More on Say's Law

Preparing to teach macroeconomics today, I read the following:

"It is worthwhile to remark that 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. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable." -- J. B. Say

Two things came to mind:

1) "affords a market for other products to the full extent of its own value."

But the point that Malthus and Sismondi were making was that the producer might have been mistaken about what the "full extent" of the market value of his product would be, so that he could only sell at a loss... at which point he might decide to sit on the product and hope for a price increase. This can be translated as: Say's Law holds under conditions of general equilibrium. Otherwise, there is no telling.

2) "Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable."

Say here appears to explicitly rely on inflation for his principle to hold true! If deflation is occurring, the producer may not be at all anxious "to dispose of the money" he gets for his product, as it is increasing in value.

1 comment:

  1. Somewhat off-topic, but since it fits best here: am I wrong to think that the "rational consumer" model is of little to no relevance to most public policy issues? Am I really outside the norm with such an opinion?

    For example, if a person were to say to me "Oh, you don't need a law banning companies from sharing users' data. If this is a problem, then customers will just go elsewhere.", I'd respond that it doesn't matter if people would, they shouldn't need to.

    ReplyDelete