Mark Thoma at Economist's View links to Brad DeLong's post Making Sense of Friedrich A. von Hayek in which DeLong once again reiterates his bizarre notion about "making Say's Law true in practice although it is false in theory." "Say's Law" (which is neither Say's nor a law!) is not even false in theory -- it is self-contradictory nonsense -- a "liar's paradox.
Making Say's Law "true in practice" is not consistent with Keynes's critique of the vulgar classical notion that "supply creates its own demand."….Lump of labor fallacy, Say's law, wages-fund fallacy, and zombie economics, couched in a running debate between Sandwichman and Brad DeLong.
EconoSpeak
Making Sense of Brad DeLong's "Making Say's Law True in Practice"
Sandwichman
I'd like to see a very specific statement of Say's Law.
ReplyDeleteIn a barter economy, what you bring to market to sell (your supply) is what you bring to market to buy with (your demand). Supply is demand and demand is supply.
ReplyDeleteDan,
ReplyDeleteI believe Nietzsche's definition of "truth" applies especially to Say's Law:
"A mobile army of metaphors, metonyms, and anthropomorphisms—in short, a sum of human relations which have been enhanced, transposed, and embellished poetically and rhetorically, and which after long use seem firm, canonical, and obligatory to a people: truths are illusions about which one has forgotten that this is what they are; metaphors which are worn out and without sensuous power; coins which have lost their pictures and now matter only as metal, no longer as coins."
David Glasner, Who’s Afraid of Say’s Law?
ReplyDeleteMatias Vernengo, Say's Law of Markets: Classical and Neoclassical versions
Say's Law of Markets
"coins which have lost their pictures and now matter only as metal, no longer as coins."
ReplyDeleteExactly our problem!!!!!
Dan Kervick: "Right now, we have something more like a sluggish equilibrium of both lower demand and lower supply than our economies are capable of maintaining."
ReplyDeleteIndeed. But I wonder if it is like a "general glut" in that putting money into circulation could lead to a healthier economy. IOW, aren't we in another Long Depression?
I like Bill’s definition of Say’s Law (above). For the benefit of those who don’t understand how Say’s law works, Bill’s definition could be expanded a bit, as follows.
ReplyDeletePerson X in barter economy is unemployed. So they decide to produce commodity Y. They offer to swap it for other stuff. That causes Y to drop in price in terms of other goods, which ensures the extra Y coming to market is sold. Hey presto: everyone is employed!
Re Dan’s point that Say is not “very relevant to our time”, that’s true. But it’s still worth trying to get economic theory right: that can lead to insights into aspects of our non-barter economies.
Dan I'd say that there is still a bit of a glut in property... its being worked off though now 5 years into it...
ReplyDeleteWhen the bubble first burst you had a severe glut of workers trained in property development and a glut in the actual properties... both residential and commercial..
Property was the area that received the majority of the bank credit in the run up...
Agree with you that the the balance of the economy that works in the general area of provision of goods and services doesnt seem to have a glut or ever had a glut in this cycle...
But I still drive around and often see mostly empty commercial properties ... and some unfinished residential developments now going on 5 years into this...
rsp,
Ralph,
ReplyDeleteit's still possible to hoard goods or the means of production in a (imaginary) barter economy. Which to me indicates that involuntary unemployment is indeed possible in a (imaginary) barter economy.
Ralph Musgrave: "I like Bill’s definition of Say’s Law (above). " When a "law" or principle has as many interpretations as Say's, it's coherence as a "law" is evidently contested -- even by those who purportedly believe in it. Witness "marxism". It is perilous to pick one interpretation and try to insist that it is the correct one.
ReplyDeleteWhat I address is not some ideal Say's Law but a particular textbook version that has insinuated itself into vernacular economics. It may well be a debased coin. It IS a debased coin. But it is the coinage that is in general circulation. That is the "supply creates its own demand" platitude that Keynes criticized. Keynes did not invent the platitude. For history of economic thought, it might be relevant to ponder "what Say really meant" but in terms of contemporary policy debates what is relevant is the orthodox textbook platitude, not the ideal. Of course, it's also fine to "like" whatever version one wishes. Whatever like means.