Your Money or Your Life!

176/YOUR MONEY OR YOUR LIFE!

Jean-Baptiste Say

In 1803, Say described a law whereby the role of money Is neutral In
the economy and 'supply creates Its own demand'. Therefore, no
crisis of overproduction Is possible In a free market economy.
Say's law Is a key reference for liberal (and neo-llberal) economists.
Yet It was proved wrong by events In Say's time, a point that has been
raised by a wide range of economists going from Malthus (1820,
Principles of Political Economy Considered According to their Practical
Application) to Slsmondl (1819, Nouveaux principes d'economie
politique ou de la richesse dans ses rapports avec lapopulatiori) and Marx.

David Ricardo

In Rlcardo's theory of competitive advantages (Ricardo, 1817,
chapter 7), he critically takes and enhances Smith's stance In favour
of free trade and an International division of labour. For Ricardo, a
country does well to specialise In those areas of production whose
relative costs are lowest - In other words, those areas where It has the
greatest comparative advantage. Unlike Smith, he goes on to say that
countries that have competitive advantages In all areas of production
should none the less specialise.

In a well-known example, Ricardo shows that If Portugal Is more

efficient than England In the production of both wine and fabric, It

should still abandon the latter If Its price advantage In wine

production Is greater. Inversely, England should specialise In the

production of fabric, where Its handicap Is the least great. (Adda,

1996;Montes, 1996)

Apart from Smith, Say and Ricardo, today's neo-llberals draw
Inspiration from other economists such as Jevons (The Theory of
PoliticalEconomy, 1871),Menger(GrundsatzedesVolkwirtschaftlehre,
1871) and Walras (Elements d'economie politique pure ou theorie de la
richesse sociale, 18 74-77).
These economists criticise both Rlcardo's (and Marx's) analysis of
value and his analysis of distribution. They developed a theory of
prices based on the principle of decreasing marginal utility.
Dominant economic thought refers to this theory as signalling the
'marglnallst revolution'.