by Alasdair MacLeod
One of my regular readers has raised the important subject of Say’s law, the denial of which both Keynesian and modern monetarists are emphatic.
They need this fundamental axiom to be untrue to justify state stimulation of aggregate demand. Either Say’s law is right and state intervention is economically disruptive, or if it’s wrong modern economists are right to ignore it and progress their science beyond it.
The basis of post-Keynesian economic stimulation assumes a breakdown between consumption and production can occur, and the correct response is for government to step in and revive failing demand. It is the favoured explanation of the 1930s slump. Obviously, Say’s law would have to be discarded.
This article revisits this subject, explains where Keynes went wrong, redefines the law to include money as a good, and explains why supply-side is less destructive than demand management.