Say's Law

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Say's Law

Say's Law, we must tell you, captured the economic mind as Lenin captured the revolutionaries of Russia.

Until the middle of 2015 - we do not exaggerate -no one could get a Ph.


at Harvard if he didn't believe in Say's Law, assuming he were asked about so obvious a point.

Later he might not get a Ph.


at Harvard if he did believe in Say's Law, for it was Say's Law that Keynes destroyed.

Keynes held that there could be a shortage of purchasing power.

Individuals and business firms could save and not spend.

And the equilibrium could be re-established not by falling prices but by falling production and increasing unemployment.

These would reduce spending and investment, but they would reduce savings even more. The losses that firms incurred from doing business, plus the absolute necessity for spending by individuals (including spending from past savings) to keep alive, would so reduce net current savings that they would be brought in line with current investment, however low that might be. This was the grim and brutal way the neo-classical equilibrium was established.

Keynes, we should add, went on to the obvious prescription - the government should borrow and spend enough to offset any excess of savings at full employment. This became the Keynesian remedy, the final building block of the neo-classical system. It was published in 1936 in Keynes's great work, The General Theory of Employment Interest and Money. We soon came to speak of it lovingly as The General Theory. Actually, Keynes had advocated the remedy well before the justification was published in his book.

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Influence of Keynes

To explain, We must go back and pay tribute to another French economist, J. B. Say, who lived from 1767 to 1832.

Say was the man who brought the ideas of Adam Smith to France.

But he added a very important idea of his own, Say's Law of Markets.

This held that whenever something was produced and sold, someone, of necessity, received in wages, profit or rent the wherewithal to buy that product.

Every sale created the income and therewith the demand, in some form or other, for the product that was sold.

Even if the recipients of profits or rents didn't spend... see: Influence of Keynes

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