Say's Strawman

Aug 2006
4,676
260
Valley of the Sun
In another thread I was told that I had no knowledge of economics because I had invoked Say's Law, which has allegedly been disproven by Keynes (and doubted even before that).

Say's Law states that "products are paid for with products." He didn't mean that people always used direct barter, of course. He meant that money is simply a medium, and that what really matters are the products being traded. A market exists via production.

Demand is nothing without supply. I don't only mean that people can only demand something that exists (or will exist), I mean that demand is made of two things: A want, and purchasing power. What Say's Law formulates is that purchasing power doesn't simply involve money. Money only has value because of the goods it represents, and people get money either by production or by acquiring it from someone else who has produced.

Keynes considered Say's Law his point of departure with laissez-faire economics. This makes sense, because Keynes is in essence an underconsumptionist. If Say's Law is accurate, the public works programs supported by Keynes are only wasting resources on uneconomic work, to no avail. Purchasing power (part of demand) isn't being created, it's being moved, and in an unsustainable direction.

(I want to take a second to note that there can be public works projects that are economically productive. That's not to say that I think they should all be public works projects. But, that's not what we're discussing here. We're discussing programs primarily designed to increase "aggregate consumption.")

So how did Keynes destroy Say's Law? As my title, suggests, he didn't. He made a ridiculous strawman of it, and then ignored it.

He created this strawman by equivocating. "Products are paid for with products" is turned into "supply creates is own demand." Now, looking at this in one direction it is true. Not in the direction Keynes meant it (hence it being an equivocation.) Keynes meant that Say's Law implies that all products are always bought, that money never goes unused, that there is never unemployment, etc.

This of course is not what Say meant. He stated himself that a glut ("underconsumption") exists when the wrong products are made.

This means that in order for the glut (which, if major enough, leads to a recession) to be dealt with, capital must be left free to move between industries and concerns. In trying to increase demand in order to deal with the glut, the Keynesians save the broken capital structure, and the wrong products continue to be made.

By equivocating, Keynes turns Say's Law into a strawman. By turning Say's Law into a strawman, he is able to ignore it's indictment of his advised policies. The indictment itself is a recognition of another fallacy: Context-dropping.

Equivocation. Strawman. Context-dropping. Such is the "genius" of Keynes.
 
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Dec 2007
477
14
Jax beach FL
Well Say's law will have to be updated. According to population biologists all supplies of everything are parabolas when they settle down so there are two things that interfere with equilibrium:

The Keynesian position of maintaining consumption and preventing deleveraging can and usually does push demand out to past the peak of the parabola. This creates a downward sloping supply curve that may not have an intercept with demand that can be reached.

The newest next big thing whether it be the phone in the 1870s or the newest software now is the next big thing because of internal and external economies of scale, scope, network and presumably other minor economies as yet undiscovered. Those economies cause increasing marginal returns at least for a while and then comes either consolidation or the even newer thing: Records, 8 track et al; that destroys the market for the old next big thing.

Downward sloping supply curves can in fact exist but they do cause major problems and that Say did not know. Keynes knew that it was possible to push to a downward sloping supply curve but didn't realize it created bigger problems than it solved.

Most popular works on economics and chaos explain things better than I do just remember that logistic map equals supply curve.
 
Aug 2006
4,676
260
Valley of the Sun
According to population biologists all supplies of everything are parabolas when they settle down
I don't need a population biologist to tell me that if a supply of something comes up, and then goes down, it will likely look like a parabola.

so there are two things that interfere with equilibrium:
Why are we bringing equilbrium into this? Are you saying that Say's Law implies that supply and demand are always in equilibrium? That's precisely the misconception I'm fighting with my thread.

Am I misunderstanding you?
 
Dec 2007
477
14
Jax beach FL
I don't need a population biologist to tell me that if a supply of something comes up, and then goes down, it will likely look like a parabola.



Why are we bringing equilbrium into this? Are you saying that Say's Law implies that supply and demand are always in equilibrium? That's precisely the misconception I'm fighting with my thread.

Am I misunderstanding you?
No, equilibrium is a fantasy but it is the current terminology therefore I use it. The proper term is strange attractor, a value that the market orbits. You may be more acquainted with the term price chasing value.

The conventional errors of modern economics are many:

Age related spending which has a much longer horizon of prediction than current econometrics 2-10 years vs. 90 days is almost never used in economic debates.

The use of normal distribution when all compound interest functions have exponential distribution is crazy but it is standard economic convention. Given that Pareto identified and demonstrated this error in the late 1800s but our government officials still babble on about efficient markets which requires normal distribution in a compound interest universe.

While this list can be lengthened by a lot we can either attempt a scientific revolution in economics or we can use the erroneous conventional terms while noting their errors. I don't know about you but my math background is not up to the task of doing something that makes the quantum mechanics look like something for kindergartners.
 
Aug 2006
4,676
260
Valley of the Sun
No, equilibrium is a fantasy but it is the current terminology therefore I use it. The proper term is strange attractor, a value that the market orbits. You may be more acquainted with the term price chasing value.
Whatever you want to call it, it doesn't apply here.

My point is that Say's Law doesn't imply that current supply is always demanded (which would be general equilibrium.)

Say himself says the following: : "a glut can take place only when there are too many means of production applied to one kind of product and not enough to another."

In other words, it's possible for current supply to be undemanded. In graphing terms (which I don't like to use because it's entirely unnecessary): The supply curve is above the demand curve. This can be called a glut, or underconsumption, etc.
 
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