Say's law

In classical economics, Say's law, or the law of markets, is the claim that the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. So, production is the source of demand. It is named after Jean-Baptiste Say. In his principal work, A Treatise on Political Economy "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." And also, "As each of us can only purchase the productions of others with his/her own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase."

Some maintain that Say further argued that this law of markets implies that a general glut (a widespread excess of supply over demand) cannot occur. If there is a surplus of one good, there must be unmet demand for another: "If certain goods remain unsold, it is because other goods are not produced." However, according to Petur Jonsson, Say does not claim a general glut cannot occur and in fact acknowledges that they can occur. Say's law has been one of the principal doctrines used to support the laissez-faire belief that a capitalist economy will naturally tend toward full employment and prosperity without government intervention.

Say's law was generally accepted throughout the 19th century, though modified to incorporate the idea of a "boom-and-bust cycle". During the worldwide Great Depression of the 1930s, the theories of Keynesian economics disputed Say's conclusions with regards to times of high unemployment.

Theoretical contribution

Say's law did not posit that (as per the Keynesian formulation) "supply creates its own demand". Nor was it based on the idea that everything that is saved will be exchanged.