Say’s law and macroeconomic ignorance, by Alasdair Macleod

Marx and Keynes both ignored French economist Jean-Baptiste Say, and their economic theories are both fatally flawed because of it. From Alasdair Macleod at goldmoney.com:

Probably the greatest error in modern economics was the abandonment of Say’s law, otherwise known as the law of the markets. In a nutshell, it demonstrated that through the division of labour, production is firmly linked to consumption, and the former is tied to the latter through the medium of money and credit.

While there are variations in production outputs of individual goods, in free markets there can never be a general glut. It was this that Keynes had to disprove in order to create a role for the state, intervening to make up for the supposed deficiencies of free markets. While reasoned analysis shows that Keynes failed to disprove Say’s law, he managed to convince the mainstream establishment that he had actually succeeded.

This article traces the history of Say’s law, from Jean-Baptiste Say’s original work on the subject to the present day. It shows how Keynes bent the truth about free markets, that an understanding of Say’s law explains why state intervention fails, and why prices will continue to rise in the imminent economic recession.

Introduction

Back in the 1930s, forward looking economists trying to justify an economic role for the state had a hurdle in classical economics to mount: the self-evident truth in what was described as Say’s law. Otherwise known as the law of the markets, Say’s law pointed out that we turn up at the factory or office to do a day’s work, so that we can afford all the things other people produce that make life tolerable, and even pleasurable.

It refers to the writings of Jean-Baptist Say, a French economist who in his A Treatise of Political Economy, originally published in 1803, described the relationship between production, consumption, and the role of the division of labour in how humans organise themselves economically-speaking. It was a remarkable achievement, defining the science of economics and the roles of money and credit in great detail, when the science was yet young.

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