Say's Law

Note from Wikipedia

Say’s law, or the law of market (Jean-Baptiste Say, 1767-1831) posits that consumption limits the PPF. Hence there is a shortfall of AD. As a result, the means to increase purchasing power is further production of valued resource.

1. Refute to

a. Keynesian – ‘supply creates its own demand;

b. ‘All that is saved will be exchanged’

c. Production and employment were limited by low consumption

In its original concept, was not intrinsically linked nor logically reliant on the neutrality of money because the key proposition of the Law is that no matter how much people save, production is still a possibility as it is the prerequisite for the attainment of any additional goods of consumption. It states that in a maker economy, goods and services are produced for exchange with other goods and services – ‘employment multipliers’ "The employment multiplier associated with a particular regional economic stimulus is designed to yield an estimate of the total employment attributable to the stimulus per job or man-year of employment directly created." [Davis, Regional Economic Impact Analysis and Project Evaluation, 1990, p.37] therefore arise from production and not exchange alone- in the process a sufficient level of real income is created to purchase the economy’s entire output due to the truism that the means of consumption are limited by the level of production. The is to say, (with regard to exchange of produce within a division of labour) the total supply of goods and services in a market economy will equal the total demand derived from consumption during any give time period – in modern term, ‘general gluts (SS>DD) cannot exist’, although there may be local imbalances, with gluts in one market balances by the shortages in others.

“Products are paid for with products” or “a glut can take place only when there are too many means of production applied to one kind of product and not enough to another” (1803:p.178-9)

Neoclassical – SL assume that the economy is always at its full-employment level.

TBC…