Say's Law is the name of an economic principle attributed to French economist and businessman Jean-Baptiste Say (1767-1832). It argues that an economy is self-regulating, provided that all prices, including wages are flexible enough to maintain it in equilbrium.
A simplifed interpretation of the law states that supply creates demand, or in the words of Say: "...a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." As such, Say's Law provided a solution to the General Glut problem that had dogged Classical Economists such as Adam Smith and David Ricardo. In its extreme form, Say's Law essentially stipulates that it is impossible to overproduce a good, however, even Say himself eventually conceded that overproduction can occur when the cost of producing a specific product is greater than the purchasing power of the product.
Say's Law provided the basis for a great deal of classical macroeconomic theory until it was challenged by John Maynard Keynes in the early 20th century. Keynes argued that on a macroeconomic level it is in fact demand that determines supply. Following Keynes' critique, many economists have rejected Say's Law, however, there still exist a number of exponents, most notably the supply-sider Arthur Laffer, the Austrian School, and Thomas Sowell of the Chicago School.
External links
- Say's Law from Economy Professor