Sunday, July 26, 2009
Say Say Say
The French economist Jean-Baptiste Say formulated Say's Law, usually summarized as "supply creates its own demand", roughly the same time that Adam Smith wrote The Wealth of Nations. That is, in a wide enough context, overproduction is impossible. The process of production creates demand among the producers, in fact exactly enough to buy the product according to an accounting identity.
According to John Kenneth Galbraith, Say's Law is an article of faith among economists, meaning that it is taken for granted by professional economists without much in the way of empirical evidence. This might actually be the case in a different way at the moment. Before we knew pretty well that other people wanted houses, cars, and computers and so on. Now, we have to create that don't exist and take it on faith that somebody will buy them.