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Tuesday, January 25, 2011

On Say's Law of Markets

Brad DeLong has an extended post about Say's Law, and despite my efforts (and apparently being logged in to TypePad), I can't get this comment to post. So I'll put it here:

All this (DeLong's post) makes me recall a paper I wrote for my grad history of thought class back in 1971 (when history of thought was still required for a PhD). It spun off somewhing Joseph Schumpeter wrote in his History of Economic Analysis (which, as I have a copy on my bookshelf, I can quote, from p. 624-625):

"So it gets down to this. A man by the name of J.B. Say had discovered a theorem of considerable interest from a theoretical point of view, that, though rooted in the tradition of Cantillon and Turgot, was novel in the sense that it had never been stated in so many words. He hardly understood his discovery and not only expressed it faultily but also misused it for the things that really mattered to him..."

So JAS had to explain it for him. Which he did not actually succeed at doing. (An aside. Given Schumpeter's conclusion, in what sense could Say be said to have discovered Say's Law of Markets, or at least the Law as interpreted by Schumpeter?)

In any event, this inspired me back then to read and re-read what Say actually wrote. And my conclusions, back in 1971, were that Say intended his Law of Markets in a long-run equilibrium sense. That the long-run growth of an economy was determined by what we would now call the determinants of aggregate supply. That given appropriate institutional arrangements and policies, a lack of demand could never be a barrier to long-run growth--we could always create the demand. That while all this was true in the long-run (in the long-run, there could be no "general gluts"), it need not be true in the immediate here-and-now, in the short-run.

Made sense to me 40 years ago and still does.

Update: It did post there, with some typos that I missed.


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