Say’s Law and Austrian economics

Peter Boettke at Coordination Problem links to the Liberty Fund discussion on the economics of John Stuart Mill under the heading, Mill > Keynes, so says Steven Kates. Very pleasing, but more pleasing are the two comments, very critical of what I wrote, that have been sent in by Barkley Rosser.

Kates is obsessed with Say’s Law, how it is true basically by definition. Mill’s view of macroeconomics is very sophisticated indeed, and Keynes notoriously undervalued the knowledge of his predecessors. But one very big difference is indeed over Say’s Law, which Mill accepted and Keynes did not. Given Kates’s strong views on this, of course he says Mill > Keynes, but, in fact, Say’s Law is not true in general, and Say himself knew it, as Kates has had pointed out to him on numerous occasions, but…
Posted by: Barkley Rosser | July 16, 2015 at 04:45 PM

BTW, now that it seems I can post here again after a long period of not being able to, let me add that I do not see anything particularly Austrian about Say’s Law. I just scanned a few books by Hayek and von Mises I have here in my office, and there was not a single mention of Say’s Law in any of them. I did find a mention of Say in Mises’s Socialism, but about whether or not Ricardo was right about gross versus net product. No Say’s Law.

I would suggest you all should not get yourselves too worked up about hanging your hats on Kates’s obsession, which he shares with the even more fanatical James Ahiakpor, whom those who follow HET know of. What is in it for you guys other than another way to bash Keynes?
Posted by: Barkley Rosser | July 16, 2015 at 04:53 PM

It’s as if criticising Keynes is some kind of thing in itself, and not one of the paramount economic issues of our time. Or that Say’s Law is not absolutely embedded in Austrian theory even if seldom mentioned. This is what I have replied:

It pleases me to see that Barkley Rosser has opened a second front on the issue of Say’s Law. And let me begin by noting where we agree, which is the absence of much discussion on Say’s Law among Austrian economists. But while there is not a lot, there is some, the most important one unfortunately going all the way back to 1950, in an article by Ludwig von Mises in The Freeman, “Lord Keynes and Say’s Law”. You can read the whole lot at this link but I will quote you the most relevant passage:

“The exuberant epithets which these admirers have bestowed upon his work cannot obscure the fact that Keynes did not refute Say’s Law. He rejected it emotionally, but he did not advance a single tenable argument to invalidate its rationale.

“Neither did Keynes try to refute by discursive reasoning the teachings of modern economics. He chose to ignore them, that was all. He never found any word of serious criticism against the theorem that increasing the quantity of money cannot effect anything else than, on the one hand, to favor some groups at the expense of other groups, and, on the other hand, to foster capital malinvestment and capital decumulation. He was at a complete loss when it came to advancing any sound argument to demolish the monetary theory of the trade cycle. All he did was to revive the self-contradictory dogmas of the various sects of inflationism. He did not add anything to the empty presumptions of his predecessors, from the old Birmingham School of Little Shilling Men down to Silvio Gesell. He merely translated their sophisms—a hundred times refuted—into the questionable language of mathematical economics. He passed over in silence all the objections which such men as Jevons, Walras and Wicksell—to name only a few—opposed to the effusions of the inflationists. . . .

“In fact, inflationism is the oldest of all fallacies. It was very popular long before the days of Smith, Say and Ricardo, against whose teachings the Keynesians cannot advance any other objection than that they are old.”

Say’s Law is at the heart of Austrian theory without most Austrians being fully aware of it. I have spent a good deal of effort trying to get Austrians more interested in Say’s Law as a means to explain the fallacies of Keynesian economics. I will merely here provide a link to my “Ludwig von Mises Lecture” of 2010, where I tried to show just how important Say’s Law is if classical economic theory – of which Austrian economics is the only modern manifestation – is ever again to become central to our understanding of the way in which an economy works. Just let me apologise in advance for the way in which I pronounce Mises’s name; at the time I had read much of what Mises had written, but by the nature of things, had never actually heard his name said by anyone else. It’s one of the problems being a lonely scholar way off on the other side of the globe. But as you will see, there is no denying my extremely high regard for both Mises and Hayek which I discuss early on.

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