Lord Keynes — A Puzzle about Say’s Law

The fundamental assumption is that left to itself everything (all factors) adjust (in aggregate) in the long run although there may be short run disruptions in some markets. It is further assumed that the only way to facilitate the adjustment process is to reduce frictions, which it is assumed are due to government intrusion in markets. Shortages and gluts are only short terms problems that entrepreneurial ingenuity and creative destruction will work out along with market forces.

May make sense in the laboratory assuming a simple closed system and cet. par., but not so much in the real world where all things are not equal, especially over time, institutions dominate rather than individuals, the system is complex, the future uncertain, people are not always perfectly rational, and asymmetries of information and power skew markets.

Say's law should be called Say's gadget, which, like a Robinson Crusoe-Friday economy, might be useful in Econ 101, or not.

I don't think we should come down too hard on early economists though. After all, they were exploring the territory and carving out a new discipline. In this light their achievements are great even though they made some blunders. 

What is disconcerting is that so many contemporary economists still can't figure it out after the mistakes have been pointed out, sometimes long previously, such as Marx and Keynes with Say. No, markets don't adjust at a full employment equilibrium in the long run, and now we know why based on monetary, institiutional and cognitive-behavioral economics, as well as the failures of equilibrium economics.

Social Democracy For The 21St Century: A Post Keynesian Perspective

A Puzzle about Say’s Law
Lord Keynes

Here’s what Marx thought about Jean-Baptiste Say, courtesy of Sandwichman at Econospeak.

Supply Creates Its Own Demon II: You Don't, Say!

Barkley Rosser — Jean-Baptiste Say Did Not Believe In Say's Law

Short must-read.

So much for invoking "Say's law" against fiscal stimulus to offset demand leakage and unemployment. He anticipated Keynes's criticism of changing propensity to save versus propensity to consume and recognized the potential for short-run supply gluts.

Like Adam Smith and David Ricardo, Jean-Baptiste Say was pressed into neoliberal service.

EconoSpeak
Jean-Baptiste Say Did Not Believe In Say's Law
Barkley Rosser

Bill Mitchell — Keynes and the Classics Part 6 & 7

While I usually use Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray, today I am departing from that practice (deadlines looming) and devoting the next two days to textbook writing. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog approach.

I am currently working on Chapter 11 which opens like this:

Chapter 11

11.1 Introduction and Aims

In Chapter 10, we discussed issues relating to labour market measurement. In this Chapter we will focus on theoretical concepts that underpin the measurement of economic activity in the labour market and the broader economy.

The Chapter has five main aims:

• To explain why mass unemployment arises and how it can be resolved.
• To develop the concept of full employment.
• To consider the relationship between unemployment and inflation – the so-called Phillips Curve.
• To develop a buffer stock framework for macroeconomic management (full employment and price stability) and compare and contrast the use of unemployment and employment as buffer stocks in this context.
• To more fully explore the concept of a Job Guarantee (employment buffer stock) approach to macroeconomic management.

NOTE:
The Keynes and Classics series so far is:

• Keynes and the Classics – Part 1 – explains how the Classical system conceived of labour supply and demand and how these come together to define the equilibrium level of the real wage and employment.
• Keynes and the Classics – Part 2 – explains how the labour market determines the level of employment and real wage, which in turn, via the production function set the real level of output.
• Keynes and the Classics – Part 3 – tied the previous conceptual development into the denial that there could be aggregate demand failures (Say’s Law), introduced the loanable funds market and discussed the pre-Keynesian critique (Marx) of the Classical full employment model.
• Keynes and the Classics – Part 4 – which began Keynes’ critique of Classical employment theory.
• Keynes and the Classics – Part 5 – continues the critique of Classical employment theory.

Today, we finish the critique by John Maynard Keynes of Say’s Law by considering his theory of interest.

NEW TEXT STARTS TODAY HERE

11.15 Keynes rejection of Say’s Law – the possibility of general overproduction

Bill Mitchell — billy blog

Keynes and the Classics Part 6

Bill Mitchell

11.16 The macroeconomic demand curve for labour

Keynes and the Classics Part 7

Lord Keynes — Rise of the Robots?

More on automation and robotics, and Jean-Baptiste Say. LK points out that Say thought that public policy would be needed to bolster the effects of innovation on employment.

Social Democracy for the 21st Century: A Post Keynesian Perspective »

Rise of the Robots?
Lord Keynes

"Adam Smith and the Myth of Laissez Faire"

Free, unregulated markets -- those absent government oversight of any kind -- are not the same as the ideal competitive markets found in textbooks, those that produce optimal outcomes. In a free market, producers are free to organize, for example, "in some contrivance to raise prices," and this takes us away from the optimal outcome free market enthusiasts are trying to defend. Government oversight and regulation are needed to stop producers from engaging in behavior that is harmful to consumers, excessive market power and the associated political power that come with it are both problematic, a point Smith's so-called disciples ought to take to heart.

And no, Adam Smith never used the phrase "laissez-faire," even though it knew of it. Gavin Kennedy shows that the narrative of Adam Smith embracing laissez-faire is myth whose origin is traceable to Jean-Baptiste Say and Fredric Bastiat. Kennedy is the authority on Adam Smith so let's put that myth to bed.

Read it at Economist's View
"Adam Smith and the Myth of Laissez Faire"

by Mark Thoma, with a long quote from Gavin Kennedy