Thursday, October 2, 2014

My Posts on Say’s Law

My links on the history of Say’s law, its different versions, and the criticisms that can be made against it:
“The Myth of Say’s Law,” October 7, 2010.

“F. H. Hahn in a Candid Moment on Neo-Walrasian Equilibrium ,” January 29, 2011.

“Say’s Law Presupposes Aggregate Demand as a Meaningful Concept,” May 28, 2011.

“Say Repudiated Say’s Law,” December 1, 2011.

“Jean Baptiste Say on Failures of Aggregate Demand,” December 1, 2011.

“Jean-Baptiste Say and “Say’s Law,” September 14, 2012.

“The Origin of Say’s Law in Adam Smith and James Mill,” September 14, 2012.

“Bibliography on Say’s Law,” September 16, 2012.

“A Note on Prices and Say’s Law,” December 11, 2012.

“World GDP versus Total Value of Financial Asset Market Exchanges,” February 21, 2013.

“Say’s Law: An Overview and Bibliography,” April 13, 2013.

“Matias Vernengo on Say’s Law,” February 11, 2014.

“A Puzzle about Say’s Law,” June 29, 2014.


  1. The discussion over at BiblicalInerrancy, aka Murphy's, is very jumbled and confused. Two things struck me though:
    1) the way they ignore your quotation from Say, with its import and false claim about immediacy
    2) the way they ignore your correction about who owns the money lent by banks. This is an error they just won't ever abandon.

    1. Indeed. Of course you can hoard or "hold" money in the form of demand deposits.

      And you can spend your money income on secondary financial asset or real asset markets, not newly produced goods.

      The question is this: will there be enough new spending on newly produced goods to match the amounts held in bank accounts or spent on asset markets by:

      (1) dissaving and

      (2) new bank loans (= new deposits and broad money)

      that will equal the value of the money that "leaks out" of the income stream from factor payments?

      Well, yes, probably during booms -- in fact it will be more. But in recessions when credit growth -- (2) above -- goes negative and people increase saving? No.

      Throw in the fact that Say's law also seems to be based on the Classical political economy assumption that profits are driven to zero and
      "normal" prices are at costs of production, you've got one ridiculous theory, for total ex ante (before sales) factor payments can't equal aggregate output prices when most goods are sold to earn a profit!

      Furthermore, before the 1930s and the rise of the use of banks, it was quite common for people to hoard their money at home. Or think of the ancient Romans: hoarding in times of crisis took the form of simply burying your money in the ground, so much so that we are still digging the stuff up!

    2. Or think of the 100% reserve warehouse "banking" fantasy of libertarians. If your money is not in a strict loan with a set date for maturity (which seems to be the only option allowed for a "loan"), then those 100% reserve warehouses would be massive hoards of money, sitting idle.

      With no modern banking system to create new credit money, if people really stored a significant proportion of their income that way permanently every week/pay period, Say's law would fail continuously -- it would never hold true.