Austrian economics and Say’s Law – google search

These were the paltry results from a google search under the question: “do austrians understand say’s law?”

From Mises Daily: Say’s Law in Context

From these two basic truisms arises Say’s Law. If individuals wish to procure a good they must give something in return that is also desirable to individuals. Therefore in order for one to be a consumer one must first be a producer of a good in which others find utility. Thus individuals desire the commodity of money not as an end in itself,7 but rather as a means to procure more desirable goods. However, in order to acquire money one must first produce a good that will exchange for money.8

The most important point in Say’s formulation is that the individual must produce something that is desirable to others. It is from the erroneous statement “supply creates its own demand” where the notion comes that as long as something is produced it will readily find a market. This idea conjures connotations of Ricardo’s labor theory of value in which a product is endowed with value due to the exertion of labor in its production.


ABSTRACT: Economists have tried to explain business cycles as well as fluctuations in the economy, but over the past two centuries, the explanations have fallen into two areas. The first area tries to explain business cycles as being the result of fluctuating aggregate demand; if overall demand for goods is strong (or to put it another way, consumers are confidently buying goods), then the economy is in a boom. However, if consumers choose not to spend,then the economy is in recession. The second area, as outlined by Sowell is that of seeing an economy as operating within internal proportions that are brought into imbalances. Say’s Law is found in this second category, and the Austrian theory of the business cycle (ATBC) also is a proportionality-based theory. However, most economists have failed to make the connection between Say’s Law and the ATBC.

From Steve Horwitz: Say’s Law of Markets: An Austrian Appreciation

Given the strong similarities between Say’s work and that of the Austrians, including their similar classical liberal outlook, one would expect to find a good deal of discussion of Say’s Law in the classic Austrian literature. In fact, there is almost none. A search through Mises and Hayek reveals but one mention of ‘Say’s Law’ and only two or three more mentions of Say. Nowhere in Hayek’s work on business cycles and macroeconomic issues is Say’s Law mentioned by name. It does not appear in Mises’ Human Action, nor in any of the collections of his essays on money and related issues. The only specific mention of the law of markets is in the final chapters of The Theory of Money and Credit that were added in the 1952 edition. Other than that, there appears to be no discussion of Say’s Law, at least by name, in the Austrian literature until the mid- 1970s.

With respect to both Austrian microeconomics and macroeconomics, Say’s Law is a natural fit. When we move beyond the colloquial ‘supply creates its own demand’ version of the Law, and attempt to understand it in all of its complexity, we see how Say’s Law is an explanatory principle of the spontaneous order of the market, and one that crucially extends Smith’s insight about the extent of the market limiting the division of labour. As such, it becomes part of the microfoundations of macroeconomics, particularly in an Austrian view that emphasises monetary exchange as the central act of an economic order. No understanding of the effect money (and, by implication, time) has on the market can be complete without coming to grips with the issues raised by Say’s Law.

Smiling Dave A New Misunderstanding of Say’s Law which is a critique of the above article. This is he heading for the blogsite, or at least for this post, which means he gets it:


Austrian Economics Wiki Say’s Law

Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say, stating that there can be no demand without supply.

Which also has this as the full list of articles:

Say’s law on Wikipedia
Say’s law
Say’s Law: Were (Are) The Critics Right (pdf), by William L. Anderson
Lord Keynes and Say’s Law by Ludwig von Mises
A Rehabilitation of Say’s Law (pdf), W.H.Hutt
Say’s Law in Context by Peter Anderson, July 2003
Understanding Say’s Law of Markets by Steven Horwitz, January 1997

Tom Woods: More on Keynes and Say’s Law – an interview with Steve Kates

Say’s Law is such an obscure topic and while understanding the point is, so far as I can see, the essential ingredient in understanding what is wrong with Keynesian economics, very few take it up because it is so fiddly and there are so many elements that you have to keep straight all the time. I hope you won’t mind, but I’d like to just add a couple of things on Say’s Law to round out what I was trying to get across during the interview.

The interesting and depressing part is that W.H. Hutt stated that Say’s Law was the single most important element in the refutation of Keynesian economics. Unfortunately, he did not come to dealing with these issues until the chapter that begins on page 387 of his Keynesianism: Retrospect and Prospect (Henry Regerny 1963).

Yet even so extreme a Keynesian as Sweezy has been rash enough (and right enough) to admit, in his obituary article on Keynes that the arguments of The General Theory “all fall to the ground if the validity of Say’s Law is assumed” (Hutt 1963: 389)

If Keynes made it his crucial issue I still don’t understand why opponents of Keynesian economics don’t do the same.

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