Steven Kates explains in his book Say’s Law and the Keynesian Revolution (subtitled How Economics Lost its Way), Keynes failed in his attempt to overturn Say’s Law. Kates shows beyond any dispute that Say and his fellow classical economists were well aware that there could be unemployed resources, and that Say’s Law was still valid in that case.
In the book I actually go much further. I outline just how wrong Keynes, and just about every economist since his time, has been about classical economic theory. There is virtually nothing discussed in the Zero Hedge post that is not found in my book and there’s plenty more that’s not mentioned. Any economic theory that does not specifically start from the entrepreneur is almost certainly deeply misleading and more than likely false. There are no market forces not embodied in individual decision making on the supply-side of the economy. It is the role of entrepreneurs to work out, in advance, what buyers would buy if it were supplied at prices that covered all production costs and then supply them. The role of buyers is merely to choose amongst the products available once entrepreneurs have put them up for sale. Their role is no greater than that. That is how a market system works.
But the second aspect of the Zero Hedge post I find significant is that it was “submitted by Robert Blumen via the Ludwig von Mises Institute”, meaning that it had come from an Austrian source. That is truly pleasing as far as it goes, but it is a major problem that only a minority among Austrian economists understand the major significance of the disappearance of Say’s Law. Hayek’s first foray into these issues was written in German in 1929 and published in English over two parts in 1931 and 1932. This is what these articles were about:
Chronic underconsumption is an idea most often associated with Keynes. But while the infamous English economist published his General Theory in 1936, Hayek’s 1929 article “The ‘Paradox’ of Savings” analyzes a similar theory advanced by two Americans a decade before. While the two authors have nearly vanished from history, the insights contained in Hayek’s nearly forgotten article are more necessary today than ever.
Unfortunately, it is also Hayek’s article that has vanished from history as well. Yet there he explained in great detail why demand deficiency as a theory of recession and unemployment is nonsensical. Because it is so deeply wedded to marginal utility, it is a problem for many Austrians to focus on supply-side theory to the extent that is required if a revolutionary shift in economic theory is to happen.