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Saturday, July 08, 2006

Say's Law: Supply creates its own demand

Say, Jean Baptiste (zhäN bätēst' sā) , 1767–1832, French economist. In A Treatise on Political Economy (1803, tr. from the 4th ed. 1821) he effectively reorganized and popularized the theories of Adam Smith. Say also developed a noted theory of markets and the concept of the entrepreneur. Say's law of markets holds that supply creates its own demand. His works include Cours complet d'économie politique pratique (6 vol., 1828–29). CUPEn
Say's Law
He is well known for Say's Law (or Say's Law of Markets), often summarised as
  • "Aggregate supply creates its own aggregate demand",
  • “Supply creates its own demand”, or
  • “Supply constitutes its own demand”.

He argued that production and sale of goods in an economy automatically produces an income for the producers of the same value, which would then be reinjected into the economy and create enough demand to buy the goods. Thus production is determined by the supply of goods rather than demand. Unemployment of men, land or other resources would not be possible unless it were by choice, or due to some kind of restraint on trade.

He was also among the first to argue that money was neutral in its effect on the economy. Money is not desired for its own sake, but for what it can purchase. An increase in the amount of money in circulation would increase the price of other goods in terms of money (causing inflation), but would not change the relative prices of goods or the quantity produced. This idea was later developed by economists into the Quantity theory of money. Say's ideas helped to inspire neoclassical economics which arose later in the 19th century. He wrote Traite d’Economique Politique. Wikipedia

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