A Rebuttal of Say’s Law

Feeling Lazy, this is a repost of what I recently wrote at Modern Money

This blog is in response to Free Market Economics: an Introduction for the General Reader and its comments.  Who knew I had another post in me?  The blog post says:

A book dealing with macroeconomic issues without a discussion of aggregate demand will be a novelty

David Leyonhjelm asks the pertinent question:

…but I thought aggregate demand was a fundamental economic principle…Do I need to read your book to understand, or is it simple to explain?

To which another commenter answers: “Say’s Law“.

I began to type the following as a comment in reply to the blog post:

Say’s Law says supply creates its own demand, right?

According to latest statistics with  five per cent (5%)  unemployed, broadly speaking twelve percent (12%) underemployed and according to the way the statistics are taken in Australia, you only count as unemployed if your looking for a job – that is if you actually want one.  That is to go through the rigmarole of seeking-work tests according to legislation.

Today’s Labour Force figures shows unemployment static – so either you’re calling roughly 1.4 million Australians a liar or Say’s Law is wrong.  Otherwise there would  be jobs for them after all supply creates its own demand.

And if there is  no aggregate demand than there is no fallacy of composition (paradox of thrift) either?

Empirical evidence doesn’t seem to win that argument either as Europe and the United States of America shows in the case of each of their respective economies.

If no one is spending, no one is selling, which means jobs are lost and unemployment rises.

Of course you could counter argue that labour is not a product or a commodity. After all, products are paid with products.  However, the treatment of labour as buffer stock as has been done with diamonds, wool, copper, says otherwise.  All have been price stabilisation mechanisms just as a buffer stock of the commodity known as labour is an attempt to control the mythical NAIRU.


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