Say's law of markets
In which I defend the statement that: “goods never remain unsold as a result of insufficient aggregate demand, but rather always because of a misallocation of production or a result of government intervention.”
The above is what I mean by say’s law (and what afaik almost all of those who defend it believe it to mean).
A common description of say’s law is the idea that “supply creates its own demand” which I think is a misleading formulation of say’s law, in isolation. What is misleading about it is that it evokes the cost theory of value/labour theory of value. I.e. the idea that the act of production is what gives something value. Hence it sounds absurd to most reasonable people. This is unequivocally not what is meant by those who agree with say’s law.
Key points:
- in the absence of a misallocation of production (incl. govt intervention), qty supplied = qty demanded for all goods.
- therefore any goods remaining unsold is as a result of a misallocation of production (i.e caused by 1) the producer incorrectly anticipating demand or 2) govt intervention)
- therefore it is not possible for any unsold goods to be the result of insufficient aggregate demand.
- bob supplying goods which satisfy consumer preferences creates demand for other goods (where “other goods” includes future goods)
- this is what is meant by “supply creates its own demand” by those who agree with this statement.
- The supply of goods creates sufficient demand for all goods to be purchased, as long as misallocation of production has not occurred.
- bob saving rather than spending does not represent a decrease in demand for goods.
- It simply represents his demand for future goods over present goods.
- if alice produces present good x but consumers prefer future good y over present good x, resulting in some good x going unsold, this represents misallocation on the part of alice.
- alice misallocated her production resources to the present when consumers preferred other future goods over her present goods.
- it does not represent insufficient aggregate demand.
- bob becoming unemployed and buying less of good x, resulting in some good x going unsold, doesn’t represent insufficient aggregate demand.
- it represents a misallocation by the business which made good x.
- the business did not expect bob to become unemployed and demand less as a result. They produced something which turned out not to be wanted.
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Distbit
Interested in econ, cryptoecon, agents, finance, epistemology, liberty.