Benjamin Frank
Frank
Junior Chimp
Posts: 7,069
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« on: June 02, 2021, 05:41:07 PM » |
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« edited: September 12, 2021, 03:43:04 PM by Frank »
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Say's law (described by Keynes): supply creates its own demand. Note: this is aggregate supply and aggregate demand, it does not mean that if you start a business whatever you 'supply' will find a 'demand.'
The idea is that when you invest in new production or a service during periods of less than full potential output in the economy or in productivity enhancing production or services at times of full potential output (which thereby increases the potential output) that the wages paid in this new enterprise will be spent and, therefore, increase demand. So, the new supply creates a new and equal amount of demand.
I was reading the Communist Manifesto and related discussions on it, and it mentioned how oversupply in western European nations led those nations to get colonies in order to find new markets. To be sure, this was around 1850 so not with the modern economy, but according to Say's Law, overproduction is impossible in the long run (if not in the intermediate run: Say never said that there could not be a short term glut of overproduction as the overall economy moves to a higher equilibrium, i.e before people have time to spend their wages.)
I dismissed that as just talk from economically illiterate communists, but then I read something on the run up to the Great Depression and it also mentioned that overproduction in the United States was a cause of the Great Depression.
Whatever I read, I thought it was well researched, so I don't think they confused over-expansion based on a large percentage of risky/bad loans as occurred during the 2007/2008 financial meltdown as 'overproduction.'
Generally those who believe in demand side economics don't agree with Say's Law, while supply side economists do, but what Say you?
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