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Saturday, April 10, 2021

English Poor Laws

From Wikipedia, the free encyclopedia
 
Although many deterrent workhouses developed in the period after the New Poor Law, some had already been built under the existing system. This workhouse in Nantwich, Cheshire dates from 1780.

The English Poor Laws were a system of poor relief in England and Wales that developed out of the codification of late-medieval and Tudor-era laws in 1587–1598. The system continued until the modern welfare state emerged after the Second World War.

English Poor Law legislation can be traced back as far as 1536, when legislation was passed to deal with the impotent poor, although there were much earlier Tudor laws dealing with the problems caused by vagrants and beggars. The history of the Poor Law in England and Wales is usually divided between two statutes: the Old Poor Law passed during the reign of Elizabeth I (1558–1603) and the New Poor Law, passed in 1834, which significantly modified the system of poor relief. The New Poor Law altered the system from one which was administered haphazardly at a local parish level to a highly centralised system which encouraged the large-scale development of workhouses by poor law unions.

The Poor Law system fell into decline at the beginning of the 20th century owing to factors such as the introduction of the Liberal welfare reforms and the availability of other sources of assistance from friendly societies and trade unions, as well as piecemeal reforms which bypassed the Poor Law system. The Poor Law system was not formally abolished until the National Assistance Act 1948, with parts of the law remaining on the books until 1967.

History

Medieval Poor Laws

The Poor Laws in the aftermath of the Black Death (pictured), when labour was in short supply, were concerned with making the able-bodied work.

The earliest medieval Poor Law was the Ordinance of Labourers which was issued by King Edward III of England on 18 June 1349, and revised in 1350. The ordinance was issued in response to the 1348–1350 outbreak of the Black Death in England, when an estimated 30–40% of the population had died. The decline in population left surviving workers in great demand in the agricultural economy of Britain. Landowners had to face the choice of raising wages to compete for workers or letting their lands go unused. Wages for labourers rose, and this forced up prices across the economy as goods became more expensive to produce. An attempt to rein in prices, the ordinance (and subsequent acts, such the Statute of Labourers of 1351) required that everyone who could work did; that wages were kept at pre-plague levels and that food was not overpriced. Workers saw these shortage conditions as an opportunity to flee employers and become freemen, so Edward III passed additional laws to punish escaped workers. In addition, the Statute of Cambridge was passed in 1388 and placed restrictions on the movement of labourers and beggars.

Tudor Poor Law

The origins of the English Poor Law system can be traced back to late medieval statutes dealing with beggars and vagrancy, but it was only during the Tudor period that the Poor Law system was codified. Before the Dissolution of the Monasteries during the Tudor Reformation, monasteries had been the primary source of poor relief, but their dissolution resulted in poor relief moving from a largely voluntary basis to a compulsory tax that was collected at a parish level. Early legislation was concerned with vagrants and making the able-bodied work, especially while labour was in short supply following the Black Death.

Tudor attempts to tackle the problem originated during the reign of Henry VII. In 1495, Parliament passed the Vagabonds and Beggars Act ordering that "vagabonds, idle and suspected persons shall be set in the stocks for three days and three nights and have none other sustenance but bread and water and then shall be put out of Town. Every beggar suitable to work shall resort to the Hundred where he last dwelled, is best known, or was born and there remain upon the pain aforesaid." Although this returned the burden of caring for the jobless to the communities producing more children than they could employ, it offered no immediate remedy to the problem of poverty; it was merely swept from sight, or moved from town to town. Moreover, no distinction was made between vagrants and the jobless; both were simply categorised as "sturdy beggars", to be punished and moved on.

In 1530, during the reign of Henry VIII, a proclamation was issued, describing idleness as the "mother and root of all vices" and ordering that whipping should replace the stocks as the punishment for vagabonds. This change was confirmed in the 1531 Vagabonds Act the following year, with one important change: it directed the justices of the peace to assign to the impotent poor an area within which they were to beg. Generally, the licences to beg for the impotent poor were limited to the disabled, sick, and elderly. An impotent person begging out of his area was to be imprisoned for two days and nights in the stocks, on bread and water, and then sworn to return to the place in which he was authorised to beg. An able-bodied beggar was to be whipped, and sworn to return to the place where he was born, or last dwelt for the space of three years, and there put himself to labour. Still no provision was made, though, for the healthy man simply unable to find work. All able-bodied unemployed were put into the same category. Those unable to find work had a stark choice: starve or break the law. In 1535, a bill was drawn up calling for the creation of a system of public works to deal with the problem of unemployment, to be funded by a tax on income and capital. A law passed a year later allowed vagabonds to be whipped.

In London, there was a great massing of the poor, and the Reformation threatened to eliminate some of the infrastructure used to provide for the poor. As a result, King Henry VIII consented to re-endow St. Bartholomew's Hospital in 1544 and St. Thomas' Hospital in 1552 on the condition that the citizens of London pay for their maintenance. However, the city was unable to raise enough revenue from voluntary contributions, so it instituted the first definite compulsory Poor Rate in 1547, which replaced Sunday collections in church with a mandatory collection for the poor. In 1555, London became increasingly concerned with the number of poor who could work, but yet could not find work, so it established the first House of Correction (predecessor to the workhouse) in the King's Palace at Bridewell where poor could receive shelter and work at cap-making, feather-bed making, and wire drawing.

For the able-bodied poor, life became even tougher during the reign of Edward VI. In 1547, the Vagabonds Act was passed that subjected vagrants to some of the more extreme provisions of the criminal law, namely two years servitude and branding with a "V" as the penalty for the first offence, and death for the second. Justices of the Peace were reluctant to apply the full penalty. In 1552, Edward VI passed a Poor Act which designated a position of "Collector of Alms" in each parish and created a register of licensed poor. Under the assumption that parish collections would now relieve all poor, begging was completely prohibited.

The government of Elizabeth I, Edward VI's successor after Mary I, was also inclined to severity. An Act passed in 1572 called for offenders to be burned through the ear for a first offence and that persistent beggars should be hanged. However, the Act also made the first clear distinction between the "professional beggar" and those unemployed through no fault of their own. Early in her reign, Elizabeth I also passed laws directly aimed at providing relief for the poor. For example, in 1563, her Act for the Relief of the Poor required all parish residents with ability to contribute to poor collections. Those who "of his or their forward willful mind shall obstinately refuse to give weekly to the relief of the poor according to his or their abilities" could be bound over to justices of the peace and fined £10. Additionally, the 1572 Vagabonds Act further enabled Justices of the Peace to survey and register the impotent poor, determine how much money was required for their relief, and then assess parish residents weekly for the appropriate amount. Her 1575 Poor Act required towns to create "a competent stock of wool, hemp, flax, iron and other stuff" for the poor to work on and houses of correction for those who refused to work where recalcitrant or careless workers could be forced to work and punished accordingly.

The first complete code of poor relief was made in the Act for the Relief of the Poor 1597 and some provision for the "deserving poor" was eventually made in the Act for the Relief of the Poor 1601. The more immediate origins of the Elizabethan Poor Law system were deteriorating economic circumstances in sixteenth-century England. Historian George Boyer has stated that England suffered rapid inflation at this time caused by population growth, the debasement of coinage and the inflow of American silver. Poor harvests in the period between 1595 and 1598 caused the numbers in poverty to increase, while charitable giving had decreased after the dissolution of the monasteries and religious guilds.

A new colonial solution

In the early 1580s, with the development of English colonization schemes, initially in Ireland and later in North America, a new method to alleviate the condition of the poor would be suggested and utilized considerably over time. Merchant and colonization proponent, George Peckham noted the then-current domestic conditions; "there are at this day great numbers which live in such penurie & want, as they could be content to hazard their lives, and to ser[v]e one yeere for meat, drinke and apparell only, without wages, in hope thereby to amend their estates." With this, he may have been the first to suggest what became the institution of indentured service. At the same time Richard Hakluyt, in his preface to Divers Voyages, likens English planters to "Bees...led out by their Captaines to swarme abroad"; he recommends "deducting" the poor out of the realm. Hakluyt also broadens the scope and additionally recommends to empty the prisons and send them off to the New World. By 1619 Virginia's system of indentured service would be fully developed, and subsequent colonies would adopt the method with modifications suitable to their different conditions and times. English penal transportation would be implemented soon afterwards, and evolve into a subsidized government endeavor with the Transportation Act 1717.

Old Poor Law

The Old Poor Law or Elizabethan Poor Law is sometimes referred to as the "43rd Elizabeth" as it was passed in the 43rd year that Elizabeth I (pictured) reigned as Queen.

The Elizabethan Poor Law of 1601 formalized earlier practices of poor relief contained in the Act for the Relief of the Poor 1597 yet is often cited as the beginning of the Old Poor Law system. It created a system administered at parish level, paid for by levying local rates on rate payers. Relief for those too ill or old to work, the so-called 'impotent poor', was in the form of a payment or items of food ('the parish loaf') or clothing also known as outdoor relief. Some aged people might be accommodated in parish alms houses, though these were usually private charitable institutions. Meanwhile, able-bodied beggars who had refused work were often placed in Houses of Correction or even subjected to beatings to mend their attitudes. Provision for the many able-bodied poor in the workhouse was relatively unusual, and most workhouses developed later. The 1601 Law said that parents and children were responsible for each other, elderly parents would live with their children.

The Old Poor Law was a parish-based system; there were around 15,000 such parishes based upon the area around a parish church. The system allowed for despotic behaviour from the overseers of the poor, but as overseers of the poor would know their paupers they were considered able to differentiate between the deserving and undeserving poor making the system both more humane and initially more efficient. The Elizabethan Poor Law operated at a time when the population was small enough for everyone to know everyone else, therefore people's circumstances would be known and the idle poor would be unable to claim on the parishes' poor rate. The system provided social stability yet by 1750 needed to be adapted to cope with population increases, greater mobility and regional price variations.

The 1601 Act sought to deal with 'settled' poor who had found themselves temporarily out of work—it was assumed they would accept indoor relief or outdoor relief. Neither method of relief was at this time in history seen as harsh. The act was supposed to deal with beggars who were considered a threat to civil order. The Act was passed at a time when poverty was considered necessary as fear of poverty made people work. In 1607 a House of Correction was set up in each county. However, this system was separate from the 1601 system which distinguished between the settled poor and 'vagrants'. There was much variation in the application of the law and there was a tendency for the destitute to migrate towards the more generous parishes, usually situated in the towns. This led to the Settlement Act 1662 also known as the Poor Relief Act 1662, this allowed relief only to established residents of a parish; mainly through birth, marriage and apprenticeship. Unfortunately, the laws reduced the mobility of labour and discouraged paupers from leaving their parish to find work. They also encouraged industry to create short contracts (e.g. 364 days) so that an employee could not become eligible for poor relief.

A pauper applicant had to prove a settlement. If they could not they were removed to the parish that was nearest to their place of birth, or where they might prove some connection; some paupers were moved hundreds of miles. Although the parishes they passed through en route had no responsibility for them, they were supposed to supply food and drink and shelter for at least one night. In 1697 an act was passed requiring those who begged to wear a "badge" of red or blue cloth on the right shoulder with an embroidered letter "P" and the initial of their parish. However, this practice soon fell into disuse.

The workhouse movement began at the end of the 17th century with the establishment of the Bristol Corporation of the Poor, founded by Act of Parliament in 1696. The corporation established a workhouse which combined housing and care of the poor with a house of correction for petty offenders. Following the example of Bristol, some twelve further towns and cities established similar corporations in the next two decades. As these corporations required a private Act, they were not suitable for smaller towns and individual parishes.

Starting with the parish of Olney, Buckinghamshire in 1714 several dozen small towns and individual parishes established their own institutions without any specific legal authorization. These were concentrated in the South Midlands and in the county of Essex. From the late 1710s the Society for the Promotion of Christian Knowledge began to promote the idea of parochial workhouses. The Society published several pamphlets on the subject, and supported Sir Edward Knatchbull in his successful efforts to steer the Workhouse Test Act through parliament in 1723. The act gave legislative authority for the establishment of parochial workhouses, by both single parishes and as joint ventures between two or more parishes. More importantly, the Act helped to publicise the idea of establishing workhouses to a national audience. By 1776 some 1,912 parish and corporation workhouses had been established in England and Wales, housing almost 100,000 paupers. Perhaps one million people were receiving some kind of parish poor relief by the end of the century. Although many parishes and pamphlet writers expected to earn money from the labour of the poor in workhouses, the vast majority of people obliged to take up residence in workhouses were ill, elderly, or children whose labour proved largely unprofitable. The demands, needs and expectations of the poor also ensured that workhouses came to take on the character of general social policy institutions, combining the functions of creche, and night shelter, geriatric ward and orphanage. In 1782, Thomas Gilbert finally succeeded in passing an Act that established poor houses solely for the aged and infirm and introduced a system of outdoor relief for the able-bodied. This was the basis for the development of the Speenhamland system, which made financial provision for low-paid workers. Settlement Laws were altered by the Removal Act 1795 which prevented non-settled persons from being moved on unless they had applied for relief. An investigation of the history and current state of the Poor Laws was made by Michael Nolan in his 1805 Treatise of the Laws for the Relief and Settlement of the Poor. The work would go on to three subsequent editions in Nolan's lifetime (Nolan was elected an MP for Barnstaple in 1820), and stoked the discussion both within and outside of Parliament.

Advertisement for builders to build a new Workhouse in north Wales, 1829

During the Napoleonic Wars it became difficult to import cheap grain into Britain which resulted in the price of bread increasing. As wages did not also increase, many agricultural labourers were plunged into poverty. Following peace in 1814, the Tory government of Lord Liverpool passed the Corn Laws to keep the price of grain artificially high. 1815 saw great social unrest as the end of the French Wars saw industrial and agricultural depression and high unemployment. Social attitudes to poverty began to change after 1815 and overhauls of the system were considered. The Poor Law system was criticized as distorting the free market and in 1816 a Parliamentary Select Committee looked into altering the system which resulted in the Sturges-Bourne Acts being passed. 1817 also saw the passing of the Poor Employment Act, "to authorise the issue of Exchequer Bills and the Advance of Money out of the Consolidated Fund, to a limited Amount, for the carrying on of Public Works and Fisheries in the United Kingdom and Employment of the Poor in Great Britain". By 1820, before the passing of the Poor Law Amendment Act workhouses were already being built to reduce the spiraling cost of poor relief. Boyer suggests several possible reasons for the gradual increase in relief given to able-bodied males, including the enclosure movement and a decline in industries such as wool spinning and lace making. Boyer also contends that farmers were able to take advantage of the poor law system to shift some of their labour costs onto the tax payer.

The Royal Commission on the Poor Law

Nassau William Senior argued for greater centralization of the Poor Law system.

The 1832 Royal Commission into the Operation of the Poor Laws was set up following the widespread destruction and machine breaking of the Swing Riots. The report was prepared by a commission of nine, including Nassau William Senior, and served by Edwin Chadwick as Secretary. The Royal Commission's primary concerns were with illegitimacy (or "bastardy"), reflecting the influence of Malthusians, and the fear that the practices of the Old Poor Law were undermining the position of the independent labourer. Two practices were of particular concern: the "roundsman" system, where overseers hired out paupers as cheap labour, and the Speenhamland system, which subsidised low wages without relief. The report concluded that the existing Poor Laws undermined the prosperity of the country by interfering with the natural laws of supply and demand, that the existing means of poor relief allowed employers to force down wages, and, that poverty itself was inevitable.

The Commission proposed the New Law be governed by two overarching principles:

  • "less eligibility": that the pauper should have to enter a workhouse with conditions worse than that of the poorest free labourer outside of the workhouse.
  • the "workhouse test", that relief should only be available in the workhouse. The reformed workhouses were to be uninviting, so that anyone capable of coping outside them would choose not to be in one.

When the Act was introduced however it had been partly watered down. The workhouse test and the idea of "less eligibility" were never mentioned themselves and the recommendation of the Royal Commission that outdoor relief (relief given outside of a workhouse) should be abolished – was never implemented. The report recommended separate workhouses for the aged, infirm, children, able-bodied females and able-bodied males. The report also stated that parishes should be grouped into unions in order to spread the cost of workhouses and a central authority should be established in order to enforce these measures. The Poor Law Commission set up by Earl Grey took a year to write its report, the recommendations passed easily through Parliament support by both main parties the Whigs and the Tories. The bill gained Royal Assent in 1834. The few who opposed the Bill were more concerned about the centralisation which it would bring rather than the underpinning philosophy of utilitarianism.

New Poor Law

The Poor Law Amendment Act was passed in 1834 by the government of Lord Melbourne and largely implemented the findings of the Royal Commission which had presented its findings two years earlier. The New Poor Law is considered to be one of the most "far-reaching pieces of legislation of the entire Nineteenth Century" and "classic example of the fundamental WhigBenthamite reforming legislation of the period". The Act aimed to reduce the burden on rate payers and can be seen as an attempt by the Whig government to win the votes of the classes enfranchised by the Great Reform Act. Despite being labelled an "amendment act" it completely overhauled the existing system and established a Poor Law Commission to oversee the national operation of the system. This included the forming together of small parishes into poor law unions and the building of workhouses in each union for the giving of poor relief. Although the aim of the legislation was to reduce costs to rate payers, one area not reformed was the method of financing of the Poor Law system which continued to be paid for by levying a "poor rate" on the property owning middle classes.

Although the Poor Law Amendment Act did not ban all forms of outdoor relief, it stated that no able-bodied person was to receive money or other help from the Poor Law authorities except in a workhouse. Conditions in workhouses were to be made harsh to discourage people from claiming. Workhouses were to be built in every parish and, if parishes were too small, parishes could group together to form poor law unions. The Poor Law Commissioners were to be responsible for overseeing the implementation of the Act.

For various reasons it was impossible to apply some of the terms of the Act. Less eligibility was in some cases impossible without starving paupers and the high cost of building workhouses incurred by rate payers meant that outdoor relief continued to be a popular alternative. Despite efforts to ban outdoor relief, parishes continued to offer it as a more cost-effective method of dealing with pauperism. The Outdoor Labour Test Order and Outdoor Relief Prohibitory Order were both issued to try to prevent people receiving relief outside of the workhouse.

When the new Amendment was applied to the industrial North of England (an area the law had never considered during reviews), the system failed catastrophically as many found themselves temporarily unemployed, due to recessions or a fall in stock demands, so-called 'cyclical unemployment' and were reluctant to enter a Workhouse, despite its being the only method of gaining aid. Nottingham also was allowed an exemption from the law and continued to provide outdoor relief.

The abuses and shortcomings of the system are documented in the novels of Charles Dickens and Frances Trollope and later in People of the Abyss by Jack London. Despite the aspirations of the reformers, the New Poor Law was unable to make the Workhouse as bad as life outside. The primary problem was that in order to make the diet of the Workhouse inmates "less eligible" than what they could expect outside, it would be necessary to starve the inmates beyond an acceptable level. It was for this reason that other ways were found to deter entrance to the Workhouses. These measures ranged from the introduction of prison-style uniforms to the segregation of 'inmates' into yards – there were normally male, female, boys' and girls' yards.

In 1846, the Andover workhouse scandal, where conditions in the Andover Union Workhouse were found to be inhumane and dangerous, prompted a government review and the abolition of the Poor Law Commission which was replaced with a Poor Law Board which meant that a Committee of Parliament was to administer the Poor Law, with a cabinet minister as head. Despite this another scandal occurred over inhumane treatment of paupers in the Huddersfield workhouse.

After the New Poor Law

Infighting between Edwin Chadwick and other Poor Law Commissioners was one reason for an overhaul of Poor Law administration.

After 1847 the Poor Law Commission was replaced with a Poor Law Board. This was because of the Andover workhouse scandal and the criticism of Henry Parker who was responsible for the Andover union as well as the tensions in Somerset House caused by Chadwick's failure to become a Poor Law Commissioner. The Poor Law had been altered in 1834 because of increasing costs. The Workhouse Visiting Society which formed in 1858 highlighted conditions in workhouses and led to workhouses being inspected more often. The Union Chargeability Act 1865 was passed in order to make the financial burden of pauperism be placed upon the whole unions rather than individual parishes. Most boards of guardians were middle class and committed to keeping poor rates as low as possible. After the Reform Act 1867 there was increasing welfare legislation. As this legislation required local authorities' support the Poor Law Board was replaced with a Local Government Board in 1871. The Local Government Board led a crusade against outdoor relief supported by the Charity Organisation Society, an organization which viewed outdoor relief as destroying the self-reliance of the poor. The effect of this renewed effort to deter outdoor relief was to reduce claimants by a third and to increase numbers in the work house by 12–15%. County Councils were formed in 1888, District Councils in 1894. This meant that public housing, unlike health and income maintenance, developed outside the scope of the Poor Law. Poor Law policy after the New Poor Law concerning the elderly, the sick and mentally ill and children became more humane. This was in part due to the expense of providing "mixed workhouses" as well as changing attitudes regarding the causes and nature of poverty.

Decline and abolition

David Lloyd George, architect of the Liberal welfare reforms which were implemented outside of the Poor Law system and paved the way for the eventual abolition of the Poor Law.

The Poor Law system began to decline with the availability of other forms of assistance. The growth of friendly societies provided help for its members without recourse to the Poor Law system. Some trade unions also provided help for their members. The Medical Relief Disqualification Removal Act 1885 meant that people who had accessed medical care funded by the poor rate were no longer disqualified from voting in elections. In 1886 the Chamberlain Circular encouraged the Local Government Board to set up work projects when unemployment rates were high rather than use workhouses. In 1905 the Conservatives passed the Unemployed Workman Act which provided for temporary employment for workers in times of unemployment.

In 1905 a Royal Commission was set up to investigate what changes could be made to the Poor Law. The Commission produced two conflicting reports but both investigations were largely ignored by the Liberal government when implementing their own scheme of welfare legislation. The welfare reforms of the Liberal Government made several provisions to provide social services without the stigma of the Poor Law, including Old age pensions and National Insurance, and from that period fewer people were covered by the system. From 1911, the term "Workhouse" was replaced by "Poor Law Institution". Means tests were developed during the inter-war period, not as part of the Poor Law, but as part of the attempt to offer relief that was not affected by the stigma of pauperism. According to Lees by slowly dismantling the system the Poor Law was "to die by attrition and surgical removals of essential organs". During the First World War there is evidence that some workhouses were used as makeshift hospitals for wounded servicemen. Numbers using the Poor Law system increased during the interwar years and between 1921 and 1938 despite the extension of unemployment insurance to virtually all workers except the self-employed. Many of these workers were provided with outdoor relief. One aspect of the Poor Law that continued to cause resentment was that the burden of poor relief was not shared equally by rich and poor areas but, rather, fell most heavily on those areas in which poverty was at its worst. This was a central issue in the Poplar Rates Rebellion led by George Lansbury and others in 1921. Lansbury had in 1911 written a provocative attack on the workhouse system in a pamphlet entitled "Smash Up the Workhouse!".

Poverty in the interwar years (1918–1939) was responsible for several measures which largely killed off the Poor Law system. The Board of Guardians (Default) Act 1926 was passed in response to some Boards of Guardians supporting the Miners during the General Strike.[98] Workhouses were officially abolished by the Local Government Act 1929, and between 1929 and 1930 Poor Law Guardians, the "workhouse test" and the term "pauper" disappeared. The Unemployment Assistance Board was set up in 1934 to deal with those not covered by the earlier 1911 National Insurance Act passed by the Liberals, and by 1937 the able-bodied poor had been absorbed into this scheme. By 1936 only 13% of people were still receiving poor relief in some form of institution. In 1948 the Poor Law system was finally abolished with the introduction of the modern welfare state and the passing of the National Assistance Act. The National Health Service Act 1946 came into force in 1948 and created the modern day National Health Service.

Opposition

Punch criticized the New Poor Law's workhouses for splitting mothers and their infant children.

Opposition to the Poor Law grew at the beginning of the 19th century. The 1601 system was felt to be too costly and was considered in academic circles as encouraging the underlying problems. Jeremy Bentham argued for a disciplinary, punitive approach to social problems, whilst the writings of Thomas Malthus focused attention on overpopulation, and the growth of illegitimacy. David Ricardo argued that there was an "iron law of wages". The effect of poor relief, in the view of the reformers, was to undermine the position of the "independent labourer".

In the period following the Napoleonic Wars, several reformers altered the function of the "poorhouse" into the model for a deterrent workhouse. The first of the deterrent workhouses in this period was at Bingham, Nottinghamshire. The second was Becher's workhouse in Southwell, now maintained by the National Trust. George Nicholls, the overseer at Southwell, was to become a Poor Law Commissioner in the reformed system. The 1817 Report of the Select Committee on the Poor Laws condemned the Poor Law as causing poverty itself.

The introduction of the New Poor Law also resulted in opposition. Some who gave evidence to the Royal Commission into the Operation of the Poor Laws suggested that the existing system had proved adequate and was more adaptable to local needs. This argument was strongest in the industrial North of England and in the textile industries where outdoor relief was a more effective method of dealing with cyclical unemployment as well as being a more cost-effective method. Poor Law commissioners faced greatest opposition in Lancashire and the West Riding of Yorkshire where in 1837 there was high unemployment during an economic depression. The New Poor Law was seen as interference from Londoners with little understanding of local affairs. Opposition was unusually strong because committees had already been formed in opposition to the Ten Hours Movement, leaders of the Ten Hours campaign such as Richard Oastler, Joseph Rayner Stephens and John Fielden became the leaders of the Anti-Poor Law campaign. The Book of Murder was published and was aimed at creating opposition to the workhouse system. and pamphlets were published spreading rumour and propaganda about Poor Law Commissioners and alleged infanticide inside of workhouses. Opposition to the Poor Law yielded some successes in delaying the development of workhouses, and one workhouse in Stockport was attacked by a crowd of rioters. As many Boards of Guardians were determined to continue under the old system, the Poor Law Commission granted some boards the right to continue providing relief under the Old Poor Law. However, the movement against the New Poor Law was short-lived, leading many to instead turn towards Chartism.

Scotland and Ireland

The Poor Law systems of Scotland and Ireland were distinct from the English Poor Law system covering England and Wales although Irish legislation was heavily influenced by the English Poor Law Amendment Act. In Scotland the Poor Law system was reformed by the 1845 Scottish Poor Law Act. In Ireland the Irish Poor Law Act of 1838 was the first attempt to put control of the destitute and responsibility for their welfare on a statutory basis. Due to exceptional overcrowding, workhouses in Ireland stopped admissions during the Irish famine and increasingly resorted to outdoor relief. Emigration was sometimes used by landlords as a method of keeping the cost of poor relief down and removing surplus labour. Reforms after the Irish War of Independence resulted in the abolition of Boards of Guardians in the jurisdiction of the Irish Free State and their replacement by County Boards of Health.

Historiography

The historiography of the Poor Laws has passed through several distinct phases. The "traditionalist" or "orthodox" account of the Poor Laws focuses upon the deficiencies of the Old Poor Law. This early historiography was influential in successfully overhauling the system. Blaug presents the first revisionist analysis of the Poor Law in “The Myth of the Old Poor Law and the making of the New”, arguing that the Old Poor Law did not reduce the efficiency of agricultural workers, lower wages, depress rents or compound the burden on rate payers. Instead Blaug argues that Old Poor Law was a device "for dealing with the problems of structural unemployment and substandard wages in the lagging rural sector of a rapidly growing but still underdeveloped economy". Other areas of Poor Law which have concerned historians include the extent to which the Second Great Reform Act contributed to the Poor Law Amendment Act and the extent to which outdoor relief was abolished following the New Poor Law.

Say's law

From Wikipedia, the free encyclopedia

In classical economics, Say's law, or the law of markets, is the claim that the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. So, production is the source of demand. In his principal work, A Treatise on Political Economy (Traité d'économie politique, 1803), Jean-Baptiste Say wrote: "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." And also, "As each of us can only purchase the productions of others with his own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase."

Some say that Say further argued that this law of markets implies that a general glut (a widespread excess of supply over demand) cannot occur. If there is a surplus of one good, there must be unmet demand for another: "If certain goods remain unsold, it is because other goods are not produced." However, according to Petur Jonsson, Say does not claim a general glut cannot occur and in fact acknowledges that they can occur. Say's law has been one of the principal doctrines used to support the laissez-faire belief that a capitalist economy will naturally tend toward full employment and prosperity without government intervention.

Over the years, at least two objections to Say's law have been raised:

  • General gluts do occur, particularly during recessions and depressions.
  • Economic agents may collectively choose to increase the amount of money they hold, thereby reducing demand but not supply.

Say's law was generally accepted throughout the 19th century, though modified to incorporate the idea of a "boom-and-bust" cycle. During the worldwide Great Depression of the 1930s, the theories of Keynesian economics disputed Say's conclusions.

Scholars disagree on the question of whether it was Say who first stated the principle, but by convention, Say's law has been another name for the law of markets ever since John Maynard Keynes used the term in the 1930s.

History

Say's formulation

Say argued that economic agents offer goods and services for sale so that they can spend the money they expect to obtain. Therefore, the fact that a quantity of goods and services is offered for sale is evidence of an equal quantity of demand. Essentially Say's argument was that money is just a medium, people pay for goods and services with other goods and services. This claim is often summarized as "supply creates its own demand", although that phrase does not appear in Say's writings.

Explaining his point at length, he wrote:

It is worthwhile to remark that a product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products.

Say further argued that because production necessarily creates demand, a "general glut" of unsold goods of all kinds is impossible. If there is an excess supply of one good, there must be a shortage of another: "The superabundance of goods of one description arises from the deficiency of goods of another description."

To further clarify, he wrote: "Sales cannot be said to be dull because money is scarce, but because other products are so. ... To use a more hackneyed phrase, people have bought less, because they have made less profit."

Say's law should therefore be formulated as: Supply of X creates demand for Y, subject to people being interested in buying X. The producer of X is able to buy Y, if his products are demanded.

Say rejected the possibility that money obtained from the sale of goods could remain unspent, thereby reducing demand below supply. He viewed money only as a temporary medium of exchange.

Money performs but a momentary function in this double exchange; and when the transaction is finally closed, it will always be found, that one kind of commodity has been exchanged for another.

Early opinions

Early writers on political economy held a variety of opinions on what we now call Say's law. James Mill and David Ricardo both supported the law in full. Thomas Malthus and John Stuart Mill questioned the doctrine that general gluts cannot occur.

James Mill and David Ricardo restated and developed Say's law. Mill wrote, "The production of commodities creates, and is the one and universal cause which creates, a market for the commodities produced." Ricardo wrote, "Demand depends only on supply."

Thomas Malthus, on the other hand, rejected Say's law because he saw evidence of general gluts.

We hear of glutted markets, falling prices, and cotton goods selling at Kamschatka lower than the costs of production. It may be said, perhaps, that the cotton trade happens to be glutted; and it is a tenet of the new doctrine on profits and demand, that if one trade be overstocked with capital, it is a certain sign that some other trade is understocked. But where, I would ask, is there any considerable trade that is confessedly under-stocked, and where high profits have been long pleading in vain for additional capital?

John Stuart Mill also recognized general gluts. He argued that during a general glut, there is insufficient demand for all non-monetary commodities and excess demand for money.

When there is a general anxiety to sell, and a general disinclination to buy, commodities of all kinds remain for a long time unsold, and those which find an immediate market, do so at a very low price... At periods such as we have described... persons in general... liked better to possess money than any other commodity. Money, consequently, was in request, and all other commodities were in comparative disrepute... As there may be a temporary excess of any one article considered separately, so may there of commodities generally, not in consequence of over-production, but of a want of commercial confidence.

Mill rescued the claim that there cannot be a simultaneous glut of all commodities by including money as one of the commodities.

In order to render the argument for the impossibility of an excess of all commodities applicable... money must itself be considered as a commodity. It must, undoubtedly, be admitted that there cannot be an excess of all other commodities, and an excess of money at the same time.

Contemporary economist Brad DeLong believes that Mill's argument refutes the assertions that a general glut cannot occur, and that a market economy naturally tends towards an equilibrium in which general gluts do not occur. What remains of Say's law, after Mill's modification, are a few less controversial assertions:

  • In the long run, the ability to produce does not outstrip the desire to consume.
  • In a barter economy, a general glut cannot occur.
  • In a monetary economy, a general glut occurs not because sellers produce more commodities of every kind than buyers wish to purchase, but because buyers increase their desire to hold money.

Say himself never used many of the later, short definitions of Say's law, and thus the law actually developed through the work of many of his contemporaries and successors. The work of James Mill, David Ricardo, John Stuart Mill, and others evolved Say's law into what is sometimes called law of markets, which was a key element of the framework of macroeconomics from the mid-19th century until the 1930s.

The Great Depression

The Great Depression posed a challenge to Say's law. In the United States, unemployment rose to 25%. The quarter of the labor force that was unemployed constituted a supply of labor for which the demand predicted by Say's law did not exist.

John Maynard Keynes argued in 1936 that Say's law is simply not true, and that demand, rather than supply, is the key variable that determines the overall level of economic activity. According to Keynes, demand depends on the propensity of individuals to consume and on the propensity of businesses to invest, both of which vary throughout the business cycle. There is no reason to expect enough aggregate demand to produce full employment.

Today

Steven Kates, although a proponent of Say's Law, writes:

Before the Keynesian Revolution, [the] denial of the validity of Say's Law placed an economist amongst the crackpots, people with no idea whatsoever about how an economy works. That the vast majority of the economics profession today would have been classified as crackpots in the 1930s and before is just how it is.

Keynesian economists, such as Paul Krugman, stress the role of money in negating Say's law: Money that is hoarded (held as cash or analogous financial instruments) is not spent on products. To increase monetary holdings, someone may sell products or labor without immediately spending the proceeds. This can be a general phenomenon: from time to time, in response to changing economic circumstances, households and businesses in aggregate seek to increase net savings and thus decrease net debt. To increase net savings requires earning more than is spent—contrary to Say's law, which postulates that supply (sales, earning income) equals demand (purchases, requiring spending). Keynesian economists argue that the failure of Say's law, through an increased demand for monetary holdings, can result in a general glut due to falling demand for goods and services.

Many economists today maintain that supply does not create its own demand, but instead, especially during recessions, demand creates its own supply. Paul Krugman writes:

Not only doesn't supply create its own demand; experience since 2008 suggests, if anything, that the reverse is largely true -- specifically, that inadequate demand destroys supply. Economies with persistently weak demand seem to suffer large declines in potential as well as actual output.

Olivier Blanchard and Larry Summers, observing persistently high and increasing unemployment rates in Europe in the 1970s and 1980s, argued that adverse demand shocks can lead to persistently high unemployment, therefore persistently reducing the supply of goods and services. Antonio Fatás and Larry Summers argued that shortfalls in demand, resulting both from the global economic downturn of 2008 and 2009 and from subsequent attempts by governments to reduce government spending, have had large negative effects on both actual and potential world economic output.

A minority of economists still support Say's Law. Some proponents of the heterodox Austrian school of economics maintain that the economy tends to full-employment equilibrium, and that recessions and depressions are the result of government intervention in the economy. Some proponents of real business cycle theory maintain that high unemployment is due to a reduced labor supply rather than reduced demand. In other words, people choose to work less when economic conditions are poor, so that involuntary unemployment does not actually exist.

While economists have abandoned Say's law as a true law that must always hold, most still consider Say's Law to be a useful rule of thumb which the economy will tend towards in the long run, so long as it is allowed to adjust to shocks such as financial crises without being exposed to any further such shocks. The applicability of Say's law in theoretical long-run conditions is one motivation behind the study of general equilibrium theory in economics, which studies economies in the context where Say's law holds true.

Consequences

A number of laissez-faire consequences have been drawn from interpretations of Say's law. However, Say himself advocated public works to remedy unemployment and criticized Ricardo for neglecting the possibility of hoarding if there was a lack of investment opportunities.

Recession and unemployment

Say argued against claims that businesses suffer because people do not have enough money. He argued that the power to purchase can only be increased through more production.

James Mill used Say's law against those who sought to give the economy a boost via unproductive consumption. In his view, consumption destroys wealth, in contrast to production, which is the source of economic growth. The demand for a product determines the price of the product.

According to Keynes (see more below), if Say's law is correct, widespread involuntary unemployment (caused by inadequate demand) cannot occur. Classical economists in the context of Say's law explain unemployment as arising from insufficient demand for specialized labour—that is, the supply of viable labour exceeds demand in some segments of the economy.

When more goods are produced by firms than are demanded in certain sectors, the suppliers in those sectors lose revenue as result. This loss of revenue, which would in turn have been used to purchase other goods from other firms, lowers demand for the products of firms in other sectors, causing an overall general reduction in output and thus lowering the demand for labour. This results in what contemporary macroeconomics call structural unemployment, the presumed mismatch between the overall demand for labour in jobs offered and the individual job skills and location of labour. This differs from the Keynesian concept of cyclical unemployment, which is presumed to arise because of inadequate aggregate demand.

Such economic losses and unemployment were seen by some economists, such as Marx and Keynes himself, as an intrinsic property of the capitalist system. The division of labor leads to a situation where one always has to anticipate what others will be willing to buy, and this leads to miscalculations.

Assumptions and criticisms

Say's law did not posit that (as per the Keynesian formulation) "supply creates its own demand". Nor was it based on the idea that everything that is saved will be exchanged. Rather, Say sought to refute the idea that production and employment were limited by low consumption.

Thus Say's law, in its original concept, was not intrinsically linked nor logically reliant on the neutrality of money (as has been alleged by those who wish to disagree with it), because the key proposition of the law is that no matter how much people save, production is still a possibility, as it is the prerequisite for the attainment of any additional consumption goods. Say's law states that in a market economy, goods and services are produced for exchange with other goods and services—"employment multipliers" therefore arise from production and not exchange alone—and that in the process a sufficient level of real income is created to purchase the economy's entire output, due to the truism that the means of consumption are limited ex vi termini by the level of production. That is, with regard to the exchange of products within a division of labour, the total supply of goods and services in a market economy will equal the total demand derived from consumption during any given time period. In modern terms, "general gluts cannot exist", although there may be local imbalances, with gluts in some markets balanced out by shortages in others.

Nevertheless, for some neoclassical economists, Say's law implies that economy is always at its full employment level. This is not necessarily what Say proposed.

In the Keynesian interpretation, the assumptions of Say's law are:

  • a barter model of money ("products are paid for with products");
  • flexible prices—that is, all prices can rapidly adjust upwards or downwards; and
  • no government intervention.

Under these assumptions, Say's law implies that there cannot be a general glut, so that a persistent state cannot exist in which demand is generally less than productive capacity and high unemployment results. Keynesians therefore argued that the Great Depression demonstrated that Say's law is incorrect. Keynes, in his General Theory, argued that a country could go into a recession because of "lack of aggregate demand".

Because historically there have been many persistent economic crises, one may reject one or more of the assumptions of Say's law, its reasoning, or its conclusions. Taking the assumptions in turn:

  • Circuitists and some post-Keynesians dispute the barter model of money, arguing that money is fundamentally different from commodities and that credit bubbles can and do cause depressions. Notably, the debt owed does not change because the economy has changed.
  • Keynes argued that prices are not flexible; for example, workers may not take pay cuts if the result is starvation.
  • Laissez-faire economists argue that government intervention is the cause of economic crises, and that left to its devices, the market will adjust efficiently.

As for the implication that dislocations cannot cause persistent unemployment, some theories of economic cycles accept Say's law and seek to explain high unemployment in other ways, considering depressed demand for labour as a form of local dislocation. For example, advocates of Real Business Cycle Theory argue that real shocks cause recessions and that the market responds efficiently to these real economic shocks.

Paul Krugman dismisses Say's law as, "at best, a useless tautology when individuals have the option of accumulating money rather than purchasing real goods and services".

Role of money

It is not easy to say what exactly Say's law says about the role of money apart from the claim that recession is not caused by lack of money. The phrase "products are paid for with products" is taken to mean that Say has a barter model of money; contrast with circuitist and post-Keynesian monetary theory.

One can read Say as stating simply that money is completely neutral, although he did not state this explicitly, and in fact did not concern himself with this subject. Say's central notion concerning money was that if one has money, it is irrational to hoard it.

The assumption that hoarding is irrational was attacked by underconsumptionist economists, such as John M. Robertson, in his 1892 book, The Fallacy of Saving, where he called Say's law:

a tenacious fallacy, consequent on the inveterate evasion of the plain fact that men want for their goods, not merely some other goods to consume, but further, some credit or abstract claim to future wealth, goods, or services. This all want as a surplus or bonus, and this surplus cannot be represented for all in present goods.

— John M. Robertson, The Fallacy of Saving, p. 98

Here Robertson identifies his critique as based on Say's theory of money: people wish to accumulate a "claim to future wealth", not simply present goods, and thus the hoarding of wealth may be rational.

For Say, as for other classical economists, it is possible for there to be a glut (excess supply, market surplus) for one product alongside a shortage (excess demand) of others. But there is no "general glut" in Say's view, since the gluts and shortages cancel out for the economy as a whole. But what if the excess demand is for money, because people are hoarding it? This creates an excess supply for all products, a general glut. Say's answer is simple: there is no reason to engage in hoarding money. According to Say, the only reason to have money is to buy products. It would not be a mistake, in his view, to treat the economy as if it were a barter economy. To quote Say:

Nor is [an individual] less anxious to dispose of the money he may get ... But the only way of getting rid of money is in the purchase of some product or other.

In Keynesian terms, followers of Say's law would argue that on the aggregate level, there is only a transactions demand for money. That is, there is no precautionary, finance, or speculative demand for money. Money is held for spending, and increases in money supplies lead to increased spending.

Some classical economists did see that a loss of confidence in business or a collapse of credit will increase the demand for money, which will decrease the demand for goods. This view was expressed both by Robert Torrens and John Stuart Mill. This would lead demand and supply to move out of phase and lead to an economic downturn in the same way that miscalculation in productions would, as described by William H. Beveridge in 1909.

However, in classical economics, there was no reason for such a collapse to persist. In this view, persistent depressions, such as that of the 1930s, are impossible in a free market organized according to laissez-faire principles. The flexibility of markets under laissez faire allows prices, wages, and interest rates to adjust so as to abolish all excess supplies and demands; however, since all economies are a mixture of regulation and free-market elements, laissez-faire principles (which require a free market environment) cannot adjust effectively to excess supply and demand.

As a theoretical point of departure

The whole of neoclassical equilibrium analysis implies that Say's law in the first place functioned to bring a market into this state: that is, Say's law is the mechanism through which markets equilibrate uniquely. Equilibrium analysis and its derivatives of optimization and efficiency in exchange live or die with Say's law. This is one of the major, fundamental points of contention between the neoclassical tradition, Keynes, and Marxians. Ultimately, from Say's law they deduced vastly different conclusions regarding the functioning of capitalist production.

The former, not to be confused with "new Keynesian" and the many offsprings and syntheses of the General Theory, take the fact that a commodity–commodity economy is substantially altered once it becomes a commodity–money–commodity economy, or once money becomes not only a facilitator of exchange (its only function in marginalist theory) but also a store of value and a means of payment. What this means is that money can be (and must be) hoarded: it may not re-enter the circulatory process for some time, and thus a general glut is not only possible but, to the extent that money is not rapidly turned over, probable.

A response to this in defense of Say's law (echoing the debates between Ricardo and Malthus, in which the former denied the possibility of a general glut on its grounds) is that consumption that is abstained from through hoarding is simply transferred to a different consumer—overwhelmingly to factor (investment) markets, which, through financial institutions, function through the rate of interest.

Keynes' innovation in this regard was twofold: First, he was to turn the mechanism that regulates savings and investment, the rate of interest, into a shell of its former self (relegating it to the price of money) by showing that supply and investment were not independent of one another and thus could not be related uniquely in terms of the balancing of disutility and utility. Second, after Say's law was dealt with and shown to be theoretically inconsistent, there was a gap to be filled. If Say's law was the logic by which we thought financial markets came to a unique position in the long run, and if Say's law were to be discarded, what were the real "rules of the game" of the financial markets? How did they function and remain stable?

To this Keynes responded with his famous notion of "animal spirits": markets are ruled by speculative behavior, influenced not only by one's own personal equation but also by one's perceptions of the speculative behavior of others. In turn, others' behavior is motivated by their perceptions of others' behavior, and so on. Without Say's law keeping them in balance, financial markets are thus inherently unstable. Through this identification, Keynes deduced the consequences for the macroeconomy of long-run equilibrium being attained not at only one unique position that represented a "Pareto Optima" (a special case), but through a possible range of many equilibria that could significantly under-employ human and natural resources (the general case).

For the Marxian critique, which is more fundamental, one must start at Marx's initial distinction between use value and exchange value—use value being the use somebody has for a commodity, and exchange value being what an item is traded for on a market. In Marx's theory, there is a gap between the creation of surplus value in production and the realization of that surplus value via a sale. To realize a sale, a commodity must have a use value for someone, so that they purchase the commodity and complete the cycle M–C–M'. Capitalism, which is interested in value (money as wealth), must create use value. The capitalist has no control over whether or not the value contained in the product is realized through the market mechanism. This gap between production and realization creates the possibility for capitalist crisis, but only if the value of any item is realised through the difference between its cost and final price. As the realization of capital is only possible through a market, Marx criticized other economists, such as David Ricardo, who argued that capital is realized via production. Thus, in Marx's theory, there can be general overproductive crises within capitalism.

Given these concepts and their implications, Say's law does not hold in the Marxian framework. Moreover, the theoretical core of the Marxian framework contrasts with that of the neoclassical and Austrian traditions.

Conceptually, the distinction between Keynes and Marx is that for Keynes the theory is but a special case of his general theory, whereas for Marx it never existed at all.

Modern interpretations

A modern way of expressing Say's law is that there can never be a general glut. Instead of there being an excess supply (glut or surplus) of goods in general, there may be an excess supply of one or more goods, but only when balanced by an excess demand (shortage) of yet other goods. Thus, there may be a glut of labor ("cyclical" unemployment), but this is balanced by an excess demand for produced goods. Modern advocates of Say's law see market forces as working quickly, via price adjustments, to abolish both gluts and shortages. The exception is when governments or other non-market forces prevent price adjustments.

According to Keynes, the implication of Say's law is that a free-market economy is always at what Keynesian economists call full employment. Thus, Say's law is part of the general world view of laissez-faire economics—that is, that free markets can solve the economy's problems automatically. (These problems are recessions, stagnation, depression, and involuntary unemployment.)

Some proponents of Say's law argue that such intervention is always counterproductive. Consider Keynesian-type policies aimed at stimulating the economy. Increased government purchases of goods (or lowered taxes) merely "crowd out" the production and purchase of goods by the private sector. Contradicting this view, Arthur Cecil Pigou, a self-proclaimed follower of Say's law, wrote a letter in 1932 signed by five other economists (among them Keynes) calling for more public spending to alleviate high levels of unemployment.

Keynes versus Say

Keynes summarized Say's law as "supply creates its own demand", or the assumption "that the whole of the costs of production must necessarily be spent in the aggregate, directly or indirectly, on purchasing the product" (from chapter 2 of his General Theory). See the article on The General Theory of Employment, Interest and Money for a summary of Keynes's view.

Although hoarding of money was not a direct cause of unemployment in Keynes's theory, his concept of saving was unclear and some readers have filled the gap by assigning to hoarding the role Keynes gave to saving. An early example was Jacob Viner, who in his 1936 review of the General Theory said of hoarding that Keynes' attaches great importance to it as a barrier to "full" employment' (p152) while denying (pp158f) that it was capable of having that effect.

The theory that hoarding is a cause of unemployment has been the subject of discussion. Some classical economists suggested that hoarding (increases in money-equivalent holdings) would always be balanced by dis-hoarding. This requires equality of saving (abstention from purchase of goods) and investment (the purchase of capital goods). However, Keynes and others argued that hoarding decisions are made by different people and for different reasons than are decisions to dis-hoard, so that hoarding and dis-hoarding are unlikely to be equal at all times, as indeed they are not. Decreasing demand (consumption) does not necessarily stimulate capital spending (investment).

Some have argued that financial markets, and especially interest rates, could adjust to keep hoarding and dis-hoarding equal, so that Say's law could be maintained, or that prices could simply fall, to prevent a decrease in production. But Keynes argued that to play this role, interest rates would have to fall rapidly, and that there are limits on how quickly and how low they can fall (as in the liquidity trap, where interest rates approach zero and cannot fall further). To Keynes, in the short run, interest rates are determined more by the supply and demand for money than by saving and investment. Before interest rates can adjust sufficiently, excessive hoarding causes the vicious circle of falling aggregate production (recession). The recession itself lowers incomes so that hoarding (and saving) and dis-hoarding (and real investment) can reach a state of balance below full employment.

Worse, a recession would hurt private real investment—by hurting profitability and business confidence—through what is called the accelerator effect. This means that the balance between hoarding and dis-hoarding would be pushed even further below the full-employment level of production.

Keynes treats a fall in marginal efficiency of capital and an increase in the degree of liquidity preference (demand for money) as sparks leading to an insufficiency of effective demand. A decrease in MEC causes a reduction in investment, which reduces aggregate expenditure and income. A decline in the interest rate would offset the decline in investment, and stimulate propensity to consume. 

Accelerating change

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