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.

Malthusian Underconsumptionism as Mere Product of the Times

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

Malthusian Underconsumptionism as Mere Product of the Times

by Ryan Safner

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

Reverend Thomas Malthus’ attempts to refute the universality of “Say’s Law of Markets” were largely driven by the rash conditions of war and post-war recession in the UK. Malthus’ underconsumptionist fears, and his more famous population thesis, both come during a coincidently chaotic time in European history – the Napoleonic Wars and the subsequent post-war depression. A sound man of empirics like the good Reverend could find economic misery all across Europe in the early 1800s as a result of these conditions, and consequently would challenge Say’s Law in order to account for this. Malthus’ dismal theories were merely ‘a product of the times:’ in the bad times, during both the inflationary war and the deflationary recession, he contested the Classicals’ pristine assumptions of full employment. In the good times, by the 1820s when Europe had recovered, he simply lost interest in the debate and moved on. Both of Malthus’ unique theories – the “population principle” and the underconsumptionist call for an “unproductive class” can be explained by the empirical history of the chaotic era. The fears of a Malthusian catastrophe – that population would outstrip food production—may have largely been a result of barriers to international trade for wheat between the war-torn European powers. Following the war, amidst a depression, mass unemployment and “redundancy of capital” would prompt his calls for an “unproductive class” to sop up the excess production.

Tagged with: ABCT • aggregate demand • aggregates • Austrian • business cycle • depression • economics • empirics • fallacies • free market • Keynes • labor • Malthus • Napoleon • recession • Say's Law • theory • underconsumption • wages • war

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