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

134 Michael R. Montgomerymoney must itself be considered as a commodity. It must, undoubtedly, beadmitted that there cannot be an excess of all other commodities, and an excessof money at the same time.(1983 [1844]: 43)However, such a state of affairs should not be confused with a state of “generalsuperabundance” – meaning overproduction of goods in a strictly real sense, notinvolving a role for money. What is actually going on at these times is that:persons in general, at that particular time, from a general expectation of beingcalled upon to meet sudden demands, liked better to possess money than anyother commodity. Money, consequently, was in request, and all other commoditieswere in comparative disrepute. In extreme cases, money is collected inmasses, and hoarded; in the milder cases, people merely defer parting with theirmoney, or coming under any new engagements to part with it. But the result is,that all commodities fall in price, or become unsaleable.(1983 [1844]: 43)So Say’s Law must be qualified. Once money is recognized as a store of value aswell as a medium of exchange, it is possible for the demand for goods-in-general tobe less than (or, though Mill does not consider it, greater than) that which isrequired for full employment. There can be an excess supply of goods-in-general,the mirror-image of which is an excess demand for money. It is true, Mill states, that“this state can only be temporary . . . since those who have sold without buyingwill certainly buy at last” (1983 [1844]: 42). But he does not state – indeed, onemight say that he is careful not to state – how long a calendar period “temporary” islikely to be.Earlier in this paper, it was asserted that the Classical economists easily could beread as rejecting each of the three propositions often claimed to define Classicalmacroeconomic thought by leading macro-theorists like Stiglitz, Mankiw, andothers – the neutrality of money, Say’s Law, and wage/price flexibility. Let us nowsee how we stand with respect to this claim. (1) It is clear that the last great Classicaleconomist, J.S. Mill, saw clearly how money could be profoundly non-neutral dueto its function as a store of value during times of “crisis” (though only in a transitionalphase of indeterminate – not necessarily trivial – duration). And, (2) due to money’snon-neutral role, Say’s Law as understood by all Classical economists before Mill isincorrect unless money itself is considered a commodity – opening up the possibilityof a lack of demand for goods-in-general for considerable, though not indefinite,periods. Finally, as already argued above, (3) wage-price flexibility as the heart ofClassical doctrine is, arguably, a projection of modern beliefs onto the Classicalviewpoint and is, at the very least, an exaggeration of that viewpoint. And, wemight add, (3A): The notion that the Classicals thought economic downturnswould be necessarily short, also, does not survive close inspection.Yeager (1997b) has pointed out that the so-called “New Keynesians” are notKeynesian at all if words mean anything. It appears the same is true of the other