The Duality of Say’s Law

On 23 April 2010, in economics, history of thought, by Ryan

[This term paper was originally written for ECON 2110 W - History of Economic Thought]

The “Duality” of Say’s Law

A Restoration of J.B. Say’s Original Intentions

I. INTRODUCTION

The concept known as “Say’s Law of Markets” has been challenged many times over the centuries but the actual theory remains to be disproven. During every economic depression, businessmen and economists proclaim it null due to “underconsumption,” “overproduction,” and the presence of “general gluts.” Jean-Baptiste Say, a laissez-faire economist who wrote on the subject of gluts casually and without revolutionary intentions, is traditionally understood to have proved these phenomena impossible. In turn, history is supposed to have proved Say wrong, and his law is now widely considered refuted. The alleged law, however, has only been attacked on the terms of its hecklers, and has always been straw-manned as a vulgar apologia. Economists act as if there are two Say’s Laws; the first, (Say’s original insight) arguing that, provided a functional free market with sound money, general gluts will not occur; the second (a vulgar creation considered to be the “disproven” Say’s Law) declaring that general gluts are always and everywhere impossible.

Say’s Law has been challenged, among others, in two famous episodes, first by Reverend Thomas Malthus in 1820, and more famously by John Maynard Keynes in 1936. There can be no denying that general gluts did appear in 1816-1823 and in 1929-1941; doing so would be to advocate the vulgar Say’s Law. The crucial point is that prolonged gluts were not caused by the free market, but by the rampant government interventions in the market during these historic episodes, acquitting Say by default. Both detractors observed largely circumstantial evidence which provided the impetus for them to attempt pure “theories of underconsumption” contra Say’s Law. They observed that there were gluts, but failed to fully comprehend what had caused them. Both Malthus and Keynes were attacking a straw man, blaming the free market for the problems of government, and ironically appealing to the latter to fix the former.

Adam Smith’s Capitalism – Positive or Normative?

On 1 March 2010, in economics, history of thought, religion, by Ryan

Adam Smith’s Capitalism – Positive or Normative?

by Ryan Safner

[This essay was originally written for ECON 3462 - History of Economic Thought]

Adam Smith’s classic argument for capital accumulation is not a positive analysis of a functional market economy, but instead a strong normative account of his preference for investment over consumption. While Smith is widely hailed as the father of economic science, it is commonly understood that he vaguely mixed positive descriptions with value judgments. His magnum opus, The Wealth of Nations, functions as the economist’s bible, written archaically and vaguely enough for economic historians to draw numerous contradictory exegeses. Many of Smith’s more regrettable or idiosyncratic theories on political economy can be explained by his ethical interjections, which in turn reflect his Presbyterian background. The most vigorous preference he displays is for frugality and thrift over gluttony and conspicuous consumption. This ethic puts into perspective his confused labor theory of value, specifically the differentiation between “productive” and “unproductive” labors. The classical conundrum of the diamond-water paradox that he attempted to grapple with was but a mere illusion spawned by these potent inclinations. The epitome of this bias is his otherwise inexplicable defense of usury laws which blatantly violates his alleged policy of “lassiez-faire.” Adam Smith’s Wealth of Nations elucidates many truths about the free market economy, but these are unfortunately buried underneath mountains of vagaries and ethical interjections.

Tagged with: Calvinism • capital • capitalism • consumption • economics • free market • history • interest • investment • labor • Neoclassical • Protestantism • religion • Rothbard • savings • Smith

A.R.J. Turgot as Austrian Grandfather

On 22 February 2010, in economics, history of thought, by Ryan

A.R.J. Turgot as Austrian Grandfather

by Ryan Safner

[This essay was originally written for ECON 3462 - History of Economic Thought]

Anne-Robert Jacques Turgot’s brief but brilliant writings on political economy portray him as a major intellectual precursor to the modern Austrian school of economics. Many of his primitive yet revolutionary insights into the nature of a free market bear striking resemblance to major Austrian tenets. None is so crucial and so well-developed, however, as his vision of a dynamic and emergent market order. Turgot’s shining brilliance and foresight into this area illuminates the voids of the sycophantic mercantilists and the comparative statics of the classical school. This grandiose vision would be lost for a century until it was recovered, quite independently, by the original Austrian, Carl Menger. If Menger is the father of the Austrian school, Turgot would certainly qualify as the estranged grandfather. Turgot’s prolific vision of market-based progress can be seen through a proto-Austrian lens based upon two key concepts he elucidated – the great role of the capitalist-entrepreneur and that of time. Turgot observed that it is the entrepreneur, or “undertaker,” who forecasts future conditions and undertakes a profitable venture in the context of ubiquitous risk and uncertainty. In particular, it is the capitalist-entrepreneur who forwards the money from his saved capital at a future profit to make such an undertaking possible. Since entrepreneurial action necessitates present action based on future speculation, Turgot is one of the first to highlight the immensely important and often neglected role of time in production and investment. Their combination makes for an economy where entrepreneurs act as the great equibrilators to the constant flux of market dynamics. Their actions, as well as their accumulation of capital, allow for the optimistic possibility of an ever-progressing society.

Tagged with: Austrian • capital • capitalism • Classical • economics • emergence • entrepreneur • free market • history • labor • Menger • Neoclassical • risk • time • Turgot • uncertainty

Understanding Economics – Lesson Two: Land, Labor, & Capital [VID]

On 16 February 2010, in Understanding Economics, Videoblog, economics, by Ryan

Understanding Economics Series
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Common sense economic lessons for the interested layman. How a free market economy works, from an Austrian School perspective.
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Lesson Two: Land, Labor, & Capital.

An overview of the process of production, and an analysis of the three factors of production – land, labor, and capital. The definition, importance, and function of each of the factors. Also, an extended example of a single-man economy (Robinson Crusoe) and how the process of production involves the cooperation of land, labor, and capital. Also, the importance of capital accumulation for economic growth and prosperity.

Tagged with: Austrian • capital • economics • entrepreneur • factors of production • investment • labor • land • marginal utility • Robinson Crusoe • savings • Understanding Economics

Safnerism

Free Markets. Emergent Orders. Common Sense.