be paid in money, every servant girl has
felt that all would be well if only her employers spent their money freely enough; and
ever since trading began to mean taking in money, every trader has felt that he would be
able to sell whatever it was he wished to sell, if only there were money enough or if the
people who had it could only be persuaded to part with it. With exceptions that prove the
rule—in nineteenth-century Europe they almost ousted the rule—this is and always has
been a major item of the economics of the man in the street who never really believed in
the gospel of thrift even when he paid lip service to it. The first thing that analytic effort
does is to dispel some of these ‘monetary illusions.’ But other analytic efforts keep on
creating and re-creating a Monetary Analysis on a scientific level which is sometimes just
as successful in its attacks upon Real Analysis as the latter has been in its attacks upon
those ‘popular prejudices.’ These two levels, however, are not unconnected, and this is
where the historian’s trouble comes in. On the one hand, popular sentiments about money
and spending proved invincible. They always survived and always manifested themselves
in a literary current that ran sometimes outside and sometimes inside of ‘recognized’
economics. And they always lent powerful support to attempts to establish Monetary
Analysis on the scientific level: just as the popular success of socialist arguments forged
by trained economists is not due to their scientific merits but to the fact that they fall in
with cravings of the human heart that defy rational formulation, so the popular successes
of scientific Monetary Analysis cannot be explained without taking into account the fact

that its arguments fall in with extra-rational sentiments and therefore are likely,
particularly in times of stress, to be greeted with many a sigh of relief.
7

The most effective propositions of scientific Monetary Analysis are, in fact, those in
which the public is able to discover a pointer toward the easy way out of difficulties and
which bear a family likeness to what growling professionals call popular errors. On the
other hand, these popular prejudices, like others, contain elements of scientifically
provable truth so that association with them does not constitute a prima facie case for
rejecting scientific Monetary Analysis. However, the exponents of Real Analysis thought
that it did: not only did they neglect those elements of truth, to the disadvantage of their
own teaching, but they also used the opportunity in order to represent the results of
Monetary Analysis simply as new versions of what indubitably were popular fallacies.
Later on, whenever they were in a position to do so, the votaries of Monetary Analysis
retaliated in kind, the more zealously so because, in part, they actually did serve up
exploded error in new dressing. No indictment of subjective honesty is intended. Such
mix-ups will, however, arise as long as economists continue to analyze with an eye on
practical programs they wish to recommend or to combat, as most of them did and do.
For any effort of this kind will inevitably partake of the characteristics of political
warfare in which the most primitive tactical wisdom precludes any admission to the
effect that there may be something in the opponent’s standpoint—with the result, in the
case in hand, that both ‘real’ and
7
The case of the United States illustrates all this to perfection.
History of economic analysis 268
‘monetary’ analysts invariably overbid their hands. But in order to complete the analogy,
it is necessary to add that they also committed all sorts of mistakes in playing them.
However, we shall now try, so far as seems possible, to straighten out the tangle, first, by
visualizing some broad contours of doctrinal development and, second, by mentioning a
few representative names.

The history of economic analysis begins with Real Analysis in possession of the field.
Aristotle and the scholastic doctors all adhered to it. This is perfectly understandable,
since there was nothing to face them except the pre-analytic sentiments of the public. But,
as we know, there is an important qualification to be made: they offered monetary
explanations for the phenomenon of interest. Very roughly, this state of things prevailed
until the beginning of the seventeenth century. Again, the history of economic analysis in
the period under survey ends with a victory of Real Analysis that was so complete as to
put Monetary Analysis practically out of court for well over a century, though one or two
efforts were made on its behalf in the court of scientific economics, and though it
continued to lead a lingering life outside of that court, in an ‘underworld’ of its own.
8

This victory is also understandable. It was, of course, greatly facilitated by vivid
memories of monetary troubles—medieval and more recent ones—of spectacular
mismanagement of banking methods—John Law’s doings (see below,sec. 5) were still in
everybody’s mind—and by the antagonism to ‘mercantilist’ teachings. But powerful
though they were, these factors
9
should not be overemphasized to the point of making us
forget that Real Analysis was also the result of analytic advance and instrumental in
bringing about further advance.
[(c) Interlude of Monetary Analysis (1600–1760): Becher, Boisguillebert,
and Quesnay.]
But between, say, 1600 and 1760, there was an important interlude of Monetary
Analysis. The businessmen, civil servants, and politicians, who then took up their pens,
attended to the monetary aspects of their troubles as a matter of course. They would as
soon have doubted that they got wet when it rained as that more money spelled more
profit and more employment, or that high prices were a boon, or that high interest was
8
The men who stand out from the conquering host are Turgot and A.Smith, who were to find, in

the subsequent period, the ally who completed the conquest, J.B. Say. Lord Keynes (from whom I
have borrowed the word ‘underworld’ that expresses so well the status of Monetary Analysis
during the nineteenth century) dates the victory of Real Analysis from the controversy between
Ricardo and Malthus (General Theory, p. 32). This is not correct, but there is truth in his statement
that the views on policy associated with Real Analysis ‘conquered England [and the rest of the
world, J.A.S.] as completely as the Holy Inquisition conquered Spain.’ In fact, anything savoring of
Monetary-Analysis ideas was disapproved of, not only as erroneous but also as not quite all right
morally: it was—and, needless to say, not always without reason—associated with advocacy of
dilettantic and frivolous policies and, especially in the United States, with sponsorship of loose
banking practice and the silver interest.
9
They are good examples of ideological influence if we define ideologies in a sense that is both
broader and more useful than the Marxist one. Any obsession that limits our range of vision and
enslaves our thought then comes within that concept. And the idea, e.g. that nothing that writers
tinged with ‘mercantilism’ had ever written could be true and that anything that we should call
inflationism must be rought at any price, may well be called an obsession.
Value and money 269
just a nuisance. But though this literature unmistakably took off from the preanalytic
level of Monetary Analysis and never quite lost contact with the servant girl’s economics,
it did not stay there but eventually produced, barring technique, practically everything
that has come to the fore again during the thirties of this century. Deferring consideration
of the specifically ‘mercantilist’ tenets and, for the moment, also of all other matters, we
shall now notice the emergence of Monetary Analysis in its most significant sense, that
is, in the sense of a theory of the economic process in terms of expenditure flows. Though
Quesnay’s example suffices to show that, in strict logic, it has nothing to do with
protectionism, the first document that presents such a theory with a clearness that is
beyond the possibility of doubt was a strongly ‘mercantilist’ tract, Becher’s Politische
Discurs (1668).
10
This tract contains the rudiments of an analytic schema that turns upon

people’s expenditure on consumption—the prime mover or, as Becher said, the ‘soul’ of
economic life. In itself the observation that one man’s expenditure is another man’s
income—or that consumers’ expenditure generates income—is as old as it is trivial. But
it can be turned into a principle of analysis—the principle that Quesnay, a century later,
was to embody in his tableau—just as can the old and trivial observation that a body at
rest remains at rest unless some external force acts on it. We shall call it Becher’s
Principle, because he seems to have been the first to realize its theoretical possibilities.
He did little to develop any system of Monetary Analysis and, of course, left plenty for
Lord Keynes to do.
11
But so far as rec-ommendations may be trusted at all to reveal an
author’s analytic schema, there is practically complete concordance between the two
(excepting their views on population),
12
among other things, in the matter of domestic
investment.
10
Politischer Discurs von den eigentlichen Ursachen dess Auff—und Abnehmens der Städt, Länder,
und Republicken, in specie, wie ein Land folckreich und nahrhafft zu machen und in eine rechte
Societatem civilem zu bringen (i.e. how to make a country rich and populous and to develop it into
a real society). Johann Joachim Becher (1635–82) was something of an adventurer. Professionally a
physician and a chemist, he came to Vienna brimming over with plans and projects, and there
played a certain role until he had to flee from his creditors. But his vigor and originality were
universally recognized even by men like Leibniz and Stahl.
11
Lord Keynes (General Theory, ch. 23) is not only generous but overgenerous in his recognition
of the ‘mercantilist’ contribution. While this is admirable from a moral or aesthetic standpoint and
appropriate in a man who cares more for the cause he espouses than for his own claims to
originality, it is apt to convey a somewhat misleading picture and to obscure the amount of
preanalytic wisdom and error that went into those works. Becher he does not mention. Instead he

mentions W.von Schröder (1640–88; main work: Fürstliche Schatz- und Rentkammer, 1686), a less
important especially less original, contemporary of Becher, who seems to have been influenced
both by the latter and by Thomas Mun.
12
Becher’s posthumous fame has been fostered by the eulogies of many German historians.
Following the lead of Roscher (Geschichte der Nationalökonomik in Deutschland, 1874, p. 270),
they have kept on listing a number of more or less interesting points in Becher’s teaching, for
instance, his concept of three market configurations of which he strongly disapproved,
monopolium, propolium (forestalling), and polypolium (perfect competition). But there is not much
in this. His lack of enthusiasm for perfect competition and his almost Keynesian dislike of laissez-
faire will no doubt be judged more favorably now than it was in the nineteenth century, but it is
likely that his analytic grasp was below rather than above the free-competition argument of a later
time.

History of economic analysis 270
It is not surprising that Becher found successors in Germany. The German Consultant
Administrators were far indeed from understanding the analytic importance of his
principle. But Monetary Analysis, in the sense defined, works with concepts which,
though actually very abstract and indeed unrealistic, carry a surface meaning that is
perfectly familiar to everyone. This surface meaning they absorbed readily because it
fitted in excellently with the rest of their thought—so much so that it is not even
necessary to assume dependence. Many of their diagnoses and recommendations may in
fact be co-ordinated and rationalized with reference to Becher’s Principle. Thus, many of
them believed in the pivotal importance of high-level mass consumption or, to put the
same thing into their normative way of expressing themselves, in measures that would
stimulate mass consumption. For some of them, Justi for example, this was the main
reason for putting so much emphasis on increase in population—as a means of expanding
demand—rather than the other way round. Becher himself perceived the interaction of
the two. His principle was of course relevant, as it is today, to the appraisal of the effects
of high prices, saving, and luxury.

In England, neither Becher’s Principle nor anything closely related to it was, so far as I
know, explicitly formulated. All the more often was it implied. For instance, Potter’s
argument (1650) to the effect that an increase in the supply of money will increase the
rate of spending and production proportionately points in this direction, and so does the
analogous though more guarded argument of Law (1705).
13
The French literature offers,
among others, the most noteworthy example of all—Boisguillebert’s (Dissertation sur la
nature des richesses, see ch. 4 above), which is the more interesting because, like
Quesnay, he was in principle a free trader and laissez-faire advocate. He did not invoke
state management to secure the steady flow of monetary values (expenditures), but on the
contrary pointed to the state-made impediments to it: the export duties, the internal
barriers to trade, regulative interference with agriculture and manufactures, the vicious
operations of the most important direct tax, the taille—all of which desolated the
countryside and impoverished the towns because they restricted consumers’ expenditure.
Also, while we look upon the wage earners as the most dependable spenders,
Boisguillebert, in the social pattern of his time, assigned this role to the landowners. But
these differences serve only to emphasize the fundamental similarity both of his theory
and his outlook upon practical problems with those of our own time. Consumers’
expenditure was the active principle of economic life. Equilibrium was an equilibrium of
reciprocal demand, in terms of money, of all groups for the products or services of all
other groups; it would realize itself if and only if every seller promptly became a buyer.
14

Anything that interfered with prompt expenditure on consumers’ goods would induce a
fall in prices, hence a fall in incomes, then in turn another fall in consumers’ expenditure,
and thus result in cumulative deflation.

13
On Potter and Law, see below, sec. 2 and 5.

14
This involves the concept of aggregate demand, in terms of money, for output as a whole and
may hence be said to anticipate the Malthusian (and Keynesian) concept of aggregate demand
which will be discussed on a later occasion. It has been observed already that, almost a century
after Boisguillebert, essentially the same idea was sponsored by G.Ortes (see above, ch. 3, sec. 4d):
to say that total consumers’ demand is the limiting principle of production (employment) comes to
the same thing as saying that it is the active principle of production.

Value and money 271