Applied Economics

Malthus’s support for public works in circumstances of depression illustrates well his appreciation of the complexity of applied economics. An aspect of the problem is encountered in the 1817 Essay on Population where Malthus points out the dilemma that should a problem of long-term excess labour supply exist, public works might complicate the solution, for in

no conceivable case can the forced employment of the poor, though managed in the most judicious manner, have any direct tendency to proportion more accurately the supply of labour to the natural demand for it. And without great care and caution it is obvious that it may have a pernicious effect of an opposite kind (Malthus 1817, volume III: 273).

The recommendation to finance public works from tax revenues provides a second instance. Malthus excluded borrowing, having in mind the legacy of the war in producing an unprecedented National Debt and concerned that taxation required to finance the debt, ‘if pushed to any considerable extent, can hardly fail of interfering with the powers of production’ (Malthus 1820: 484, 1836: 411). Furthermore, a large debt aggravated ‘the evils arising from changes in the value of money’, rising prices unfairly reducing the real purchasing power of annuitants, and falling prices increasing the real burden of taxation to fund the debt on producers (ibid.: 1820: 484-485, 1836: 412). Notwithstanding, on balance the least objectionable alternative in the post-war emergency circumstances was an immediate increase in taxation to finance the proposed public expenditures. But what was allowed in emergencies did not justify a policy ‘of raising the supplies of a long and expensive war within the year’—that is, by taxation—and this because (as had occurred in 1815 on Malthus’s reading), upon the ‘restoration’ of taxes, there would result a ‘stagnation’ accompanied by ‘general distress’ due to a failure of consumer spending to compensate for reduced government spending (ibid.: 1820: 503, 1836: 423). (Recall the concern with excessive ‘saving’ in depression, referring in this context to hoarding, not real investment.) In brief: ‘The evil occasioned by imposing a tax is very rarely compensated by the taking it off, from which Malthus inferred conservatively

that taxes should never be imposed, nor to a greater extent, than the necessity of the case justifies, and particularly that every effort should be made, consistently with national honour and security, to prevent a scale of expenditure so great that it cannot proceed without ruin, and cannot be stopped without distress (ibid.: 1820: 519, 1836: 435).

The moral arising from all this relates to the problem of correcting faulty policy: ‘To state these facts is not to favour taxes, but to give one of the strongest reasons against them; namely, that they are not only a great evil on their first imposition, but that the attempt to get rid of them afterwards, is often attended by great suffering’, alluding we have argued to hoarding (ibid.: 1820: 521, 1836: 437). The same sort of problem applied to proposals to pay off the National Debt, Malthus raising the question

whether the evils attendant on the national debt are not more than counterbalanced by the distribution of property and increase of the middle classes, which it must necessarily create; and whether by saving, in order to pay it off, we are not submitting to a painful sacrifice, which, if it attains its object, whatever other good it may effect, will leave us with a much less favourable distribution of wealth? By greatly reducing the national debt, if we are able to accomplish it, we may place ourselves in a more safe position...; but grievously will those be disappointed who think that, either by greatly reducing or at once destroying it, we can enrich ourselves, and employ all our labouring classes (ibid.: 1820: 507, 1836: 426-427).

These complexities regarding policy are closely related to that of defining ‘optima’—the problem of ‘proportions’—well illustrated by the advantage to be derived from saving from the perspective of sustainable growth. For while growth certainly hinged on new investment, ‘the principle of saving, pushed to excess, would destroy the motive to production’ (ibid.: 1820: 8, 1836: 6). Unfortunately, the ‘intermediate point.taking into consideration both the power to produce and the will to consume [where] the encouragement to the increase of wealth is the greatest’ (ibid.) was not easily definable. In fact, ‘the resources of political economy may not be able to ascertain it’ (ibid.: 1820: 9, 1836: 7). Yet more strongly: ‘What the proportion is between the productive and unproductive classes of a society [1836: the productive labourers and those engaged in personal services], which affords the greatest encouragement to the continued increase of wealth.. .the resources of political economy are unequal to determine’ (ibid.: 1820: 464, 1836: 399). The ideal distribution of property was similarly illusive: ‘There is here a point.though we may not know how to place it, where the division of property is best suited to the actual circumstances of the society, and calculated to give the best stimulus to production and to the increase of wealth and population’ (ibid.: 1820: 9-10, 1836: 7-8).

Malthus considered applied economics very much as an art—Keynes stressed the ‘intuitive’ dimension—heavily reliant on the appreciation of theoretical principles and on empirical circumstance. His procedure militates against the tendency towards universalist policy proposals based on doctrinal, even ideological, positions. Malthus’s original support of the Corn Laws provides a striking instance, for we have shown it to reflect not a defence of the ‘class interests’ of landowners, but a perception of the ‘national interest’ requiring modification with the disintegration of the old ‘Commercial System’ and in the light of the actual experience of industrial buoyancy.