Why Say’s Law is Imperfect Research

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Title: Why Say’s Law is Imperfect
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Introduction
The Say’s introduction of the “law of markets” attracted several criticisms from a number of theorists who subscribed to the fact that accumulated excessive supply that results in production stagnation provided a real possibility. However, some theorists such as Mill with links to Ricardian School disputed the conclusion based on the fact that an adjustment in prices is capable of maintaining an equilibrium that occurs between aggregate demand and supply. However, in their perspective, lack of demand does not halt growth within markets. The wisdom as provided by Say’s Law provides some knowledge and understanding of the microeconomic market processes. The approach from the Austrian perspective asserts that the understanding of the markets takes a spontaneous step by step processes. The markets have a way of revealing the players that coordinate their processes. These processes that operate in the market are not necessarily the result of human design. The activities and operations in the market take place in a decentralized and not top-down process. However, from the Hayek’s perspective, the spontaneous activities in Say’s Law contrast the various structures that result from human designs. In this case, the markets including the institutions of morality, money as well as law emerge through a process that comprises social evolution in the long-run. The complexity of the markets comprises of myriad actions that are independent of an individual or firm activities. However, in the view of the numerous actions that take place in the market including the factors that affect the operations, it is never easy to ascertain the real facts in an attempt to pre-empt significant limitations. Specifically, there is no point where market outcomes can be predicted to sufficient details. The extent of knowledge required for detailing the necessary expertise appears to be demanding, therefore, making it difficult the prediction of markets in totality (Kates 194).
In contrast with Say’s Law, the only possible way that could permit the understanding of the complexity within the market involves the use of economic and market principles. The understanding of the markets demands the aspect of explication of the principles that safeguard human action rather than from the prediction of the results. Moreover, the Law of Demand states that with all factors constant, people tend to purchase less of a commodity depending on the high price attached to it. This does not give sufficient room for specific predictions of the number of purchases made. However, the inability to predict the markets may not posse any greater challenge since patterns of prediction are still possible through explanation of market principles that underlies economic mechanisms intelligible. However, there is also the tendency of making negative predictions through such principles that alleges the impossibility of performing that which should be done. Such boundaries are provided by the principles of economics that point to the various undesirable as well as unintended consequences of different intentions. In some economic contexts, Say’s Law is considered as one of the organizing principles within the market (Sowell 32).
Those in support of Say’s Law consent to its relevance both to barter and money economies. In this case, all the income as earned is spent only on consumption as well as investment. This law is made under the assumption that money cannot be hoarded, therefore, making the channel on money and expenditure neutral. The barter economy considers every seller as a potential buyer at the same time. In this case, the money obtained from sales can as well be used in obtaining some other goods. Money as previously discussed in this study is utilized from the point of being a convenient medium of exchange. Such a perspective also makes money to be all inclusive in the concept of this law despite being framed to suit the barter economy. There are similarities between money and the barter economy since people may not be in the business of withholding idle money. This gives the underlying principle of selling and buying under both barter and money economy (Blaug 234).
The Say’s thesis expresses the whole idea behind the total monetary value of commodities as equivalent to the monetary value of commodities demanded not only at equilibrium but always. However, such perspective is not economically supported which makes the law to appear as a simplified truism. This makes it not an equivalent to any theory of explanation on any phenomenon. This law has exhibited minimal validity within the barter and money economy. Its relevance in the barter economy requires proof that for every goods or services offered at any exchange ratio is equivalent to demand at the given ratios. Such a perspective appears irrelevant since the non-existence of equilibrium is a possibility in both barter as well as the money economy. In the older classical economy, the aspect of Say’s law was considered in non-monetary terms where the exchange of goods for goods was a natural activity. However, later on, the classical economists that were so much into the money economy placed into consideration the aspects of hoarding as well as debt cancellation (Blaug 235).
Definition of the question: How does Say’s Law and Markets relate to other theorists concepts?
Say’s law of markets focuses on supply that creates its demand. This law explains the fact that there is no existence of either general overproduction or general unemployment on account of the aspect of excess of supply over demand. This is since there is a consensus of belief that goods and services are availed with the focus of exchange for money. The economy of exchange asserts that every form of produce is a representation of demand for other products since produce are meant for the markets. Further, this principle asserts that any form of additional products within the economy generates an equal measure of purchasing power to absorb additional supply. In such a case, the supply does not exceed demand that could unnecessarily cause unemployment. This provides an assumption on the aspect of full employment within the economy. Such a proposition rests on the fact that spending is always done at the rate that fully utilizes the available resources. In this case, savings are considered just as one of the forms of spending that enables income to be spent either on consumption or investment. This ensures that nothing exists like general over-production or unemployment since all productions are geared for automatic consumption. The implication is that producers take goods to the market in exchange for other goods and services (Meng 295).
From his perspective on market mechanism, Say noted that any product created instantly attract a market that is of equivalent to its value. This makes producers to be always anxious to sell their finished products before they lose value in monetary terms. Afterwards, the money obtained as a result of product value is also quickly disposed of by purchasing other products taking it back into circulation (Meng 299). Say asserts that there can never be something like general overproduction or rather general unemployment considering the excess of supply over demand. This is since the supply or production is usually an automatic exchange for money. The modern perspective of Say’s Law is provided by Pigou since the older version focused on a society with self-employed members. However, the modern perspective considers employers to be completely different from the employees.
Why is it important?
Say’s Law and markets is important since it is based on the key facts that explain the concept of supply creating the income that necessitates demand. The topic is crucial owing to the focus on the element of power as well as the will to purchase. The will to purchase in this case refers to an individual’s desire or willingness to purchase and consume goods or services. The aspect of human consumption can be considered to be perpetual, in other terms the aspect of unsatisfied nature provides the foundation for progress. The major contradiction, in this case, points to the fact that whenever the desire for goods and services seem limited, then the desire for both is also limited. Such flaw in reasoning can as well be explained by the existence of various goods and services. In this case, the limitless to people’s total desire relates to the limitless of the variety. This leads to an increase in the variety of goods and services with continual production of new commodities or services in the long-run (Horwitz 82).
Importantly, money is not merely a medium of exchange but has real power of influencing the economy. Money is considered to have intrinsic independence that easily disconnects demand with the actual commodity supply. According to Say’s law, money plays a powerful role that makes it purely derivative. It helps in the maintenance of proportion between goods through the establishment of free market prices that help in guidance as well as adjustment of production levels. The pricing system on different goods and services is done proportionately especially in a monetary economy. This introduces money’s influence to demand as well as its unique, influential patterns (Horwitz 92).
What have others said about the question?
Say’s Law and Markets as it relates to Keynes concepts
The Say’s law of markets has been subject to different views. One of the misinterpretations concerns the fact that the act of supplying goods to the market creates enough demand for the same good or service provided. Such a perspective that connects supply to an individual good that results to an individual demand, is refuted by the presence of multiple new products within the market and numerous firms that fail to attain to their goal annually. If the concept be true, then there would not be the existence of cases where businesses fail if supply creates their demand. Classical economists seem to have accepted some fact on the matter especially from Keynes interpretation. The interpretation points to the essence that Say’s law focuses on the effects of aggregate supply of goods and services that ultimately equals aggregate demand at full employment. In this aspect, belief on Say’s law makes it difficult for an individual to give explanations that deviate from full employmen since that which is sold by one individual is bought by another (Horwitz 95).
Looking at the principles of market operations, this law at some point becomes sensible. However, it does not guarantee full employment since lack of sales and unemployment is eminent through history. According to critics, the reference made to the different cases of recessions and financial depressions over the years makes Say’s law appear naïve. Say’s law purports that the availability of customers in the market influences the purchase of...