A comprehensive summary of Say’s Law
An interview with me on Say’s Law by the French journalist Grégoire Canlorbe has just been published in Man and the Economy, the journal of The Coase Society. It is the most comprehensive summary statement I have put together of Say’s Law – it runs to 31 pages – and I could not be more grateful to Grégoire who spent more than a year in discussing the relevant issues with me before we actually got down to the interview. You can download a copy of the article here .
Say’s Law remains the single most important principle in all of economics. Policy decisions that go against the grain of Say’s Law are guaranteed to fail, for which the evidence remains overwhelming. The obvious failure of every one of the stimulus packages that were attempted after the GFC, along with the failures that have been associated with attempts to stimulate investment by reducing rates of interest, ought to have at least made some economists consider that perhaps Say’s Law is valid. The reason this does not happen is that virtually no economist understands even what the underlying principle of Say’s Law is. My article will, I hope, at least create some interest in what had been the bedrock proposition of classical economic theory almost from the time of Adam Smith through until the publication of The General Theory in 1936.
The journal is itself attempting to redirect economic theory in a more fruitful direction. These are the journal’s published objectives.
When modern economics was born in the 18th century, Adam Smith made it a historical study of man and the rising commercial society. For Smith, economics is first and foremost concerned with wealth-creation, where the division of labor is the key organizing principle. In the next century, David Ricardo shifted the focus of economics from production to distribution. Over the course of the 20th century, economics has gradually metamorphosed into the logic of choice and taken mathematics as its language. These two transformations have together made economics a towering discipline in the social sciences. But this achievement comes with a heavy price. Economics has largely become a theory-driven subject, severed from the ordinary business of life. Rather than seeing this disconnection as a fatal flaw undermining the vitality of the discipline, many economists take pride in that economics is no longer confined to any subject matter, but stands as a versatile, subject-free analytical approach.
The Coase Society aims to reorient economics as a study of man and the economy. The human economy is a man-made, evolving complex system of cooperation and competition. The defining character of the market economy is its continuous innovation, churning out novel products from the constantly adapting structure of production. This dynamics is kept alive by entrepreneurship and the growth of knowledge. To understand how this open system works requires both empirical and theoretical efforts. But theory-building, unless informed and disciplined by facts on the ground, can easily degenerate into “blackboard economics”. Empirical work is most valuable only when it changes the way we look at the problem. The paucity of systematic interaction and mutual learning between empiricists and theorists and the lack of competition in research methodology in modern economics have severely sterilized the discipline.
Man and the Economy is not to replace the prevailing paradigm in economics with what the Society believes as a different and superior one. Such a paradigm simply does not exist yet. But economics as currently practiced ought to change. Working with students of economies across disciplines and all over the world, and bringing diversity and competition into the marketplace for economics ideas, Man and the Economy can help to make it happen. We welcome empirical (historical, qualitative, statistical, experimental) investigations and theoretical explorations that deepen our understanding of how the economy works and how it changes over time. Man and the Economy is keen to publish articles that examine how the market economy spreads throughout the globe and adapts to local conditions as well as studies that cross disciplinary boundaries and/or integrate diverse methods to shed light on the working of the economy.
A necessary journal for our times.