The Curious Doctrine of Sectoral Imabalances re Say's Law
Say (when he was still fighting Sismondi), Ricardo, Mill and others often blamed gluts on "sectoral imbalances," denying there could be any such thing as a general glut: we could have too many guns and not enough butter, or vice versa, but never an overproduction of goods in general. The solution was always to produce more of the good relatively under-supplied, which could be used to buy up the glut of the one relatively over-supplied. The curious thing about this is that it seems to assume sticky prices: otherwise, the price ratio of the two goods could simply change until the market cleared, and there would be no need to produce more of the one under-supplied: it is only under-supplied at some price . But once we assume sticky prices, we seem to have posited the condition needed for a general glut: goods in general have been produced at costs that cannot be recovered, but rather than dropping their prices and accepting a loss, producers sit on inventory. I have to look...