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Say’s Law

Summary:
From The Economist’s economics brief on Say’s Law: Supply gives people the ability to buy the economy’s output. But what ensures their willingness to do so? According to the logic of Say and his allies, people would not bother to produce anything unless they intended to do something with the proceeds. … Even if people chose to save not consume the proceeds, Say was sure this saving would translate faithfully into investment in new capital … But what if the sought-after thing was [money] … as a store of value, to be held indefinitely? A widespread propensity to hoard money posed a problem for Say’s vision. It interrupted the exchange of goods for goods on which his theory relied. … And if, as he had argued, an oversupply of some commodities is offset by an undersupply of others, then by

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From The Economist’s economics brief on Say’s Law:

Supply gives people the ability to buy the economy’s output. But what ensures their willingness to do so? According to the logic of Say and his allies, people would not bother to produce anything unless they intended to do something with the proceeds. … Even if people chose to save not consume the proceeds, Say was sure this saving would translate faithfully into investment in new capital …

But what if the sought-after thing was [money] … as a store of value, to be held indefinitely? A widespread propensity to hoard money posed a problem for Say’s vision. It interrupted the exchange of goods for goods on which his theory relied. … And if, as he had argued, an oversupply of some commodities is offset by an undersupply of others, then by the same logic, an undersupply of money might indeed entail an oversupply of everything else.

Say recognised this as a theoretical danger, but not a practical one.

Dirk Niepelt
Dirk Niepelt is Director of the Study Center Gerzensee and Professor at the University of Bern. A research fellow at the Centre for Economic Policy Research (CEPR, London), CESifo (Munich) research network member and member of the macroeconomic committee of the Verein für Socialpolitik, he served on the board of the Swiss Society of Economics and Statistics and was an invited professor at the University of Lausanne as well as a visiting professor at the Institute for International Economic Studies (IIES) at Stockholm University.

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