Conventional economists like to claim
that Say's Law is a natural law when it is better described as Say's
Theorem. I think it was Keynes who described the "Law" as a self-evident
identity. In practice, of course, (in the present unfree markets of
neoclassical finance capitalism), supply does not create its own demand
and so the "Law" does not work.
Ed Dodson
here:
Among 20th century economics
professors, one I recommend for clarity of writing is Harry Gunnison Brown.
His book, *Economic Science and the Common Welfare* (first published in 1925)
is as clear an exposition of how politics dictates economic outcomes as I have
come across. Brown sets down for economists attempting
to analyze and explain market dynamics the scope
of investigation required:
"Specialization necessitates exchange and exchange implies a
rate or rates of exchange. Hence, a consideration of specialization and the
division of labor leads to a consideration of the problem of value or price.
We have to inquire, then, what forces determine the value of any one kind of
goods in terms of other goods or what forces determine the value or price of
any one kind of goods in terms of the medium of exchange,
money."
Because of the conflict between a
self-evident identity and reality, Say's Law (or rather, Theorem) has been the
subject of great controversy for over 175 years. And it will remain a
subject of controversy while people have the fundamental misconception that
labor creates most of the wealth. Moreover, it is
remarkable that Say himself realised that "Say's Law" -- which was not
original to Say but goes back at least to Adam Smith -- could not work
in practice if the power of producing values is ascribed to labor alone (as
Smith generally ascribes it). See Binary Economics, pages 100-101 and
289 - 296.
Ed Dodson
here:
Brown ignores Say's Law in his
presentation. His discussion of what occurs during the downturn of
the business cycle. As Brown writes:
"The psychology of the
situation seems to be that each person hesitates to buy -- at existing prices
-- lest he cannot sell at a profit. ...In any case a sufficient reduction of prices cannot but bring
-- and that, soon, an increase of purchases. For it could not but become
obvious, at some low level of prices, that further decline could not be
expected. And the amount of potential purchasing power that people will hold
indefinitely idle is not indefinitely
large."
This does not mean, I conclude, that supply creates
its own demand, only that in other than the most extraordinarily bleak
circumstnaces, price will clear the market for most goods already produced.
Once sold, however, the producer is likely to have experienced such a huge
loss that further production -- even when the cost of labor and raw materials
falls to allow for some profitability at current market clearing prices -- is
curtailed. Thus, Say's Law (or Theorem) is subject to
certain conditions and to certain types of goods (e.g., those
least likely to loose functional utility sitting in a warehouse waiting for
demand to recover).