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Answer to Question #4055 in Other Economics for Bibekananda Sahu

Question #4055
What the theory of gults in economics?
Expert's answer
Thomas Robert Malthus (1762-1834) is best known for his theory of population. Much less known is that Malthus was one of
the first economists to address the phenomena of economic crises, which he
referred to as gluts.
Like Smith and Ricardo, Malthus concerned himself with the causes of wealth and poverty. In
contrast to Ricardo, Malthus believed that gluts result from a decline in
profits owing to insufficient demand. In turn, insufficient demand is caused by
a disproportion in the distribution of income. In Malthus' view, saving by
capitalists reduces demand; consumption by landlords increases demand. Hence, a
redistribution of income from landlords to capitalists could precipitate a
crisis.
Like Ricardo, Malthus finds the key to the accumulation of capital in the
distribution of income. In order to eliminate gluts and promote economic growth
Malthus advocates redistributing income to the rentierand increasing government spending. To paraphrase Marx, Malthus believed that the capitalists
produce more than they consume so that landlords can consume more than they
produce. Not surprisingly, J. M. Keynes considered Malthus' ideas "more likely
to lead to right conclusions than the alternative approach of Ricardo. But it
was Ricardo's more fascinating intellectual construction which was victorious,
and Ricardo who, by turning his back so completely on Malthus' ideas,
constrained the subject for a full hundred years in an artificial groove."
The specific historical factor that Malthus was addressing was the depression following the
Napoleonic wars beginning in 1820. The depression lasted 7 years, and Ricardo
admittedly had no clue as to its cause.
Assumptions Effective demand determines the level of output. Effective demand = government spending + consumption spending (spending on consumption by
landowners, capitalists, and workers
Rejects Say's law: Ý saving Þ ß consumption by capitalists Þ ß effective demand Þ ß output Land is fixed and differs in fertility three classes

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