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Monday, September 24, 2012

An Order: Read Sowell on Say's Law

I am re-reading Sowell's wonderful book, Say's Law: An Historical Analysis. If you want to read a fascinating history and understand the theoretical issues at play more clearly, do pick it up. In any case, a will, as usual, comment occasionally as I read, starting here.

The first thing of note is, come on, this is Thomas Sowell. He is a fairly market friendly, "right-wing" economist, and no "born again Keynesian," as I was recently accused of being. So if he says that Say came to agree with Malthus, well, perhaps he is wrong, but it's not because he wants to throw the decision to the opponents of Say's Law; he is just being honest.

And when he writes, in his very first sentence, "The idea that supply creates its own demand -- Says' Law..." he is not trying to back Keynes, he is letting us know that is a pretty darned good way to summarize Say's Law.

He also shows that the case made by the general glut theorists was often misinterpreted by defenders of Say's Law. For instance, he writes, "Despite the advances in mutual understanding finally achieved by some of the main participants in the general glut controversy, John Stuart Mill... in 1848 proceeded with precisely the same arguments -- and precisely the same misinterpretations of the general glut theories -- that the supporters of Say's Law had put forth... nearly three decades earlier." As Sowell describes the situation, Mill essentially granted the case of the general glut theorists without acknowledging as much, while also holding that Say, Mill's own father, and Ricardo had won a crushing victory in their intellectual debate against them.

Over a century later we can find Henry Hazlitt doing the same thing. He tries to show how "devastating" the response of the defenders of Say's Law was to the general glut theorists by claiming the general glut theorists forgot the following "qualifications" to Say's Law:

1) The can be a temporary period of "crisis of confidence" where everyone thinks prices will continue to drop and so won't buy goods at current prices, and inventories pile up;
2) There can a "sectoral imbalance" between money and all other goods for a temporary period, so that people prefer money to other goods until that imbalance works itself off; and
3) It may be the case that goods cannot be sold at prices that cover their costs of production.

Well, those three points simply are the case made by the general glut theorists! It is as if a defense attorney tried to defeat the prosecution by declaring, "Given we admit our client committed the murder, what is left of the prosecution's case?"

Hazlitt at least had the excuse that Sowell's book hadn't been written yet when he wrote the aforementioned passages. I don't know what excuse people have for taking these views today, except that they can't be bothered to0 actually read up on something before they call others "ignorant" on the topic!


6 comments:

  1. I like a lot of what you have been doing in these recent blog posts.

    I do think there are certain things in Keynes that Hazlitt was trying to get at in those passages that continues to be problematic. There is some sense among Samuelson and many modern Keynesians that there is some aspect of aggregate demand that isn't captured in whether or not there is sufficient M*V out there to buy up all the goods at the current vector of prices. Garrison gets into it a bit in Time and Money and I've seen people say that online. If Hazlitt can be presented as attacking that, some of what he said is somewhat defensible.

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  2. Good evening, Dr. C.

    Forget Say's Law. What do you think about the controvery surrounding the Packers/Seahawks game?

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  3. In the winter 2006 edition of the Quarterly Journal of Austrian Economics, David Gordon wrote a very favorable review of Thomas Sowell's "On Classical Economics." On page 71 and 72 of this review he does, however, criticize Sowell as having gone badly astray in two areas. One of these areas was his (Sowell's) belief that Malthus and Sismondi had raised valid objections to Say's Law. Have you, Dr. Callahan, read this review and if you have, what do you think of Dr. Gordon's belief that Dr. Sowell went astray in this area? I would provide the link, but I don't know what the rules are regarding that. Thank you.

    Senyor

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    1. Neither Gordon nor Rothbard is apparently aware that Say finally conceded! Sowell knows this history much, much better than either of them.

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    2. Thank you very much for your reply! I will try to see if Dr. Gordon has any response to what you said. Over on Dr. Murphy's blog I asked him about your criticism of Rothbard's MES critique of Keynes on the multiplier. He didn't comment on my question. I know he is busy, so I will try to ask him the same question again later. I have said on this site before that I wish people would try to deal with concrete points when they are made. Thank you for responding to my concrete point! I am NOT trying to start fights, I am just trying to learn what is the truth on whatever subject is in question. Is this reasoning, trying to settle a point before moving on, what is called scholastic reasoning?

      Senyor

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    3. Thank you very much for your reply! I will try to see if Dr. Gordon has any response to what you said. Over on Dr. Murphy's blog I asked him about your criticism of Rothbard's MES critique of Keynes on the multiplier. He didn't comment on my question. I know he is busy, so I will try to ask him the same question again later. I have said on this site before that I wish people would try to deal with concrete points when they are made. Thank you for responding to my concrete point! I am NOT trying to start fights, I am just trying to learn what is the truth on whatever subject is in question. Is this reasoning, trying to settle a point before moving on, what is called scholastic reasoning?

      Senyor

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