13 Apr 2013

A Quick Note on the Free-Market Discussion of Say’s Law

Economics 114 Comments

[UPDATE in the text.]

In my last post I linked to a critique of my position on Say’s Law, and said that because the writer (“Smiling Dave”) went so far as to wonder aloud if I had even *read* Say’s Law, that it wasn’t worth my time debating him.

In the comments, long-time commenter “Major Freedom” encouraged me to point out the problem, since he (MF) thought the guy had a point. So, lest I come off as a snob, here it is. (But one quick clarification: Look at how the guy handles himself in the comments. My reluctance to engage in scholarly debate isn’t because “waaaa he hurt my feelings,” but because it is crystal clear he won’t change his mind. I stand by my original cost/benefit analysis: An additional hour of my time spent with Team Brittany would be much better for the world.)

So here’s the progression of the argument over Say’s Law, and why I thought Gene Callahan’s post was interesting.

1) People from time immemorial have blamed depressions on a “general glut,” i.e. too much production of every good and service.

2) J.B. Say made some observations about markets, out of which popped the notion that a “general glut” was actually impossible. What was possible is that some markets were producing “too much” (in a sense that economists could precisely define), but the corollary was that other markets were producing “too litte.” The way to fix that wasn’t to scale back “total output” per se, but simply to redirect resources from the “over” to the “under” lines. Flexible prices and absence of government intervention were great ways to hurry that process along.

3) Now at this point, Smiling Dave interjects that my point (2) shows that I have forgotten Austrian business cycle theory, and makes him wonder if I even read Say’s Law in the first place. (Note: Smiling Dave says he edited his original post to take out the snark, so it might not be there now. But these are claims he made in the original critique.) This is ironic, since point (2) above wasn’t original with me, it comes from Murray Rothbard’s description:

But if there can be no general overproduction short of the Garden of Eden, then why do businessmen and observers so often complain about a general glut? In one sense, a surplus of one or more commodities simply means that too little has been produced of other commodities for which they might exchange. Looked at in another way, since we know that an increased supply of any product lowers its price, then if any unsold surplus of one or more goods exists, this price should fall, thereby stimulating demand so that the full amount will be purchased. There can never be any problem of “overproduction” or “underconsumption” on the free market because prices can always fall until the markets are cleared…Those who complain about overproduction or underconsumption rarely talk in terms of price, yet these concepts are virtually meaningless if the price system is not always held in mind. The question should always be: production or sales at what price! Demand or consumption at what price! There is never any genuine unsold surplus, or “glut,” whether specific or general over the whole economy, if prices are free to fall to clear the market and eliminate the surplus.

So, if Smiling Dave is right that even my recapitulation of the “typical free market response” on Say’s Law shows my ignorance of Austrian business cycle theory, then Murray Rothbard must have missed the boat too. Again, that’s *possible*, but I’m going to go with Rothbard and myself, over Smiling Dave, on this one.

4) Gene Callahan gave a little thought experiment, that made me think in terms of present and future goods and services. (Note how “Austrian” this is…) We also needed to deal with the fact that leisure is a present consumption good. In light of these subtleties, I realized that maybe it’s a bit odd to say, “No, a general glut is impossible, there can be overproduction in some lines, but only if there is underproduction in others lines,” if it so happens that all of the overproduction is concentrated in present goods (including leisure), while the underproduction is concentrated in future goods. If you think through what that would look like, why it has the same observable features as “an economic depression.”

5) The point here isn’t to say, “Ha ha, J.B. Say was an idiot and Keynes kicks butt!! Obama Stimulus Package for the win!” No, the point (at least my point) was that the way I had always handled Say’s Law, and its place in the history of economic thought regarding the analysis of economic depressions, needed to be more nuanced. I had always thought of it exclusively in a static sense, with markets for present goods and services only. But once you introduce the time element, it’s a little trickier and makes people who talk about an excess demand for money or for “safe assets” not seem as crazy after all.

UPDATE: I should have re-read my original post more carefully before giving this summary. The type of example Gene gave isn’t really one resembling a depression, but rather is a more intuitive example of people producing “too much stuff” in the present (or recent past, if you prefer). If every human being worked 20 hours a day for the next year, and we burned off 90% of the depletable natural resources (crude oil, natural gas, etc.) on earth, there would be a definite sense in which “we produced way too much this year.”

Now the way to salvage Say’s Law–in the conventional free-market handling of it–is to say, “No, we produced too much of all of the goods and services that are conventionally for sale, and we underproduced the goods ‘present lesiure’ and ‘oil and natural gas that could have been sold in the future.'” There’s nothing objectionable to that, per se, but it’s a little funky, and in any event it redefines terms from what a lot of people mean when they say, “A general glut is possible.”

So, this really has nothing to do with diagnosing a depression, so much as it was a quirky little thing to show that the standard way free-market people dispose of the idea of a “general glut” is more nuanced than the usual exposition shows.

114 Responses to “A Quick Note on the Free-Market Discussion of Say’s Law”

  1. Lord Keynes says:

    The whole question also depends on the definition of Says’ law:

    (1) Say’s Identity
    “is the assertion that no one ever wants to hold money for any significant amount of time, so that, as a result, every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value.” (Baumol 1977: 146).

    (2) Say’s Equality
    “admits the possibility of (brief) periods of disequilibrium during which the total demand for goods may fall short of the total supply, but maintains that there exist reliable equilibrating forces that must soon bring the two together.” (Baumol 1977: 146)

    Baumol, W. J. 1977. “Say’s (at Least) Eight Laws, or What Say and James Mill May Really Have Meant,” Economica n.s. 44.174: 145–161.
    ———

    “Say’s Identity” simply ignores the reality of people holding money without purchasing goods and services because of uncertainty (Keynes’s precautionary motive), or the spending of money on secondary financial or real asset markets or holding of money for this reason (Keynes’s speculative motive). In any real world economy, money from income streams from production gets diverted to asset markets and may not be spent on goods. For this reason alone, Say’s law is a grossly unrealistic picture of market economies.

    And “Say’s Equality” already admits the possibility of general gluts.

    And yet another serious problem with Say’s law is the assumption of universal or near universal flexprice markets, when vast numbers of industrial, service, retail and even capital goods markets are fixprice, and administered prices are the norm.

    Supply and demand are equated by changes in employment and output, not by flexible prices.

    • Major_Freedom says:

      (1) Say’s Identity

      “is the assertion that no one ever wants to hold money for any significant amount of time, so that, as a result, every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value.” (Baumol 1977: 146).

      This is false. This claim rests on the vague concept of “significant amount of time.” There is no such thing as “significant” or “insignificant” waiting times when it comes to the core of Say’s Identity. Baumol, as is typical of Keynesians, sees that there is no explicit cries of the sky is falling hysteria over the basic concept of cash preference, and concludes that it doesn’t take into account what allegedly should be taken into account, in order for an economics model that includes money, to be considered worthwhile/valid/etc.

      All cash is held for a positive period of time, after it is earned, and before it is spent. The length of time that an individual holds money they earn, and the average length of time that individuals in a whole economy hold onto the money they earn, has zero bearing on whether or not Say’s Law is true. Say’s Law does not claim that money is “soon” spent after it is earned, whatever that is supposed to mean in terms of absolute cash holding time periods. It is irrelevant.

      (2) Say’s Equality

      “admits the possibility of (brief) periods of disequilibrium during which the total demand for goods may fall short of the total supply, but maintains that there exist reliable equilibrating forces that must soon bring the two together.” (Baumol 1977: 146)

      Yet another vague term, this time “soon”. Baumol is again claiming that because there is no explicit hysteria surrounding cash preference, that it must assume that correcting trades happen “quickly”. Again, Say’s Law does not imply nor even depend on correcting trades occurring “quickly.” If there are correcting trades occur over a period of 1 week, or 1 year, or beyond, it does not stand as a problem of Say’s Law.

      Also, “admitting” the possibility that the aggregate quantity demanded of already produced goods can at times be lower than the aggregate quantity supplied of already produced goods, does not prove general gluts are possible. At best, it proves what Say’s Law actually holds, that there can arise partial relative overproduction of goods, and a corresponding, unseen relative underproduction of goods. These underproduced goods are not seen because they don’t exist. They don’t exist because the scarce resources and labor went into producing alternative goods instead, the very goods that are relatively over-produced by virtue of them existing and now sitting on inventory shelves.

      So when Baumol considers periods of time where the aggregate quantity demanded of already produced goods is lower than the aggregate quantity supplied of already produced goods, what he is observing is a world of partially relative overproduced goods, but he is ignoring the unseen partial relative underproduction of goods, and then mistakenly concludes that there is a general glut of goods as such, and thus it is easy to conclude that there is a lack of aggregate demand for goods as such, and thus is further lead into calling for non-market intervention to bring about a higher aggregate demand as such.

      It’s error after error piling on top of each other.

      “Say’s Identity” simply ignores the reality of people holding money without purchasing goods and services because of uncertainty (Keynes’s precautionary motive)

      That’s false. Say’s Law does not “ignore” cash holding at all. Say was quite aware that people hold cash before they spend it. His Law is just a refutation of a popular myth at the time, namely, that there can arise general gluts. His theory is simply a basis for where demand comes from (supply). It doesn’t “ignore” what Keynesians get hysterical over, namely, increases in cash preference brought about by uncertainty due to the economy being stressed into partial relative over and under-production.

      “or the spending of money on secondary financial or real asset markets”

      It’s irrelevant.

      “or holding of money for this reason (Keynes’s speculative motive).”

      You already said that.

      “In any real world economy, money from income streams from production gets diverted to asset markets and may not be spent on goods. For this reason alone, Say’s law is a grossly unrealistic picture of market economies.”

      That’s false. The correct way to use Say’s Law to understand markets that change over time is to include financial securities as things that can in principle go into partial relative over and under-production as well. If it has a price, Say’s Law applies to it. Say’s Law is not constrained to consumer goods, even if consumer goods are how Say explicated the theoretical basis that there is no such thing as a general glut.

      “And “Say’s Equality” already admits the possibility of general gluts.”

      No, it doesn’t. You’re mistakenly inferring from partial over and under-production, a general overproduction, by ignoring the unseen underproduction of goods that could have otherwise been produced had the over-produced goods not been produced.

      And yet another serious problem with Say’s law is the assumption of universal or near universal flexprice markets, when vast numbers of industrial, service, retail and even capital goods markets are fixprice, and administered prices are the norm.”

      More vague terms. Again with the vague terms such as “flexible”, which are supposed to mean changing within a certain time frame that the hysterical anti-hoarding Keynesians are personally comfortable with.

      “Supply and demand are equated by changes in employment and output, not by flexible prices.”

      That’s false. Supply tends to equal quantity demanded by BOTH changes in employment and output AND price changes. No price change is instantaneous.

      • Lord Keynes says:

        Say’s Law does not claim that money is “soon” spent after it is earned

        Should have read your Jean Baptiste Say better:

        Every producer asks for money in exchange for his products, only for the purpose of employing that money again immediately in the purchase of another product; for we do not consume money, and it is not sought after in ordinary cases to conceal it: thus, when a producer desires to exchange his product for money, he may be considered as already asking for the merchandise which he proposes to buy with this money. It is thus that the producers, though they have all of them the air of demanding money for their goods, do in reality demand merchandise for their merchandise

        Say, J. B. 1816. Catechism of Political Economy, or, Familiar conversations on the manner in which wealth is produced, distributed, and consumed in society (trans. J. Richter), Sherwood, Neely, and Jones, London. pp. 103–105.
        ————

        Notice that “immediately” — which requires very short time period.

        • Lord Keynes says:

          “Also, “admitting” the possibility that the aggregate quantity demanded of already produced goods can at times be lower than the aggregate quantity supplied of already produced goods, does not prove general gluts are possible. At best, it proves what Say’s Law actually holds, that there can arise partial relative overproduction of goods, and a corresponding, unseen relative underproduction of goods. These underproduced goods are not seen because they don’t exist.”

          That is a masterpiece of illogic.

          It asserts:

          (1) the “possibility that the aggregate quantity demanded of already produced goods can at times be lower than the aggregate quantity supplied of already produced goods,” (the very definition of a general glut)

          then

          (2) this “does not prove general gluts are possible”.
          ————

          Since this is equivalent to asserting

          p & ¬p

          at the same time, you violate the law of non contradiction.

          • Major_Freedom says:

            “(1) the “possibility that the aggregate quantity demanded of already produced goods can at times be lower than the aggregate quantity supplied of already produced goods,” (the very definition of a general glut)”

            A general glut asserts that the quantity demanded of goods in general can be lower than the quantity supplied. It does not assert that the quantity demanded of goods already produced, is less than the supply of goods already produced.

            Go to Callahan’s island example of fish. It is indeed possible that goods that exist as such, namely the fish, can have a quantity demanded of fish lower than the quantity supplied of fish.

            But this isn’t an example of a general glut, because there is an underproduction of goods that are unseen, that have to be included in the concept of the desire for wealth in general upon which Say’s Law rests.

            The concept of a general glut isn’t constrained to already produced goods only. it also includes goods that did not get produced because the scarce resources and bodies went into producing the over-produced goods.

            When you observe quantity of goods demanded in the aggregate exceeding the quantity of goods supplied in the aggregate, you are only considering goods already produced. These observations do not take into account the goods that have not been produced. But the concept of a general glut includes not just already produced goods, but goods in general, which includes unseen goods if there is partial relative overproduction.

            Your confusion stems from ignoring the unseen, and believing that the only applicable goods are overproduced goods.

          • Major_Freedom says:

            Suppose for some unknown reason, the entire world’s population, to the extent they produce anything at all, produce nothing but copies of Keynes’ General Theory.

            As the books (and bodies) begin piling up, the person who does not understand Say’s Law, or general gluts, might conclude that it is possible for there to be a general overproduction of wealth. That Say’s Law has been violated. That the silly Say forgot to include money hoarding. That the reason there are so many unsold books is because there isn’t enough money inflation that increases “spending” enough to make every producer able to earn a nominal profit. And so on.

            But what actually occurred is that there was a massive underproduction of wealth that is unseen. Goods that could have been produced, but were not produced due to the fact that everyone produced copies of the GT, such as food, water, shelter, clothing, medicine, and so on, are massively relatively underproduced.

            The events described above do not prove Say’s Law wrong, nor does it prove the possibility of general gluts. Like I said before, at best all it could ever prove is the possibility of partial relative over-production of goods (and thus partial relative underproduction of goods that are unseen).

        • Major_Freedom says:

          Apparently someone needs to distinguish between Say’s Law, and everything Say writes.

          Say’s Law isn’t true because of that statement from Say.

          • Lord Keynes says:

            lol.. So what Say argued and said isn’t in fact Say’s law? But of course!

            Define precisely what you mean by Say’s
            law.

            But I am willing to bet it will be some invented form never seen before, which you will then use in a fallacy of equivocation, trying to change everyone else’s definition or prove them wrong just because they don’t use your personal gibberish.

            • Major_Freedom says:

              “So what Say argued and said isn’t in fact Say’s law?”

              Say’s Law is but one argument in a multiplicity of arguments that Say has made.

              You do realize that Say’s body of work includes things other than Say’s Law, right?

            • Major_Freedom says:

              “Define precisely what you mean by Say’s law.”

              Say’s law is just a rejection, a refutation, of the common misconception that there can be such a thing as a general overproduction of all wealth. That’s all it is. It is not, contra Keynes and his followers, a positive foundation of classical economics.

              The law refers to real demand and aggregate demand, that is, to real demand in the economy as a whole, not to the money expenditures to buy the goods and definitely not to the money expenditures to buy the goods of a specific industry.

              • Lord Keynes says:

                “Say’s law is just a rejection, a refutation, of the common misconception that there can be such a thing as a general overproduction of all wealth”

                What ? That “no one ever wants to hold money for any significant amount of time, so that, as a result, every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value”?

                “The law refers to real demand and aggregate demand…

                Gibberish. No surprises there.

              • Lord Keynes says:

                According to Thomas Sowell, Say’s law asserts that:

                “(1) The total factor payments received for producing a given volume (or value) of output are necessarily sufficient to purchase that volume (or value) of output [an idea in James Mill].

                (2) There is no loss of purchasing power anywhere in the economy. People save only to the extent of their desire to invest and do not hold money beyond their transactions need during the current period [James Mill and Adam Smith].
                ….
                (6) Disequilibrium in the economy can exist only because the internal proportions of output differ from consumer’s preferred mix—not because output is excessive in the aggregate” [Say, Ricardo, Torrens, James Mill]
                (Sowell 1994: 39–41).

                So the conventional definition is that the aggregate money value of total factor payments is necessary to purchase the aggregate output produced, and that the aggregate money value (or spending power) will always be spent in toto, even if individual markets have excess demand or shortfall, the overall economy is not out of equilibrium.

                Since this abolishes uncertainty and the reality of people holding money from fear of uncertainty, or spending of money on secondary financial or real asset markets or holding of money idle for this reason (Keynes’s speculative motive), there is no reason why money cannot be diverted from spending on consumption or capital.

                There is no necessary reason why aggregate demand cannot be in shortfall.

              • Major_Freedom says:

                LK:

                “What ? That “no one ever wants to hold money for any significant amount of time, so that, as a result, every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value”?”

                That is not Say’s law.

                But for argument’s sake, if we assume that this was a component of Say’s law, then it would be self-contradictory, for in between the time money is earned and when it is spent, there is unsold surplus.

                Say’s refutation was not grounded on any assumption of “quickly respent money.” That isn’t why aggregate real supply constitutes aggregate demand.

                “The law refers to real demand and aggregate demand…”

                “Gibberish. No surprises there.”

                I think you’re conflating “I don’t understand it” with “It is meaningless.”

                “According to Thomas Sowell, Say’s law asserts that:”

                “(1) The total factor payments received for producing a given volume (or value) of output are necessarily sufficient to purchase that volume (or value) of output [an idea in James Mill].”

                “(2) There is no loss of purchasing power anywhere in the economy. People save only to the extent of their desire to invest and do not hold money beyond their transactions need during the current period [James Mill and Adam Smith].”

                “(6) Disequilibrium in the economy can exist only because the internal proportions of output differ from consumer’s preferred mix—not because output is excessive in the aggregate” [Say, Ricardo, Torrens, James Mill]”

                The key word is “disequilibrium.” As many economists have shown, from Hazlitt to Mises to Sowell, Say’s law assumes that each particular branch of industry is expanded according to individual marginal utilities. In other words, there is no partial relative overproduction and partial relative underproduction that would be observed as the quantity demanded of goods already produced being less than the quantity supplied of goods already produced.

                If that happens, then the problem is not too much wealth in general with not enough demand for wealth in general. The problem is what Say granted is possible, namely, partial relative over and underproduction of goods.

                “So the conventional definition is that the aggregate money value of total factor payments is necessary to purchase the aggregate output produced, and that the aggregate money value (or spending power) will always be spent in toto, even if individual markets have excess demand or shortfall”

                No, that’s false. Only if there is “equilibrium” among the various industries, that is, only if each branch is expanded in proportion to other industries, will the quantity demanded of goods already produced meet the quantity supplied of goods already produced.

                “the overall economy is not out of equilibrium.”

                But it is in the way you redefined what Sowell said. You said “even if particular markets are in excess.” That violates the assumption of equilibrium that grounds Say’s law.

                “Since this abolishes uncertainty and the reality of people holding money from fear of uncertainty, or spending of money on secondary financial or real asset markets or holding of money idle for this reason (Keynes’s speculative motive), there is no reason why money cannot be diverted from spending on consumption or capital.”

                Say’s law is a refutation that there cannot be a general overproduction of all wealth, but rather only partial relative over and underproduction of wealth. If the latter occurs, and there is a rise in unemployment as labor is found to not be in the right lines, and resources are found to have been invested too much in certain lines and not enough in other lines, and uncertainty arises, cash preference rises, and so on, this again does not contradict Say’s law. Keynes failed to grasp the fact that Say’s law assumes no partial relative over or under production. It assumes equilibrium among all industries.

                “There is no necessary reason why aggregate demand cannot be in shortfall.”

                Non sequitur. You’re just parroting the same fallacious claim made by Keynes, and interpreting the partial over and under production to be an aggregate supply and aggregate demand problem, such that you conclude there can be periods of “not enough demand”, and hence “general gluts.”

                You’re not describing Say’s law and you’re certainly not presenting anything that refutes it.

        • Gene Callahan says:

          Lord Keynes, don’t you realize that Major F*&^(up is totally uninterested in what any actual person ever wrote or said: he is just going to invent a version of Say’s Law that renders it tautological (and therefore useless, but he won’t recognize that).

          • Lord Keynes says:

            Yes, if one could win all debates by just redefining basic terms at will, then I can redefine “green” to mean “blue” and vice versa, and assert that the “sky is green on a clear day”.

            Then I can say everyone else in the world is wrong because they do not accept my arbitrary re-definition.

            • Major_Freedom says:

              LK:

              There is a big difference between me showing you how to understand Say’s Law, which happens to be inconsistent with your current understanding of it, and me “redefining terms at will.”

              The fact that you do not understand it the same way I do, is not sufficient for you to conclude that I am “redefining terms at will.”

              My sneaking suspicion, considering how you have accused me of redefining terms at will, combined with the fact that there is a total absence of you engaging the arguments I am actually making, on their own ground, is that you are not able to refute my Say’s law arguments as they stand, and so rather than say yes, I agree with those arguments as they stand, you would rather claim that I “redefined terms at will”, so that you can keep believing the “conventional wisdom” that the “true” Say’s law was refuted by Keynes, that Keynesian intervention in market economies is justified, and that “citizens” have to be coerced into demanding more than what they want, because those in the “state” know all.

              It’s the same BS from you over and over and over again, dressed up in various clothing depending on the event.

          • Major_Freedom says:

            Tautologies are not useless my epistemologically bankrupt friend.

            Pythagoras’ relation in right triangles is a tautology, as the relation follows analytically from the nature of a right triangle, but that doesn’t mean it is “useless.”

            The propositions that follow analytically from the axiom of human action are “tautologies”, as those propositions follow analytically from action itself, but that doesn’t mean the law of marginal utility is “useless.”

            I am not “inventing” my own unique and distinct description of Say’s law, and the fact that you are trying to convince LK otherwise proves to me that you would rather be ignorant and in agreement, than right and in disagreement.

            My arguments on Say’s law are the proper way to understand Say’s law. The fact that you are unable to engage my arguments because they aren’t grounded on appeals to authority, of which you can then attack them and then pretend you have made a case, only further shows your shaky foundation.

            But please, go on getting psychological fixes from rah rah let’s gang up on Major-Freedom with LK, if that is how you distinguish correct from incorrect arguments.

            I would have welcomed actual engagements from you concerning my arguments, and I would have welcomed where you think I went wrong if I did go wrong. But you chose the method of…I don’t even know what you call it.

            Your maturity is clearly lacking, considering how you can’t even find yourself able to write my name properly.

            You need to work on your intellectual ability. It’s sorely lacking.

            • Lord Keynes says:

              “My arguments on Say’s law are the proper way to understand Say’s law.”

              Proper according to whom? You?

              You’re already on the record telling us that what Say wrote about Say’s law is not to be used in defining Say’s law.

              This is the equivalent of saying that what Einstein wrote about general relativity is not to be used
              in defining general relativity.

              • Major_Freedom says:

                LK:

                “Proper according to whom? You?”

                Not whom, what.

                Not proper from your intellectual foundation.

                “You’re already on the record telling us that what Say wrote about Say’s law is not to be used in defining Say’s law.”

                No, I went on record as saying that what you cited Say as writing, is not Say’s law.

          • Richie says:

            Gene needs help. Why anyone would call him an “intellectual” is beyond me.

            • Major_Freedom says:

              I think Callahan is part intellectual, part demagogue.

              For some reason, I bring out the demagogue part of him.

      • Gene Callahan says:

        “This is false. This claim rests on the vague concept of “significant amount of time.” There is no such thing as “significant” or “insignificant” waiting times…”

        The most amazing Major F*&^#up comment yet! One might at first believe that if a concept is vague, one would have trouble saying whether it does or doesn’t apply, and one would consider sentences containing the concept indeterminate. That’s the very problem with a vague concept, right?

        But no! If the sentence contains a concept that is vague, Major F*&^#up tells us that means it is definitively false! Furthermore, if one can’t exactly measure the range of the concept, that means that there is “no such thing” as either endpoint of that range.

        An epistemological revolution before our very eyes!

        • Major_Freedom says:

          Gene, I’m not sure if you’re being willfully blind for kicks, or if you’re so emotionally wrapped up in finding faults in what I write that you are mentally incapable of understanding what it is you are reading.

          You quoted me out of context and totally ignored the crucial part of that paragraph. The full quote is this

          “This is false. This claim rests on the vague concept of “significant amount of time.” There is no such thing as “significant” or “insignificant” waiting times when it comes to the core of Say’s Identity.

          Notice how including what it is I actually wrote completely changes the meaning of the part you quoted me as writing. The way you quoted me would suggest I am denying that time periods can be distinguished into two broad categories, “significant” and “insignificant”, in some general, meaningful sense. But that isn’t what I said. I said that in the context of Say’s Law, there is no such thing as “significant” versus “insignificant” waiting times. It is irrelevant.

          Say’s Law isn’t vague on the subject of temporally grounded events. But “significant waiting times” is vague.

          So what you said in your first paragraph, namely, “One might at first believe that if a concept is vague, one would have trouble saying whether it does or doesn’t apply, and one would consider sentences containing the concept indeterminate”….that is the correct interpretation of what I actually wrote.

          Are you an intellectual who is able to quote people properly, or are you some demagogue who’s self-imagined task in life is to defame my character in the desperate hopes of scoring tribal points?

        • Seymour says:

          That’s a bit harsh calling MF that name. Can’t there be a more civil debate on this blog between a seasoned professional like you and an anonymous person who goes by a pseudonym?

        • Bob Murphy says:

          Gene, I like a nutty Irishman as much as the next guy, but I think “Major F*&^#up” is a bit over the top. Plus, it has too many symbols, unless the # is hiding a hyphen.

          • Major_Freedom says:

            This is just speculation, but it’s possible that Callahan is constantly attacking me because he has to keep justifying in his own mind why he called for my death a while back.

          • Ken B says:

            I agree. “Tex” is probably better.
            🙂
            This is a bizarre set of threads that has ME standing up for both Gene and MF!

    • Jonathan Finegold says:

      I haven’t read LK’s exchange with MF, but I’ll note that even monetary gluts are relative gluts, because they consist of an underproduction of money.

      • Major_Freedom says:

        I think you can look at it that way only if you treat money as a good, valued as an end, apart from its medium of exchange aspect.

        • Jonathan Finegold says:

          Why does it need to be valued as an end? The vast majority of goods are producers’ goods, valued as means to an end. Money is also valued as a means to an end.

          • Major_Freedom says:

            Agreed, but I am saying something slightly different.

            I distinguished money as a medium of exchange, from money as a good that is unproduced or overproduced (what you said).

            The reason I did that is because money as a medium of exchange does not permit attributes of over or under-production (since any quantity of money can perform the function of medium of exchange).

            Money as a medium of exchange is money as a means to an end. It follows then that that “over and under production” are not applicable to money as a means to an end (medium of exchange).

            That’s why I said money can be viewed as over or underproduced only if you view money as a non-means, i.e. an end.

            This is not saying that money isn’t a means to an end.

            • Jonathan Finegold says:

              The reason I did that is because money as a medium of exchange does not permit attributes of over or under-production (since any quantity of money can perform the function of medium of exchange).

              Right, but then you think monetary gluts are impossible. I’m saying that if you think monetary gluts are possible, then they’re a relative glut not an absolute glut.

              The whole “means to an end” and whatnot is besides the point. Most goods are means to ends, not ends themselves, and it’s possible to over- or underproduce them.

              I think what you really want to say is that money has no market of its own, but everyone agrees with this whether or not you think monetary gluts are possible. The question is whether other markets always clear, since what facilitates exchange in these markets is money.

              • Major_Freedom says:

                “Right, but then you think monetary gluts are impossible.”

                I would argue that (fiat) money is always in a “glut”. Once we’ve been living in the dollar system, we cannot distinguish one period from another to conclude something like “this time period money is in a glut, whereas that time period money is not in a glut.”

                I would regard the supply of dollars as a glut virtually equal to its supply, since the removal of coercion would allow actual subjective marginal valuations of the notes to be manifested, and all the prevailing sellers of dollars (buyers of goods, etc) would find themselves suffering losses (if they don’t produce and trade for that which is relatively underproduced, namely, money that would prevail on the free market).

                We are living in a constant, perpetual, relentless partial relative underproduction and overproduction of goods that market forces are being barred by law from correcting.

                And to top it off, we’re told by “very serious people” that historical events of the last 100 years proves that Say’s law is wrong, even though Say’s law allows for partial relative over and underproduction.

                “I’m saying that if you think monetary gluts are possible, then they’re a relative glut not an absolute glut.”

                Yes, I agree with that argument. I just don’t think it is a counter-argument to what I said, that’s all. We’re talking about different things.

                “The whole “means to an end” and whatnot is besides the point. Most goods are means to ends, not ends themselves, and it’s possible to over- or underproduce them.”

                If you mean specific goods that are means to ends, then I’ll agree. But if you mean all means of production, I won’t, since there is no limit to people’s desire for more ends in general, which of course implies there is no limit to the need for means in general.

                “I think what you really want to say is that money has no market of its own, but everyone agrees with this whether or not you think monetary gluts are possible. The question is whether other markets always clear, since what facilitates exchange in these markets is money.”

                I agree with everything you’re saying.

                Yes, if we regard money as a good potentially capable of being over or under produced relative to other goods, and money is the means by which other markets clear, then you can say what you will about those other markets clearing. But we’re still left with the market as such clearing, and that means we should take into account relative expansions of money relative to all other goods, so that not only are the “other than money” markets are able to tend towards clearing, but so too the market of money plus goods tending to wards clearing.

                That of course requires market forces that apply to other goods, to apply to money production as well, so that investors can correct any partial relative over or underproduction of money vis a vis other goods.

                Due to the monopoly in money (among other attacks on the market), we are NEVER in a time of markets tending towards clearing. Incredibly, the history that ensues is supposedly evidence that markets don’t tend towards clearing.

  2. Major_Freedom says:

    Lest this be misunderstood:

    “J.B. Say made some observations about markets, out of which popped the notion that a “general glut” was actually impossible. What was possible is that some markets were producing “too much” (in a sense that economists could precisely define), but the corollary was that other markets were producing “too litte.” The way to fix that wasn’t to scale back “total output” per se, but simply to redirect resources from the “over” to the “under” lines. Flexible prices and absence of government intervention were great ways to hurry that process along.”

    I would like to emphasize that the partial relative underproduction of goods is not necessarily constrained to “other” producers other than those overproducing the over-produced goods, and it is certainly not constrained to goods that have already been produced in “other” markets.

    Partial relative underproduction is something that, in a certain sense we can say, we’re all guilty of doing. Those of us who partially relatively overproduced fish, could have produced other goods instead using our bodies and material resources. So the housing industry capitalists, during the housing bubble, could have devoted their capital to other goods instead. Errors and corrections to under-produced goods isn’t something that only the underproducing capitalists are responsible for.

    More importantly, it should not be taken for granted that the under-produced goods are constrained to already produced and observable goods that are just in insufficient quantities. It’s possible that this is the case, but it is also possible that the underproduced goods are different goods entirely. This is especially the case if the boom lasts for many years, such that entirely new industries we could have had, are foresaken entirely due to resources going into the boom industries. For short lived booms, it is more likely that most of the under-produced goods are already produced goods that are in insufficient quantities, which is why it is easier to correct for those booms and why the recessions are less pronounced.

  3. Guillermo Sanchez says:

    Hi Bob!

    Let me guess if I understand you because I think Rallo in his book (which is a total refutation of Keynes’ GT) had a similar point.

    If there has been a partial overproduction of some good or service is due to: a) part of its future supply has disappeared which has been used to demand the present supply goods and services. b) there is an excess of demand for money i.e. there is lack of demand in some goods and an excess of demand for money. In both cases there cannot be an aggregate overproduction: either disappear simultaneously present demand and future supply or there is a lack of demand in goods and an excess of demand in money.

    see here

    http://juanramonrallo.com/2013/04/keynes-errors-everywhere/

    • Gene Callahan says:

      Guillermo, Rallo is really not very swift, is he?

      “as entrepreneurs fall short of cash inflows to maintain either their operative business structure or its financial business structure, they may be forced to liquidate part of their capital assets or to find new investors to widen their financial basis. In the former case, other goods will be produced (capital assets will find accommodation inside other business plans)”

      So, as “entrepreneurs” are forced to liquidate capital assets, this won’t be a problem, because entrepreneurs will be buying up those assets! Even while investors as a whole are trying to sell capital assets, this is not possibly a problem, because those very same people who are trying to sell those assets are buying them up?

      • Major_Freedom says:

        If one investor wants to sell assets, it’s because he wants higher purchasing power (OMG, a tautology!, that means this knowledge is “useless”).

        If investors as a whole want to sell assets, it’s because investors as a whole want higher purchasing powers.

        If the state does not interfere, then this process of investors as a whole wanting to sell their assets will reduce the prices of assets until the expected profits from buying and using those assets become positive again, at which point the aggregate desires to sell assets will become aggregate desires to sell and buy assets.

        In the real world, no depression, however extreme, has ever consisted of the nominal demand for all assets dropping to zero in an entire economy. There are buyers “on the way down”, due to disagreements in expectations, and if the selling pressure is significant, then the decline in prices to their clearing levels would be all the more pronounced.

        It is absurd to imagine in one’s mind some apocalyptic scenario of zero nominal demand for assets, to understand how the free market process functions in the real world.

      • Guillermo Sanchez says:

        Gene, you are right but I think Rallo refers to the composition of future and present goods: “the specific composition of goods both in the present or in the future does not need to coincide with those goods demanded by consumers and savers, but not because of a deficiency of aggregate demand, but because the composition of the actual supply does not match the desired supply…”

        When you say “while investors as a whole are trying to sell capital assets… those very same people who are trying to sell those assets are buying them up”, that fact confirms the change in composition.

        Related to Bob’s post, here are some Austrians who think Say’s law can be **temporarily** (short run?) violated in ABCT:

        Huerta de Soto: “In other words a temporal maladjustment in the economic system results. In fact the entire Austrian theory of the economic cycle merely explains why, under certain circumstances, and as a consequence of credit expansion, Say’s law repeatedly fails to hold true.”

        Skousen: “Say’s law is violated in the short run by a fiat credit inflation. Of course, the short run may take some time to work itself out! True, the larger supply created by the fiat money also creates its own excessive demand, but it is the wrong kind of demand in the case of a business credit expansion, an ephemeral demand which cannot last.”

        page 545

        http://mises.org/document/2745/Money-Bank-Credit-and-Economic-Cycles

        • Major_Freedom says:

          Good lord, the confusion over Say’s law has even infiltrated the Austrian school.

          De Soto, by claiming “temporal maladjustments”, is actually claiming too much production of this temporal trajectory X, and not enough production of that temporal trajectory Y. That means no balance between industries in the temporal sense, and thus partial relative over and underproduction of goods as such, which Say argued can take place.

          Skousen, by claiming “the wrong kind of demand”, is actually claiming that Say’s law isn’t being violated, because the wrong kind of demand implies the right kind of demand is deficient. That means no balance between industries, and thus partial relative over and underproduction of goods as such, which Say argued can take place.

          • Bob Murphy says:

            MF, isn’t it starting to seem weird to you that

            (a) me
            (b) J.B. Say
            (c) Mark Skousen
            (d) De Soto
            (e) Thomas Sowell

            are all using “Say’s Law” differently from how professional economists use the term, while you are one of the few people using it properly?

  4. Matthew Gilliland says:

    I was once nearly banned from a forum for responding to Smiling Dave’s snark in kind. Walking away is the better option.

    Unfortunately, there are a lot of people on Reddit who think Smiling Dave is a genius.

  5. Smiling Dave says:

    Thanks to all for their responses, in particular Bob Murphy.

    1. Will study Bob’s reply carefully and either admit I am wrong and he is right, or will explain my further objections.

    2. I didn’t know people on reddit, or anywhere else, think me a genius. Could you point out where you got that impression, Matthew?

    3. I did not tone down the snark at all, Bob. Just simplified the language.

    4. I handled myself in the comments by summarizing your potpourri entry, which dealt with hurt feelings but not with responding to my ideas.

    5. OK, the world awaits. Will craft a reasoned reply.

    • Gene Callahan says:

      “I handled myself in the comments by summarizing your potpourri entry, which dealt with hurt feelings but not with responding to my ideas.”

      Right, Dave: there were no ideas present to which to respond.

  6. Joe Esty says:

    Good grief, is it really worth arguing with and referring to people who won’t use their real name?

    • Major_Freedom says:

      Depends on how highly you value ideas, and how highly you value making things personal.

      • Smiling Dave says:

        Thank you, MF.

      • Bob Murphy says:

        MF wrote:

        Depends on how highly you value ideas, and how highly you value making things personal.

        No, I don’t think Joe Esty was complaining of a general overvaluation of ideas. I think he was saying we should value other ideas more, and the ideas coming from Smiling Dave less.

        • Smiling Dave says:

          “…we should value other ideas more, and the ideas coming from Smiling Dave less.”

          Big mistake. An idea is to be judged by its merits, not by its author.

          • Adrian Gabriel says:

            Smiling Dave, great point. But ideas can be valued by its author as well right? Is that not what valuing subjective is? Personally I value Bob’s very erudite insight, along with yours. But I do not value Gene Callahan or Larry White’s insight. I disagree for their falsities, but sometimes I take a look at their name and associate it with falsities. I think this exchange is great, seeing as though Bob is a heavy hitter Austrian and perhaps the new Rothbard. I like your views Smiling Dave, I see very little difference between you and Bob, and would say you were one of us Austrians that see the flaws in the mainstream ecletic statists like Selgin and White. Let us harken Mises:

            The ideologies accepted by public opinion are still more infected by the shortcomings of the human mind. They are mostly an eclectic juxtaposition of ideas utterly incompatible with one another. They cannot stand a logical examination of their content. Their inconsistencies are irreparable and defy any attempt to combine their various parts into a system of ideas compatible with one another.

            Some authors try to justify the contradictions of generally accepted ideologies by pointing out the alleged advantages of a compromise, however unsatisfactory from the logical point of view, for the smooth functioning of interhuman relations. They refer to the popular fallacy [p. 185] that life and reality are “not logical”; they contend that a contradictory system may prove its expediency or even its truth by working satisfactorily while a logically consistent system would result in disaster. There is no need to refute anew such popular errors. Logical thinking and real life are not two separate orbits. Logic is for man the only means to master the problems of reality. What is contradictory in theory, is no less contradictory in reality. No ideological inconsistency can provide a satisfactory, i.e., working, solution for the problems offered by the facts of the world. The only effect of contradictory ideologies is to conceal the real problems and thus to prevent people from finding in time an appropriate policy for solving them. Inconsistent ideologies may sometimes postpone the emergence of a manifest conflict. But they certainly aggravate the evils which they mask and render a final solution more difficult. They multiply the agonies, they intensify the hatreds, and make peaceful settlement impossible. It is a serious blunder to consider ideological contradictions harmless or even beneficial.

            The main objective of praxeology and economics is to substitute consistent correct ideologies for the contradictory tenets of popular eclecticism. There is no other means of preventing social disintegration and of safeguarding the steady improvement of human conditions than those provided by reason. Men must try to think through all the problems involved up to the point beyond which a human mind cannot proceed farther. They must never acquiesce in any solutions conveyed by older generations, they must always question anew every theory and every theorem, they must never relax in their endeavors to brush away fallacies and to find the best possible cognition. They must fight error by unmasking spurious doctrines and by expounding truth.

            That being referenced, let us not forget Simling Dave, that Bob is one of us, as is Major Freedom. The lost ones are Callahan, White, Selgin, Cowen and the other statists from academia.

            • Bob Murphy says:

              I was wondering how you would deal with this cognitive dissonance Adrian, since I assumed you would think Dave was right on this exchange. 🙂

            • Major_Freedom says:

              Adrian:

              Ideas being subjectively valued more according to their authors is one thing.

              Ideas being claimed as objectively more true according to their authors is another.

              • Bob Murphy says:

                Guys, in case it wasn’t obvious, I was making a Say’s Law joke about the ideas thing. I said the one guy wasn’t suggesting there was a glut, just that there was overproduction of ideas from Dave and underproduction from some other thinkers. Get it? If you want to say, “That’s not funny, OMG Bob,” fair enough, but getting huffy and lecturing me on the fallacy of appeal to authority is pretty depressing.

              • Richard Moss says:

                This whole bout with Smiling Dave has got me depressed.

                Reading his posts I don’t know whether to laugh or cry. (Uh Oh – I am probably guilty of violating the impossibility of indifference in action).

              • Major_Freedom says:

                I got the joke.

                FWIW, Dave decided to keep it serious, and I followed suit because I thought my time would be better spent doing that then writing “lol”.

                Kind of like dealing with the guy barfing near the punchbowl first, rather than chuckling at a joke being made across the room.

            • Gene Callahan says:

              “Bob is a heavy hitter Austrian and perhaps the new Rothbard.”

              Adrian, Bob is an intelligent, thoughtful guy. Please don’t smear him like this.

          • Major_Freedom says:

            “Big mistake. An idea is to be judged by its merits, not by its author.”

            What if Murphy holds that “bad ideas” and “Smiling Dave” are 100% correlated?

          • Gene Callahan says:

            No, Dave, we are judging your “ideas” by their merits!

      • Joe Esty says:

        If Mises signed off on his essays as “Funky Austrian Dude” I’d tend to take those essays less seriously. You’re positioning your ideas at a disadvantage if you lack the confidence to put a real name behind them.

        • Major_Freedom says:

          Only if you a priori believe that ideas are more relevant versus less relevant, or more valid versus less valid, or more true versus less true, on the basis of the names of the people eliciting the ideas.

          If Mises signed off his works that way, then his ideas would still be unchanged.

          • Joe Esty says:

            Marketing matters in disbursing ideas (legitimate or otherwise) — it influences perception and how people think a priori (a term Austrians tend to use too much). Ideas are more readily disbursed and contemplated if the originator is taken seriously. Paul Krugman would likely not have his dias or his Nobel if his non de plume was “Happy Pauly” or “Kaptain Keynesian.”

            • Major_Freedom says:

              “…a term Austrians tend to use too much” he says…right after using it…

              The name “Kaptain Keynesian” is just as “serious” as Paul Krugman. They’re just names. All you’re doing is repeating your A PRIORI (haha!) conviction that names are more important than ideas. That’s really just your problem you have to deal with.

              Your theory is bogus anyway. Tyler Durden of ZH for example is far more influential and marketable than you, and your name is “real” whereas Tyler’s name is “fake.” Paul Krugman has cited ZH more than he has cited you.

              Brad DeLong, and other “serious” names, have cited the blogger “Lord Keynes” more than once.

              Murphy cited me more than once.

              The reason you think you’re seeing what you’re seeing, is because your theory is blinding you from the importance of ideas over names.

              You may believe you’re “helping the cause” by playing the role of marketing strategist, talking down to those who choose to remain anonymous (Oh, which reminds me, and the hacker group “anonymous” are far, far, far more influential and marketable than you as well), but all you’re doing is HURTING the cause, because the cause can only win on the basis of ideas. By putting names above ideas, you are declaring to the world that the ideas you’re advancing are not as important as elevating and spreading *names* (under which we’re what, supposed to appeal to their authority?).

              Stop hurting the cause and start taking ideas seriously.

              • Joe Esty says:

                I never professed to be professed to be “anybody.” Though everyone you mention who uses his real name is still more recognized than the cutely named blogger..

                One final thought: Here’s a word that doesn’t get used to often (in any circles) cockalorum. If you don’t already know its meaning, I suggest you look it up, then look in the mirror.

              • Major_Freedom says:

                ” Though everyone you mention who uses his real name is still more recognized than the cutely named blogger.”

                Yes, let’s ignore the millions of real names that are less influential than cutesy bloggers. Let’s cherry pick well known real names.

                Joe, you don’t actually believe that your name is more recognizable than ZH, do you? Or that more people recognize you than blogger Lord Keynes?

                “One final thought: Here’s a word that doesn’t get used to often (in any circles) cockalorum. If you don’t already know its meaning, I suggest you look it up, then look in the mirror.”

                Oh I get it, you’re just pissed that anonymous people are more recognized than you, because you had the theory that using your real name should result in your name becoming more recognized and taken more seriously.

                Then, after you observed your theory being falsified left right and center, even on this blog (yikes!), rather than admit your theory is wrong, you instead react by trying to convince others that your theory is still right, that they should change their opinion regarding ideas versus names, and to top it off, you attack the anonymous messengers as well, and insist that they should help you prove your theory right by voluntarily retreating and minimizing their own impact.

                So ignore counter-factual data, and attack the factual data.

              • Joe Esty says:

                This isn’t even a blog. It’s a comments section, and I think Murphy does himself a great disservice providing it. He should do what CafeHayek did and make people comment through Facebook.

                It seems I have to repeat myself: I never claimed an audience, nor am I a blogger. I claim zero followers.

                So go ahead and “wow” yourself in your internal dialogue with your wonderful ideas; then share them with a miniscule coterie of similarly DC Comics inspired bloggers.

                Do that, and meanwhile Krugman, Stiglitz, Zandi, Blinder, Reich, et al go coast-to-coast with their ideas.

                Yes, ideas matter, but they are worthless unless dispersed.

                If you don’t think selling or marketing matter, then you will wind up a complete failure.

              • Major_Freedom says:

                Joe:

                “This isn’t even a blog. It’s a comments section, and I think Murphy does himself a great disservice providing it.”

                This is a blog, and Murphy is the judge of whether Murphy does himself a service in providing it.

                Blogs can have comment sections. See the URL? Notice the word BLOG in the title?

                “He should do what CafeHayek did and make people comment through Facebook.”

                Why?

                “It seems I have to repeat myself: I never claimed an audience, nor am I a blogger. I claim zero followers.”

                You’re missing the point Joe. There are bloggers less recognized than ZH, and Lord Keynes blog, that use “real” names.

                I guess I should repeat myself: It is not true that people with real names are taken more seriously than anonymous names. Yes, it is possible that YOU believe that, but that’s just your opinion and your notion of what ideas should and should not be taken seriously.

                It doesn’t describe myself, it doesn’t describe the many others who take anonymous bloggers more seriously than real name bloggers to the extent that the ideas presented are superior and more educational.

                “So go ahead and “wow” yourself in your internal dialogue with your wonderful ideas; then share them with a miniscule coterie of similarly DC Comics inspired bloggers.”

                You sound mad.

                “Do that, and meanwhile Krugman, Stiglitz, Zandi, Blinder, Reich, et al go coast-to-coast with their ideas.”

                Yes, let’s continue to cherry pick the well known real named bloggers, and completely ignore the many real named bloggers who are recognized by hardly anyone at all.

                Way to have an “internal dialogue” with yourself and “wow” yourself.

                “Yes, ideas matter, but they are worthless unless dispersed.”

                Ideas disperse when they are good ideas.

                “If you don’t think selling or marketing matter, then you will wind up a complete failure.”

                You mean like all the real named bloggers who can’t compete with the anonymous blogs due to the fact that the ideas are not as good?

                Joe, you can continue to pretend that your empirical theory is correct, but when you have countless counter-examples that falsify your theory, then you’re only hurting yourself by continuing to adhere to it.

                You need to separate what YOU take seriously (names over ideas), from what OTHERS take seriously (ideas over names).

  7. Smiling Dave says:

    The moment has come.

    Smiling Dave has written a reply, listing 4 huge boo-boos in Bob’s article here, that rip it apart from the very foundations.

    I know you will thank me, Bob. You are not what you accused me of [falsely and with no evidence], someone who won’t change his mind.

    Ah yes, the link:

    https://smilingdavesblog.wordpress.com/2013/04/14/general-gluts-redux-or-bob-murphy-takes-the-gloves-off/

  8. Smiling Dave says:

    So Bob,

    Is your update admitting I am right?

    If yes, be a man about it and say it explicitly. Erase all the jackass remarks about how I don’t know what I’m talking about.

    If no, then you have more work to do. Read the article linked to in the previous comment.

    As for your new scenario, that we used up 90% of the world’s resources working 20 hours a day, how un-Rothbardian of you to even worry about that. MES has a whole section devoted to why such a thing is no problem.

    • Bob Murphy says:

      SD wrote:

      So Bob,

      Is your update admitting I am right?

      If yes, be a man about it and say it explicitly. Erase all the jackass remarks about how I don’t know what I’m talking about.

      If no, then you have more work to do. Read the article linked to in the previous comment.

      Dave, this is the last communication you will receive from me, and only because I want to clarify for others: NO, in fact your response is even more wrong, in light of my update.

      • Smiling Dave says:

        That’s OK, I’m writing for others, too.

        Your update still has the blunder of thinking that leisure has anything to do with Say’s Law.

        It still has the blunder of thinking your quote of Rothbard. somehow refutes me.

        It still has the blunder of thinking Say’s Law involves in any way ” oil and natural gas that could have been sold in the future.”

        It still has the blunder of thinking changing prices has anything to do with fixing a depression.

        Explanations in great detail of all these in the link I posted two comments ago.

        • Tel says:

          Your update still has the blunder of thinking that leisure has anything to do with Say’s Law.

          People don’t pay cash for leisure? You better explain that to the worldwide tourism, hospitality & leisure industry that represents something like 10% of worldwide GDP.

          That doesn’t even include the people who take a day off just to sit in the sun and put their feet up on their own back decking.

          • Smiling Dave says:

            You don’t know what leisure means in this context. Study up.

            • Major_Freedom says:

              The real goods investment supporting activities of leisure is very much related to Say’s law in this context.

              Say’s law isn’t constrained to tangible consumer goods. It includes real investment that expands industries of which the consumption is that which is not tangible, such as lying in the Sun, etc.

              If an individual decides, as his goal, to be engaged in a time of leisure, supported by real capital investment that makes that particular type of leisure possible (patio in backyard, deck on cruiseship, etc), then that is a component of the “goods” pertaining to Say’s law.

              I guess I could tell you to “study up”, but that would not be helpful, so I won’t.

              • guest says:

                Right. And really, the whole point of trading at all is to lower the costs of acquiring something.

                We trade for something because we don’t want to produce it ourselves.

                So, all trade provides leisure to some degree.

                Trading is just one expression of preference:

                Interest Rates in a Gold Coin Standard
                http://lewrockwell.com/north/north1075.html

                It is not possible to retain an extra payment – not by workers, land owners, employers, or bankers. Why not? Because of the unbreakable rule of the free market’s auction: “high bid wins.” (If a would-be seller refuses to sell, he offers the highest bid.)

                Someone pursuing leisure offers the highest bid for his own services.

            • guest says:

              A boombox is not a bottle.

              You’ve got to know your limits with a boombox.

  9. Tel says:

    If every human being worked 20 hours a day for the next year, and we burned off 90% of the depletable natural resources (crude oil, natural gas, etc.) on earth, there would be a definite sense in which “we produced way too much this year.”

    Hmmm, that seems to miss the point. Sure you can repeal any economic law given sufficient brute force to make people do things they don’t want to do. You could even repeal the Law of Scarcity if you like… simply survey the population, and ask each one if they are facing any scarcity. If anyone answers, “Yes” then you just shoot that person and take their name off the survey. Simple really. Ends up with no scarcity.

    Once you did that, you wouldn’t be talking about a free market any more, you would have a brutalized and subjugated population, unable to express their preferences. So what does this prove about economic laws?

    Similarly, people have a personal preference between work and leisure, and forcing them to work 20 hours a day when they only want to work 8 hours would be effectively an outside intervention, fixing the relative price of leisure. So price fixing causes an imbalance of supply? Well how about that… but what does this prove about Say’s Law?

  10. B.L. Zebub says:

    “These underproduced goods are not seen because they don’t exist.”

    Well… How can you argue with that? LMAO

    • Major_Freedom says:

      You can’t falsify it. That’s why it is called a “law.”

      It is not even conceivable to think otherwise, due to the fact that the very attempt to refute it, shows that there remains unsatisfied desires on your part, which of course means you want more than what you have (psychologically in this instance), which of course implies the problem isn’t too much in the aggregate, but not enough of some things and too much of other things.

      All you’re doing is using the theory that all arguments have to in principle be falsifiable, or else they’re not saying anything true about the world, and then pretending that it’s so obvious that the argument you addressed is false, so why bother even thinking about it more than what is required to compare and contrast the argument with your theory, and then laugh it off if there is a disconnect.

      You’re only going to stay ignorant that way.

      • Gene Callahan says:

        “You’re only going to stay ignorant that way.”

        MF is the world’s leading expert on staying ignorant, so I’d listen to him on this point!

  11. Steve Emmanuel says:

    Hi Bob:

    “I had always thought of it exclusively in a static sense, with markets for present goods and services only. But once you introduce the time element, it’s a little trickier and makes people who talk about an excess demand for money or for “safe assets” not seem as crazy after all.”

    I’ve always thought that Say allows for the time element, although it’s not explicit. For the LK types, here’s Say’s Law again so there’s no ambiguity:

    “”It is worthwhile to remark that 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.”

    It’s the ‘full extent of its own value’ bit that seemingly is always overlooked. That value placed on the product produced is subject to the preferences of consumers. If at the asking price, consumers prefer the product to their money, they’ll buy. If they prefer to hold their money, price will have to fall to entice exchange. The price might fall to a level that doesn’t enable the producer to recoup the costs of production. But that is a separate issue. From the producers’ perspective its an issue dealing with the producers’ failure to assess market conditions, from the perspective of rest of the economy its an issue dealing with the overproduction of that one good.

    Say’s observation is really just saying that to the extent the product you produce has value, you can use the proceeds to consume yourself. Absolutely nothing wrong there. Then he writes:

    ‘When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products.’

    Where Say does go wrong is making the assumption that producers want to sell their goods immediately or that consumers want to spend their money immediately after they get it. Given that Say wrote this in 1803 France, fresh from hyperinflation and revolution, perhaps it can be forgiven that he would think that producers and consumers alike would want instinctively want to play hot potato with money.

    However that incorrect assumption does not invalidate the original observation that a good – to the extent it has value – enables a producer to consume once that value is realized in the market. It follows, that when the producer exchanges a product for money he/she is now able to functionally consume. However he/she must decide whether the goods available are preferable to that money just as others made a decision about his/her good in the first place. The consumer might part with the money 60 minutes after coming into it, or an heir might part with it 60 years from now, but in both instances a market for other products was afforded due to the value of a product produced. The amount of time between someone exchanging a product for money and the proceeds being spent depends on the preferences of that person.

    • Tel says:

      Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable.

      That is of course why Keynesians freak out over a deflationary environment, because under deflation the value of money is not perishable. That’s why Krugman loves inflation so much (while simultaneously claiming we have no inflation).

      The amount of time between someone exchanging a product for money and the proceeds being spent depends on the preferences of that person.

      Of course, but the point is not whether one person’s preference might be this way or that way, but whether a large scale shift in preferences can happen in a coordinated manner across many people, and thus bring about a depression.

      Rothbard says the very observation of mass coordination (i.e. vast numbers of people changing preference simultaneously) implies some central planning interference must be the culprit. Keynes says people just do that from time to time because, oh well, just because.

  12. Gene Callahan says:

    By the way, all of you do know that Say abandoned “Say’s Law” and admitted Malthus was correct all along in the sixth edition of his book, right?

    • Smiling Dave says:

      Liar, liar, pants on fire. There is no sixth edition.

      Source: Say’s Law and the Keynesian Revolution by Kates. page 24 of the print edition. Available for free download at mises.org.

      Might as well take this opportunity to elaborate on address the ideas, not the author.

      I usually ignore anything Callahan or Lord Keynes writes, because experience has shown me time and again that they are either intellectually dishonest, or were dropped on their heads as babies. So that the odds of reading them being a waste of time seem to me, subjectively, to be great.

      But that does not PROVE they are wrong about anything. To prove them wrong, the usual tools, logic and evidence concerning their ideas, have to be used.

      So that my dislike for their writings, like my dislike of a certain TV show, serves merely as a guide to me on how to use my time. But it does not prove them wrong.

      • Lord Keynes says:

        Say repudiated the strong form of Say’s law (“Say’s Identity”) in his letters to Malthus:

        “Say and other writers recognized that the zero value of the sum of excess demands, or supply creates its own demand (“Say’s identity”), may not hold in the short run. Say’s passage in his Letters to Malthus … even suggests an explanation – a desire to hoard or, as we would now put it, a temporary excess demand for money. But they thought the market would fairly quickly and automatically restore equilibrium” (Baumol, W. J. 1999. “Retrospectives: Say’s Law,” Journal of Economic Perspectives 13.1: 195–204. at p. 201).

        Say in his own words:

        “Mr. Ricardo insists that, notwithstanding taxes and other charges, there is always as much industry as capital employed; and that all capital saved is always employed, because the interest is not suffered to be lost. On the contrary, many savings are not invested, when it is difficult to find employment for them, and many which are employed are dissipated in ill-calculated undertakings. Besides, Mr. Ricardo is completely refuted not only by what happened to us in 1813, when the errors of Government ruined all commerce, and when the interest of money fell very low, for want of good opportunities of employing it; but by our present circumstances, when capitals are quietly sleeping in the coffers of their proprietors. The bank of France alone possesses 223 millions of specie in its chests, more than double the amount of its notes in circulation, and six times what it would be prudent to reserve for the ordinary course of its payments.”

        Say, J. B. 1821. Letters to Mr. Malthus: On Several Subjects of Political Economy, and on the Cause of the General Stagnation of Commerce. To Which is added A Catechism of Political Economy, Sherwood, Neely, and Jones, London. p. 49.

        • Major_Freedom says:

          None of this refutes Say’s law.

          Even if every last person on Earth hoarded 99% of their money earnings for long enough time periods that every business in existence went bankrupt, Say’s law would be untouched.

          If this occurred, then what happened was that there was a huge partial relative overproduction of goods (which are seen) and a corresponding huge partial relative underproduction of goods (which are not seen).

          This event is not evidence that humans have a limited desire for wealth in general. It means they have a particular preference orders of goods, and that it is possible for producers to produce too many of the goods people don’t want, and not enough of the goods that people do want.

          We see this possible discrepancy in a monetary economy by way of proximate nominally induced business failures. The people who are producing goods, are producing goods that people do not want, and not enough goods that people do want, given the ranked orders of subjective preferences.

          The Keynesian mind would incorrectly interpret these events as not enough demand for products that SHOULD be sold, regardless of whether market forces would have those producers produce something else instead.

          Obviously those directly involved in the partial relative overproduction of goods, those most at risk of failure, may change their expectations to be one of more uncertainty, which they respond to by holding more cash for longer periods of time. But this is a healthy activity that hastens the needed corrections to business investment, so that instead of producing too much of what people don’t want, they can produce more of what people do want, such that the risk of business failure is decreased, and the level of uncertainty is reduced.

          LK, you will never understand Say’s law as long as you read literature that is tainted with Keynesian fallacies that do not properly explain Say’s law. It’s no wonder you believe in the false notion that Say’s law was refuted by empirical events, and that Say repudiated himself.

          • Lord Keynes says:

            “None of this refutes Say’s law.

            Even if every last person on Earth hoarded 99% of their money earnings for long enough time periods that every business in existence went bankrupt, Say’s law would be untouched.”

            No doubt – as long as one ignores how Say and Classical economists defined Say’s law, and one uses an arbitrarily redefined description of Say’s law.

            LK, you will never understand Say’s law as long as you read literature that is tainted with Keynesian fallacies that do not properly explain Say’s law.

            Oh, of course, Jean B. Say was “tainted with Keynesian fallacies”!

            It is all clear now.

            • Major_Freedom says:

              “No doubt – as long as one ignores how Say and Classical economists defined Say’s law, and one uses an arbitrarily redefined description of Say’s law.”

              Your interpretation of Say’s law is flawed, because you’re reading third party Keynesian redefinitions of it. You’re mistaking that as me “redefining” it.

              “Oh, of course, Jean B. Say was “tainted with Keynesian fallacies”!”

              Say never refuted Say’s law. Redefining it in through Keynesian concepts, makes it appear that Say’s later writings refuted his earlier ones. Baumol is very careful to use non-committed and suggestive language to prod and poke the reader into concluding what Baumol wants to believe.

              • Lord Keynes says:

                “Your interpretation of Say’s law is flawed, because you’re reading third party Keynesian redefinitions of it. You’re mistaking that as me “redefining” it.”

                Cite me where Say or a Classical economist ever defined the law in the way you do.

              • Major_Freedom says:

                Already addressed.

              • Major_Freedom says:

                Again, for the third time, Say’s law is ONLY a refutation of the fallacy that there can be such a thing as too much wealth in general.

                That’s all it is.

                Asking me to list classical economists who defined Say’s law is silly. For the answer is Say. Say refuted the fallacy in his Treatise. Mill also refuted it.

                There is no such thing as too much wealth, not for entities who act. Action is the usage of scarce means to achieve ends.

                As long as action is taking place, that alone is enough to disprove the notion that people’s desires can be fully satisfied.

                People who hoard cash, but continue to act and not die, don’t cease consuming. The fact that they don’t cease consuming is due to the fact that they are not fully satisfied. You can never full satisfy acting entities. That’s why the notion that there can be too much wealth in general, is ridiculously absurd.

                Say knew it was absurd and he showed how it is absurd by showing that wealth is what is used to procure wealth, using money as a medium of exchange. The fact that people can hoard money for periods longer than you Keynesians can tolerate, doesn’t show Say’s refutation is false.

              • Lord Keynes says:

                “Say’s law is ONLY a refutation of the fallacy that there can be such a thing as too much wealth in general.”

                So now either

                (1) it is reduced to some statement so watered down that it is empty and certainly no threat to Keynesianism whatsoever, or

                (2) the idea that “every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value” so that there is only ever partial disequilibrium in individual markets .

                In short, either some trivial notion or just back to a conventional definition of Say’s law.

                We are in the presence of Nobel Prize material!! Don’t be bashful!

              • Major_Freedom says:

                LK:

                “(1) it is reduced to some statement so watered down that it is empty and certainly no threat to Keynesianism”

                Hahaha

                “(2) the idea that “every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value” so that there is only ever partial disequilibrium in individual markets.”

                No, that’s false. Say’s law does not hold that “every offer (supply) of a quantity of goods automatically constitutes a demand for a bundle of some other items of equal market value.” Not only that, but your wording past the “so that…” doesn’t even follow from the former.

                “In short, either some trivial notion or just back to a conventional definition of Say’s law.”

                You can it “trivial” if you want, but that would be incredible, considering how Keynes’ denied it, and his followers believe his denying it was his main claim to fame.

                I notice you do that once you realize the truth of a proposition grounded on what some philosophers call “intuition.” You believe that the realization something is “trivial” makes it moot, or not useful, or whatever.

                The classicals were all praxeologists, in the sense that they all regarded economic laws as grounded on certain broad and basic principles that could not conceivably be wrong even in theory. Mises just made explicit what they did implicitly.

                If you can understand it to be “trivially true” that the desire for wealth in general, for us humans, is practically infinite, that no matter how much wealth is produced in general, there will always be a desire for more wealth, then you can understand why Say took the time to refute the common fallacy that business is bad because there is a lack of enough demand from people, that this demand has to be forced higher than what it is in the market for the market to “work”.

                No matter how bad business gets, it won’t stop people from desiring more wealth.

                Trivial or not, you just conceded the entire debate.

        • Smiling Dave says:

          I’m glad you wrote that LK, because it shows how ignorant Keynes was, in addition to being foolish.

          The thing is, Keynes foolishly attributed to Say a new meaning to his writings, one nobody previous to him made the blunder of attributing to Say, or to anyone.

          ‘Say’s Identity’ refers to the proposition that the
          total demand for goods is always equal to the total supply of goods. Therefore, variations in the demand for money do not affect the level of economic activity. It is this proposition which is generally seen as the meaning of Say’s Law contained in the General Theory. And of course, it is a blunder to attribute that to Say [or to anyone], as you so justly point out.

          ‘Say’s Equality’ means that while the demand for
          goods may move out of equilibrium with the supply of goods, the processes of the economy will rapidly bring the two back into equilibrium. This proposition is generally seen as the meaning of Say’s Law held by classical economists.

          Thank you for pointing out Keynes’s ignorance of the literature.

    • Major_Freedom says:

      Keynes “abandoned” his attack on the “invisible hand” by the end of his life. Does that mean Keynes’ old arguments against the invisible hand are therefore refuted? No.

      Not even the author himself can refute his own writings by abandoning them.

      I’ve noticed a distinct evolution, or should I say devolution, in the way Say’s law has been presented over the centuries. Originally, Say wanted to refute the common misconception that an economy can produce more consumables in general than what people desire. Mill hopped on board and contributed many strong arguments against what he rightly understood to be the age old underconsumptionist fallacy.

      Fast forward to today, and we have Keynesians claiming that the theory was all along relating to production of goods of all types, and the demand for goods of all types.

      Interestingly, the last edition of Say’s “Treatise” was his fourth edition, and in that edition (like his previous editions) he sought to refute those who “pronounced money to be scarce” as an explanation for low sales.

      He wrote:

      Should a tradesman say: “I do not want other products for my woollens, I want money,” there could be little difficulty in convincing him, that his customers cannot pay him in money, without having first procured it by the sale of some other commodities of their own….”You say, you want only money; I say, you want other commodities, and not money,”…To say that sales are dull, owing to the scarcity of money, is to mistake the means for the cause; an error that proceeds from the circumstance, that almost all produce is in the first instance exchanged for money, before it is ultimately converted into other produce.”

      Say showed that the reason sales are slow, is not because of a scarcity of money, but because other products are scarce. The buyers of the goods that have low sales, are not producing the right goods themselves the sales of which can procure them with enough money to buy the low sale goods in question. And they are not producing the right goods because their buyers are not producing the right goods the sales of which can procure them with enough money to buy the low sale goods of the buyers once removed. And so on.

      What is actually a problem of insufficient production of the correct goods (too much production of the wrong goods) is mistakenly observed as insufficient money and demand “in the aggregate.”

      I don’t expect minds afflicted with Keynesian and statist irrationalism to understand this.

      • Lord Keynes says:

        “Not even the author himself can refute his own writings by abandoning them.”

        Yes, he can: by showing by convincing argument himself that his previous arguments were wrong, as Say did HIMSELF IN PRINT.

        By contrast, all the BS about Keynes abandoning the ideas of the GE is based on mere hearsay from a man who went to lunch with Keynes. No surviving writings of Keynes himself exist showing by careful argument why his earlier views in the GE were wrong.

        Oh, and Say did understand that there could be insufficient money:

        Say’s passage in his Letters to Malthus … even suggests an explanation – a desire to hoard or, as we would now put it, a temporary excess demand for money. But they thought the market would fairly quickly and automatically restore equilibrium” (Baumol, W. J. 1999. “Retrospectives: Say’s Law,” Journal of Economic Perspectives 13.1: 195–204. at p. 201).

        • Major_Freedom says:

          “Yes, he can: by showing by convincing argument himself that his previous arguments were wrong, as Say did HIMSELF IN PRINT.”

          The print you cited does not refute Say’s law.

          “By contrast, all the BS about Keynes abandoning the ideas of the GE is based on mere hearsay from a man who went to lunch with Keynes.”

          You cite hearsay as evidence, but only when it suits you. When it doesn’t, then it’s hearsay that is not to be taken seriously.

          “No surviving writings of Keynes himself exist showing by careful argument why his earlier views in the GE were wrong.”

          Neither for Say regarding Say’s law.

          “Oh, and Say did understand that there could be insufficient money:”

          “Say’s passage in his Letters to Malthus … even suggests an explanation – a desire to hoard or, as we would now put it, a temporary excess demand for money. But they thought the market would fairly quickly and automatically restore equilibrium””

          That isn’t an argument of “insufficient money.” He explained that is a fallacy in his fourth edition, which he did not directly repudiate.

          Baumol is not a good source on Say’s law. He doesn’t even understand it.

          • Lord Keynes says:

            “The print you cited does not refute Say’s law.”

            Oh, you mean it does not refute your imaginary, la-la land version of Say’s land propagated in Cloud Cuckoo Land where you reside in full splendour in a jester’s outfit?

            • Major_Freedom says:

              No, I mean Say’s law. Not your warped Keynesian mangling of it.

              • Major_Freedom says:

                In general, not the “holistic” interpretation of it.

                I notice that minds overwrought with aggregate thinking have difficulty understanding Say’s law. It is impossible for a person wedded to Keynesianism to understand it.

                You, Baumol, Callahan, you’re all unable to understand it because you are only using highly aggregate concepts.

                It’s why you don’t understand economic calculation, it’s why you don’t understand ABCT, it’s why you don’t understand Say’s law, etc.

              • Lord Keynes says:

                Ah, yes, Say’s law as defined by Say:

                For what, in point of fact, do you want the money? Is it not for the purchase of raw materials or stock for your trade, or victuals for your support? Wherefore, it is products that you want, and not money. The silver coin you will have received on the sale of your own products, and given in the purchase of those of other people, will the next moment execute the same office between other contracting parties, and so from one to another to infinity; just as a public vehicle successively transports objects one after another.

                Oh, and no doubt Thomas Sowell is also tainted by “aggregate concepts”, wicked Keynesian that he is.

              • Lord Keynes says:

                M_F:

                “Say’s Law does not claim that money is “soon” spent after it is earned, whatever that is supposed to mean in terms of absolute cash holding time periods. It is irrelevant.

                Say:

                “The silver coin you will have received on the sale of your own products, and given in the purchase of those of other people, will the next moment execute the same office between other contracting parties,

                “Every producer asks for money in exchange for his products, only for the purpose of employing that money again immediately in the purchase of another product; for we do not consume money, and it is not sought after in ordinary cases to conceal it: “

                Your knowledge of Say is stunning. You deserve the Nobel prize.

              • Major_Freedom says:

                “Ah, yes, Say’s law as defined by Say:”

                “For what, in point of fact, do you want the money? Is it not for the purchase of raw materials or stock for your trade, or victuals for your support? Wherefore, it is products that you want, and not money. The silver coin you will have received on the sale of your own products, and given in the purchase of those of other people, will the next moment execute the same office between other contracting parties, and so from one to another to infinity; just as a public vehicle successively transports objects one after another.”

                Again, that is not Say’s law. Say’s law is not an argument that because people “quickly” spend money they earn, that general gluts are impossible.

                “Oh, and no doubt Thomas Sowell is also tainted by “aggregate concepts”, wicked Keynesian that he is.”

                I’ve already shown you that Sowell’s discussion on Say’s law presupposes equilibrium, and yet you’re discussions violate that assumption.

                “The silver coin you will have received on the sale of your own products, and given in the purchase of those of other people, will the next moment execute the same office between other contracting parties,“
                “Every producer asks for money in exchange for his products, only for the purpose of employing that money again immediately in the purchase of another product; for we do not consume money, and it is not sought after in ordinary cases to conceal it: “

                This is not Say’s law either.

                “Your knowledge of Say is stunning. You deserve the Nobel prize.”

                It does not follow that because Say said X, that X is necessarily Say’s law.

                You are taking various passages from Say’s body of work, and incorrectly labeling that as Say’s law.

                Say’s law defined the way you define it is always being falsified, because there is always a positive period time that elapses between the earning of money and the spending of money.

                Using your warped Keynesian definition (Sowell, BTW, did not define Say’s law the way you have attributed to him): Quantity demanded is never equal to quantity supplied, because every time a good is produced, there is a time that elapses before the goods are purchased, if they are purchased at all.

                Say’s law would then not, contrary to Keynes, only sometimes be the case and sometimes not be the case. It would instead never be the case. So even if we used your flawed aggregate conceptualizations to understand Say’s law, Keynes’ “refutation” of it would still be flawed.

                Like I said above, as long as you use Keynesian concepts, you will never be able to understand Say’s law.

                All you’re doing is jumping on any mention from Say concerning cash preference, because that’s what you Keynesians have a fetish with, and then you are claiming that because Say mentioned it, it must be a part of Say’s law because that is what Keynes focused on in his butchering of it back in the 1930s.

                You’re clueless, Baumol is clueless, and you misinterpreted Sowell’s discussion of Say’s law that concerned equilibrium, which is totally absent in Keynes mangled treatment.

                And thus you’re sitting there claiming that Say’s law is violated whenever a producer or group of producers produce goods that have unprofitable nominal demand for them.

  13. Ken B says:

    When my basement flooded did I have too much water or too little dry floor?

  14. Razer says:

    How about this little thought experiment to help understand Say’s Law. Correct me if I get this concept wrong, which seems to me is just another way of restating the law of scarcity, and Keynes and his ilk have to refute if they are to refute Say.

    Let’s say we have a bin full of tinker toys and five or six kids sit around and play with them. Now one of them, let’s call him John Maynard, he hogs nearly every one to build his ridiculous toy trucks. When he’s done, no other kid wants to play with his stupid mangled toy he made. One might say there was a general glut in production, but this is not true. None of the other kids got to build their toys because John Maynard hogged all the other tinker toys for himself. He had a glut but they suffered a shortage.

    Doesn’t that illustrate Say’s Law quite simply?

    I also wonder if Say’s Law doesn’t also refute the idea of demand pull inflation or whatever they call it. Seems related, but I notice the ones that don’t understand Say are vested in not understanding him, sort of like how a young earth creationist is vested in not understanding the theory of evolution. Same thing is at work here.

    • Smiling Dave says:

      The situation you described cannot illustrate Say’s Law, which talks about trade. To trade, you need at least two products. In your story, there is only one.

      Same mistake Callahan made.

      • Major_Freedom says:

        No, this is not true. Say’s Law applies to autistic exchange as well.

        Someone on a deserted island who produces far too many coconuts than he desires at the time, has not violated Say’s Law, and yet, at the same time, Say’s Law is still present.

        It is present in the form of a relative underproduction of UNSEEN goods that the person could have produced had he devoted more time, labor and resources to that, and less time, labor and resources to producing coconuts.

        There is no general overproduction of wealth as such on the island. The person just made the mistake of partially relatively overproducing coconuts, and partially relatively underproducing something else. The person’s desire for consumption in the aggregate remains practically unlimited.

        Say’s Law is not just applicable to trades, because it is in fact a category of individual action. It does not require more than one individual for the law to apply.

  15. Smiling Dave says:

    Rejoice, oh lovers of truth. Smiling Dave has written the definitive article on Say’s Law, complete with

    1. extensive quotes from our man Say himself,
    2. that pesk, Devils’ Advocate,
    3. Krugman,
    4. crystal clear explanations,
    5. the scoop on why Keynes hated Say’s Law so much,
    6. and special guest star, a top mainstream economist, one Khan.

    http://smilingdavesblog.wordpress.com/2014/09/10/says-law-tested-in-kansas-city-uh-huh/

    • Major.Freedom says:

      I’m not a fan of your smugness and snark, but I have to say the arguments were quite good.

      I highly recommend that you add a few back and forths that include DA asking something like

      “OK, I now get that in order for people to demand goods, Say says that they must produce marketable goods. But the Keynesians only care about employment in the present, not employment in the future after employment slowly recedes as marketable products increase relative to non-marketable products. Krugman himself said that with no government “stimulus” the market would eventually after some time reduce employment. But they insist that it is better for government to stimulate the demand for ALL production, including what would otherwise be non-marketable products, and reduce unemployment now, rather than wait for the market to gradually eliminate non-marketable goods.”

      They don’t care about non-marketable goods in the market. They only care about unemployment.

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