Editing Underconsumption (section)

== History ==

=== 16th century through 18th century – mercantilism ===
Underconsumption theory dates to the earlier economic theory of mercantilism, and an early history of underconsumptionism is given in ''Mercantilism'' by [[Eli Heckscher]]<ref>Volume II. Cited and discussed by [[John Maynard Keynes]] in ''[[The General Theory]],'' [http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch23.htm#vii Chapter 23. Notes on Mercantilism, The Usury Laws, Stamped Money and Theories of Under-Consumption, section VII]</ref> Underconsumption was a small part of mercantilist theory, in Heckscher's view, but was discussed by a number of authors.

The earliest reference given was to [[Barthélemy de Laffemas]], who in 1598 in ''The Treasures and riches to put the State in splendor'' "denounced the objectors to the use of French silks on the ground that all purchasers of French luxury goods created a livelihood for the poor, whereas the miser caused them to die in distress,"<ref>Keynes's wording.</ref> an early form of the paradox of thrift. A number of other 17th century authors, English, German, and French, stated similar sentiments, which Heckscher summarizes as:
:"the deep-rooted belief in the utility of luxury and the evil of thrift. Thrift, in fact, was regarded as the cause of unemployment, and for two reasons: in the first place, because real income was believed to diminish by the amount of money which did not enter into exchange, and secondly, because saving was believed to withdraw money from circulation."<ref>Heckscher, vol ii, p. 208, cited by Keynes.</ref>

''[[The Fable of The Bees]]'' by [[Bernard Mandeville]], of 1714, was credited by Keynes as the most popular exposition of underconsumptionism of its time, but it caused such an uproar, being seen as an attack against Christian virtues, specifically attacking [[Temperance (virtue)|temperance]], that underconsumptionism was not mentioned in "respectable circles" for another century, until it was raised in the later Malthus.<ref>Keynes.</ref>

=== 19th century ===
Malthus devoted a chapter of ''Principles'' (1836) to underconsumption theory, which was rebutted by [[David Ricardo]], in his ''Notes on Malthus,'' and which debate continued in private correspondence.<ref>Maclachlan, Fiona C. (Fiona Cameron), [http://muse.jhu.edu/login?uri=/journals/history_of_political_economy/v031/31.3maclachlan.html The Ricardo-Malthus Debate on Underconsumption: A Case Study in Economic Conversation] {{Webarchive|url=https://web.archive.org/web/20160304091539/http://muse.jhu.edu/login?uri=%2Fjournals%2Fhistory_of_political_economy%2Fv031%2F31.3maclachlan.html |date=2016-03-04 }}, History of Political Economy - Volume 31, Number 3, Fall 1999, pp. 563-574.</ref>

Malthus was credited by Keynes as a predecessor for his views on [[effective demand]]<ref>Keynes, Essays in Biography, 1933, p. 103.</ref> and, other than Malthus, Keynes did not credit the existence of other proponents of underconsumption, stating instead that Ricardo "conquered" English economics.<ref>Keynes, General Theory, 1936, p. 32.</ref> This is now understood to be false – other British proponents of underconsumption are now well-established, but, as Keynes demonstrated, they were poorly documented, and by the 1930s not well-known. Further, they did not form a unified school, but rather related heterodox ideas.<ref>{{Cite journal| doi = 10.2307/2229348| journal = The Economic Journal| year = 1967| volume = 77| jstor = 2229348| issue = 305| title = Parson Malthus, the General and the Captain | first = R. D. C.| last1 = Black| pages = 59–74}}</ref>

The [[Birmingham School (economics)|Birmingham School]] of economists argued an underconsumptionist theory from 1815,<ref>{{Cite journal|last=Checkland|first=S. G.|title=The Birmingham Economists, 1815-1850|journal=The Economic History Review|volume=1|issue=1|year=1948|publisher=Blackwell Publishing on behalf of the Economic History Society|jstor=2590000|pages=1–19|doi=10.2307/2590000}}</ref> and some of the writings of the school's leading member [[Thomas Attwood (economist)|Thomas Attwood]] contained formulations of the [[multiplier (economics)|multiplier]] effect and an [[income-expenditure model]].<ref>{{Cite book|last=Glasner|first=David|year=1997|contribution=Attwood, Thomas (1783-1856)|contribution-url=https://books.google.com/books?id=e1ZEPd_pQnoC&pg=PA22|editor-last=Glasner|editor-first=David|title=Business Cycles and Depressions: An Encyclopedia|publisher=Taylor & Francis|page=22|isbn=0-8240-0944-4|url=https://books.google.com/books?id=e1ZEPd_pQnoC|access-date=2009-06-15}}</ref>

In continental Europe, [[Jean Charles Léonard de Sismondi]] proposed underconsumption and overproduction as causes of the [[economic cycle]], in his ''Nouveaux Principes d'économie politique'' (1819), in one of the earliest systematic treatments of economic cycles. Properly, Sismondi discussed periodic [[economic crisis|economic ''crises'']], while the notion of a ''cycle'' was devised by [[Charles Dunoyer]] in his reconciliation of Sismondi's work with classical economics.

The [[multiplier (economics)|multiplier]] dates to work in the 1890s by the Australian economist Alfred De Lissa, the Danish politician [[Julius Wulff]], and the German-American economist [[Nicholas Johannsen]],<ref>[https://archive.org/details/originsofkeynes00dima/page/117 The origins of the Keynesian revolution], by Robert William Dimand, [https://archive.org/details/originsofkeynes00dima/page/117 p. 117]</ref><ref>Johannsen is cited in a footnote in: {{Cite book|title=[[A Treatise on Money]]|last=Keynes|first=John Maynard|date=1930|pages=90|author-link=John Maynard Keynes}}</ref> Nicholas Johannsen also proposed a theory of effective demand in the 1890s.

The [[paradox of thrift]] was stated in 1892 by [[J. M. Robertson|John M. Robertson]] in his ''The Fallacy of Savings,'' and similar sentiments date to antiquity,<ref name="neglect">{{cite journal
|title=A Neglected Early Statement the Paradox of Thrift
|first1=Robert T.
|last1=Nash
|first2=William P.
|last2=Gramm
|journal=History of Political Economy
|year=1969
|volume=1
|issue=2
|pages=395–400
|url=http://hope.dukejournals.org/cgi/pdf_extract/1/2/395
|doi=10.1215/00182702-1-2-395
|url-access=subscription
}}</ref><ref>{{cite book
|first=John M.
|last=Robertson
|author-link=J. M. Robertson
|title=The Fallacy of Saving
|year=1892
|url=https://archive.org/stream/fallacyofsavings00robe/fallacyofsavings00robe_djvu.txt
}}</ref> in addition to the mercantilist statements cited above:
{{Blockquote|There is that scattereth, and yet increaseth; and there is that withholdeth more than is meet, but it tendeth to poverty.<br/>
The liberal soul shall be made fat: and he that watereth shall be watered also himself.
|[[s:Bible (King James)/Proverbs#11:24|Proverbs 11:24–25]]}}

=== 20th century – pre-Keynes ===
An underconsumption theory of the economic cycle was given by [[John A. Hobson]] in his ''Industrial System'' (1910).<ref>{{Cite web |url=http://homepage.newschool.edu/het//essays/cycle/underconsumption.htm |title=Underconsumption Theories |access-date=2009-07-27 |archive-url=https://web.archive.org/web/20090821142216/http://homepage.newschool.edu/het/essays/cycle/underconsumption.htm |archive-date=2009-08-21 |url-status=dead }}</ref>

[[William Trufant Foster]] and [[Waddill Catchings]] developed a theory of underconsumption in the 1920s that became highly influential among policy makers. The argument was that governmental intervention, especially spending on public works programs, was essential to restore the balance between production and consumption.  The theory strongly influenced [[Herbert Hoover]] and [[Franklin D. Roosevelt]] to engage in massive public works projects.

=== Legacy ===
Today these ideas, regardless of provenance, are grouped in academia under the rubric of "Keynesian economics", due to Keynes's role in consolidating, elaborating, and popularizing them. Keynes himself specifically discussed underconsumption (which he wrote "under-consumption") in ''[[The General Theory of Employment, Interest and Money]]''.<ref>In [http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch22.htm#iv Chapter 22, Section IV],
and [http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch22.htm#vii Chapter 23, Section VII]</ref><ref>As discussed in Keynes, ''The General Theory,'' Chapter 23.</ref>