Tuesday, February 11, 2014

Matias Vernengo on Say’s Law

Matias Vernengo has an interesting post here on Say’s law and the difference between the Classical and neoclassical versions:
Matias Vernengo, “Say’s Law of Markets: Classical and Neoclassical Versions,” February 10, 2014.
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3 comments:

  1. Ken BFebruary 12, 2014 at 6:13 AM

    What am I missing here? Austrians maintain that say's Law always holds. They also maintain that production gets out of whack, that Mowel investment happens. What is malinvestment except a violation of say's Law? Someone is producing widget factories for which there is no demand.

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    1. Lord KeynesFebruary 12, 2014 at 6:42 AM

      "Austrians maintain that say's Law always holds."

      Well, I think that is only vulgar Austrians who define Say's law in a form so weak it is transformed into a meaningless tautology (think of MF's ramblings on Say's law).

      In reality there are 2 forms of Say's law in economics:

      (1) Say’s Identity
      According to Baumol (1977: 146), this

      “is the assertion that no one ever wants to hold money for any significant amount of time, so that, as a result, every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value”; and

      (2) Say’s Equality
      Again, according to Baumol (1977: 146), Say’s Equality

      “admits the possibility of (brief) periods of disequilibrium during which the total demand for goods may fall short of the total supply, but maintains that there exist reliable equilibrating forces that must soon bring the two together.”
      -----------

      (1) is simply crazy, but (2) is the one generally accepted, I would say, by Austrians and other economists: that a disequilibrium of total demand and total supply is rapidly eliminated by self-equilibrating markets.

      That is rubbish too:

      http://socialdemocracy21stcentury.blogspot.com/2010/10/myth-of-says-law.html

      http://socialdemocracy21stcentury.blogspot.com/2013/04/says-law-overview-and-bibliography.html

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  2. Ken BFebruary 13, 2014 at 9:58 AM

    As for 2, I can believe that there will be what one could call and equilibrating desire. I have all these pet rocks I made, what can I do with them. But that's not the same thing as saying there's going to be an effective *mechanism* for me to liquidate them. I might end up using them in my driveway. I know MF and crew will say "aha you have a demand for driveway gravel, Say wins again" but I think most of us will find that absurd.

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