Say's Law of Markets - Explained
What is Say's Law?
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Table of ContentsWhat is Say's Law Of Markets?How does Say's Law Of Markets Work?Says Law ImplicationsSays Law CriticismAcademic Research on Say's Law Of Markets
What is Say's Law Of Markets?
Says Law of Markets is a theory in classical economic that states that product production is the reason why we have demand. According to this theory, being able to demand something is financed by the supply of a different product.
How does Say's Law Of Markets Work?
Says the law of markets was created in 1803 by a French journalist and classical economist known as Jean-Baptiste Say. He was influential since it deals with the economic activitys nature and how society creates wealth. According to Say, for you to have the means to purchase something, you much have a product to sell. So, according to him, the source of demand is not money but production. What this means is that a persons ability to demand a given product is based on the income produced by that the acts of production of that particular individual.
Says Law Implications
- The economy is supposed to be close to full employment at all times. There should be no any kind of deficiency in terms of demand unemployment.
- Economic downturns are there because of a supplys glut.
- To be able to increase output, concentration should be on increasing production instead of demand
- Any unemployment must be as a result of wages being artificially reserved above the structural factors or equilibrium level like lack of skills in particular industries
Says Law Criticism
- A suggestion from the prolonged recession and mass unemployment of the 1930s stated that demand does not equal production. For products produced during a recession, there is a possibility of there being insufficient aggregate demand for them.
- There are no prices and wage flexibility. For instance, it is possible for employees to resist nominal wage reduction.
- Hoarding money may be very rational, especially during anxiety or deflation
Academic Research on Say's Law Of Markets