Tag Archives: Murray Rothbard

Waffle Street and Say’s Law

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In re Waffle Street, Jimmy Adams has himself put up a comment in the comments thread.

While Steve may be unwilling to take an ounce of credit for it, allow me to publicly recognize his “little red book” as being the most influential of all the economic literature that I referenced in writing “Waffle Street.” Say’s Law is the transcendent and ironically, least appreciated, principle of economics. And no one explicates it better than Prof. Kates. Thanks again, Steve.

says Why is it my “little red book”? That’s why. The most astonishing part is that around once every decade or so some economist ends up stumbling onto Say’s Law and realises what it actually means and then tries to tell everyone else. The list is not that long, but includes Benjamin Anderson, Henry Hazlitt, William Hutt, Thomas Sowell, Art Laffer and Murray Rothbard. Once you see it, everything about how an economy works suddenly changes shape, and most importantly, Keynesian forms of economic management seems utterly insane. No one who understands Say’s Law is ever surprised that some Keynesian stimulus didn’t work, or that the rise in public spending ever does anything other than pull an economy down. And each of us has tried to explain as best we can why Say’s Law is so important but no one gets it. They don’t even get it to the stage where they could really answer that I see what you mean but I disagree. They do not even understand this enough to be able to explain what it is they disagree with. If you think that “supply creates its own demand” covers it, you have to ask yourself why no classical economist ever said it. The phrase comes from a book published in 1933 by a critic of Say’s Law which was then purloined by Keynes in the General Theory published in 1936. Say’s Law is not even all that hard to understand: all economic activity is driven from the supply side; none of it is driven from the demand side. What is true for an individual product is not true for the whole economy. If there had actually ever been a single Keynesian success story, there might be some case for the continuation of Y=C+I+G in our texts. But a Keynesian stimulus has failed, and failed spectacularly, on every single occasion it has been tried. Yet Keynesian macro persists in our texts. If you would like to understand the entire sordid story, my little red book will explain it, and is also the only place you can find out how the Keynesian Revolution came about.

Even more on Say’s Law and Austrian economics

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The debate on the Coordination Problem website continues but see here and here for the prior discussion. The following three posts have just been put up.

Hayek detailed the influence of classical political economists on his theory of the business cycle. See the 1st chapter of Prices and Production. Many predecessors are mentioned, just not Say.

In Economics as a Coordination Problem, I suggest that Say is relevant. But it is Say’s theory of the entrepreneur that is relevant.
Posted by: Jerry O’Driscoll | July 18, 2015 at 08:35 PM

James Mill did not use the term “Say’s Law,” preferring the “Law of Markets,” but he and Say corresponded and they each cited the other in their works.
Posted by: Barkley Rosser | July 18, 2015 at 11:17 PM

In the WN, Adam Smith argued that “parsimony” was the immediate cause of “the increase of capital.” That is an ex ante version of what came to be known as Say’s Law.
“What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time too.” In other words, the supply of savings constitutes the demand for investment.
Even earlier, there are statements by the Physiocrat, Mercier de la Rivière, that anticipate Say’s Law. And so on.
Posted by: Jerry O’Driscoll | July 18, 2015 at 11:55 PM

Again it is Barkley Rosser who sticks to the issues to whom I focus my reply.

It is not a little odd to be instructed by Barkley Rosser that James Mill and J.B. Say corresponded and cited each other’s works. I have written one book, many articles, and brought together two collections of writings on Say’s Law, including a five volume set on everything written on Say’s Law through until the year 2000. Of course James Mill didn’t use the term “Say’s Law”. The phrase wasn’t even invented until the twentieth century. That he discussed “le loi des débouchés” (the law of markets) is different since that is the name he applied himself. That still doesn’t answer where Keynes came up with the term Say’s Law since that is from F.M.Taylor (1921). Those who think they know the story of how Keynes went from the Treatise (1930) to The General Theory (1936) typically ignore this very inconvenient fact.

Say’s Law does not mean “goods buy goods”. What Say’s Law means is that demand deficiency (overproduction) does not cause recessions and therefore a demand stimulus is never the remedy. Everyone once knew that goods bought goods – see the second paragraph of the introduction to Book II of The Wealth of Nations where it is spelt out with perfect clarity.

For an indubitably Austrian perspective on Say’s Law, let me then direct you to Murray Rothbard in an article specifically titled “Say’s Law of Markets”. It is mostly right but Rothbard is unfortunately caught up in the trap of thinking that Say’s Law was originated by Say, or worse, that Say explains it properly. But here he is absolutely on the money as he is on most of the rest in his article:

“Essentially Say’s law is a stern and proper response to the various economic ignoramuses as well as self-seekers who, in every economic recession or crisis, begin to complain loudly about the terrible problem of general ‘overproduction’ or, in the common language of Say’s day, a ‘general glut’ of goods on the market.”

And please take note of the technical term he uses, “economic ignoramuses”. I understand the exasperation, especially in the face of yet another massive failure of policy in the various Keynesian stimulus packages that followed the GFC.

That no one gets it is as normal, but perhaps, by pulling Murray Rothbard into the mix, there might be some recognition that Say’s Law has a legitimate Austrian pedigree.