Principles of Political Economy

Principles of Political Economy Considered with a View to their Applications, simply referred to as Principles of Political Economy, was written by the nineteenth-century British political economist Thomas Malthus in 1820. Malthus wrote Principles of Political Economy as a rebuttal to David Ricardo's On the Principles of Political Economy and Taxation. While the main focus of their work is to explain economic depressions in Europe and the reasons why they occur, Malthus uses his scholarship to explore price determination and the value of goods. Summary of Principles of Political Economy In Principles of Political Economy, Malthus' rebuts David Ricardo's work, particularly rejecting idea developed by Jean Baptiste Say that theorizes that supply generates its own demand, known as Say's Law. Say's Law emphasizes the idea that there is no tendency towards a depression because as supply increases, people will naturally demand more. Say believes that an overflow of supply of certain goods will trigger a lack of supply of another type of good. This will create a new balance in the economy. Malthus claims that supply does not generate its own demand and that oversupply can lead the economy to recession. Malthus understands production and demand to exist independent of each other. Both are determined by their own factors. From this Malthus generates the idea of "effective demand," which later becomes popular in Keynesian economics. "Effective demand" iterates that consumers purchase more or less of a good depending on the price a firm charges for it. Malthus' idea suggests that the amount of goods supplied may be a result of the demand. Furthermore, Malthus argues that the economy tends to move towards recessions because productivity often grows more quickly than demand. Malthus suggests increasing government spending and private investment on luxuries to cure recessions. This idea firmly goes against the notion that Ricardo and Say hold that the economy will fix itself through demand. Second edition A second edition of Malthus' Principles of Political Economy was published in 1836. After the first version's publication, Adam Smith develops the idea that an object's inherent value is related to the labor that went into its creation. Additionally, Smith creates the notion that a good's price also moves in the direction of the price of other commodities. After careful contemplation, Malthus adopts Smith's theory of value.