Say's Law of Markets - Explained
What is Say's Law?
Written by Jason Gordon
Updated at March 28th, 2023
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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.
Back to:ECONOMIC ANALYSIS & MONETARY POLICY
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 activity's 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 supply's 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
Related Topics
- Supply-Side Economics
- Say's Law
- Laffer Curve
- Neo-Classical Economics
- New Keynesian Economics
- Classical Economics
- Supply-Side Economics
- Keynesian Economics
- Keynes' Law
- Keynesian Analysis
- Demand Side Theory
- Market Forces
- Aggregate demand
- Aggregate Demand Curve (and shifts)
- Aggregate supply
- Aggregate Supply Curve (and Shifts)
- Aggregate Demand / Aggregate Supply Models
- Potential GDP
- Aggregate Supply and Demand Equilibrium
- Aggregate Supply and Aggregate Demand in Macroeconomics and Microeconomics
- Input-Output Model
- Stagflation
- Growth and Recessions in the Aggregate Demand - Aggregate Supply Model
- Unemployment in the Aggregate Demand - Aggregate Supply Model
- Inflation in the Aggregate Demand - Aggregate Supply Model
- Keynesian, Intermediate, and Neoclassical Zones