Say's Law and modern macroeconomics
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Many economists have debated the interpretation of what is known as "Say's Law of markets"; it has been the subject of controversy for two centuries. Jean Baptiste Say describes Say's Law by noting that the "success of one branch of commerce supplies more ample means of purchase, and consequently opens a market for the products of all the other branches; on the other hand, the stagnation of one channel of manufacture, or of commerce, is felt in all the rest."' Twentieth-century economist John Maynard Keynes, in an attempt to destroy the credibility of Say's Law, parodied Say's Law by expressing it as "supply creates its own demand," and this inaccurate phrase has since become well-entrenched in economics. Hence, the disagreement over Say's Law extends to its very definition. Despite the historical controversy over Say's Law, it has generally been neglected in recent years, and modern macroeconomics has virtually disregarded it as either erroneous or irrelevant. My approach focuses on five propositions, proving that (I) Say's Law is crucial to economics, particularly macroeconomics; (II) Walras' Law2 is its formalization; (III) its implications are far more important than have been previously recognized; (IV) modern theorists have neglected Say's Law; (V) the results of this neglect have led to theories that stray from sound economic theory. The crux of my research involves an in-depth analysis of the major commentators on Say's Law, dating from Adam Smith to modern economists. However, this research is not merely interested in history of economic thought; by gaining an understanding of the evolution of Say's Law, I can then assess its role, if any, in macroeconomic analysis. In addition to exploring written texts, I consider the opinions of prominent modern economists, thereby solidifying the basis for my final conclusions about Say's Law and its pertinence to modern macroeconomics. I conclude that Say's Law is absolutely embedded in sound economic theory, and modern economists may implicitly accept Say's Law without readily realizing (or crediting) it. In sum, opponents of Say's Law have failed to disprove it, and it remains a key proposition beneath all great macroeconomic analysis of crises. ¹Say, Jean Baptiste.. A Treatise on Political Economy. (New York: Augustus M.Kelley Publishers, 1971), 135. ²Broadly defined, Walras' Law says that if N-1 markets experience excess demand>O, then the Nth market must offset the excess demand so that the aggregate sum of excess demand equals zero.
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Includes bibliographical references (leaves 115-119).
Van Allen, Laurel Cameron (2001). Say's Law and modern macroeconomics. Texas A&M University. Available electronically from