It’s commonly said that Say’s law is: production creates its own demand. This is a straw man. This kind of thinking led to busy work projects like digging holes and filling them in. Say’s law can’t be explained in a sentence. This should arouse suspicion. People don’t produce—abracadabra—there is demand for the product. People produce so they can consume, but as Say pointed out, this is “according to the wants” of the people. The product must have value.
“It is the aim of good government to stimulate production, of bad government to encourage consumption.” The first part of that sentence is easy to understand, governments must remove barriers to production. The second part is a little more complicated. We often hear to spend to stimulate the economy. Yes, in the short run this will work. The economy will do very well on day 1 if all money is spent. What happens on day 2? There is no money to consume.
The object of producing is to sell and use that money to consume later. The products must have value. Products don’t automatically have demand, as Keynes assumed. Production opens the demand, but doesn’t create demand. You want to sell your product for money. The money is used at a later date. It is really a transfer of values. Each individual will benefit from the exchange at that time. Otherwise, the exchange would never happen.
There is never a shortage of money. This is the primary reason for printing money. Money is scarce, that is why it is valuable. It is never in short supply. As Say pointed out, there is always enough money. There is not a specific amount of money to facilitate exchange. However, once a money is established, the quantity shouldn’t change. All things equal: Prices will go down if money is not printed. However, prices will rise if new money is printed.
If there is an abundance of a product, it could very well be that the product doesn’t satisfy demands. The products will be sold where the demand is the highest. This will tend towards equilibrium, but never reached. The more numerous the markets are, the more places to sell goods. It is Waldavia’s interest that Ruritania is prosperous and vice versa. The shallow and superficial ideas are leading to de-civilization. Say’s law is not as simple as production creates its own demand.
Reference
Jean Baptiste Say; Of the Demand Or Market For Products
What Say actually wrote is “producing something creates demand for something else”
“Production creates its own demand” is a mistaken translation by Keynes, who did not speak French.
Why does this mistake persist after 90 years? Surely, one of Keynes’ apologists would have corrected the mistake.
That mistake only persists among Keynes’ apologists and people who have not read Say, who believe that Keynes’ greatest achievement was to disprove “Say’s Law” (their made-up version)
It’s not just his apologists. That is widely believed. As I pointed out in the article, the error is intentional.
Agreed, the mistake in intentional. But the apologists are not going to contradict the Master
Granted, it is the large majority of economists today !