Money and Markets: Essays in Honor of Leland B. Yeager

The genesis of an idea 133value. His attempt to do so was published as “On the Influence of Consumption onProduction,” in his Essays on Some Unsettled Questions in Political Economy, a volumepublished in 1844, but in fact written in 1829–30 (Hazlitt 1983: 23). Mill thought hewas just making some second-order fine-tunings to the Classical framework. Whathe was really doing was inventing monetary disequilibrium theory, and, as a byproductat the same time, modern macroeconomics.Early in his essay, Mill states its purpose as a kind of mopping-up exercise, “ofseeing that no scattered particles of important truth are buried and lost in the ruinsof exploded error” (1983 [1844]: 26–7). Accordingly, later in the essay, immediatelyafter explaining how a “general delusion” can bring about a commercialcrisis, Mill notes that in this case “it is commonly said that there is a general superabundance”(p. 40), and that he will show the difference between a “crisis” andgeneral overproduction. After a standard restatement of Say’s Law (“whoeveroffers a commodity for sale, desires to obtain a commodity in exchange for it, and istherefore a buyer by the mere fact of his being a seller” (p. 41)), Mill makes themomentous concession that earlier Classical writers had sought to avoid:This argument is evidently founded on the supposition of a state of barter; and,on that supposition, it is perfectly incontestable. When two persons perform anact of barter, each . . . cannot sell without buying. . . . If, however, we supposethat money is used, these propositions cease to be exactly true. It must be admittedthat no person desires money for its own sake, (unless some very rare cases ofmisers be an exception,) and that he who sells his commodity, receiving moneyin exchange, does so with the intention of buying with that same money someother commodity. Interchange by means of money is therefore, as has beenoften observed, ultimately nothing but barter. But there is this difference – that in thecase of barter, the selling and the buying are simultaneously confounded in one operation; yousell what you have, and buy what you want, by one indivisible act, and youcannot do the one without doing the other. Now the effect of the employment ofmoney, and even the utility of it, is, that it enables this one act of interchange to bedivided into two separate acts or operations; one of which may be performednow, and the other a year hence, or whenever it shall be most convenient.Although he who sells, really sells only to buy, he needs not buy at the samemoment when he sells; and he does not therefore necessarily add to the immediatedemand for one commodity when he adds to the supply of another. The buyingand selling being now separated, it may very well occur, that there may be, atsome given time, a very general inclination to sell with as little delay as possible,accompanied with an equally general inclination to defer all purchases as longas possible.(1983 [1844]: 41–2, italics added)Therefore, he concludes,In order to render the argument for the impossibility of an excess of allcommodities applicable to the case in which a circulating medium is employed,