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Mises Institute, Mises Daily Articles, Feb.
3, 2018, 6 pgs., plus reader comments, The article is available on line from
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Reviewer Comment:
This is a reprint of an essay von Mises wrote in the 1950's. The article is
relevant today because supporters of Lord Keynes continue to challenge the
validity of Say's Law. For an 'establishment' discussion of Say's Law today go
to the Wikipedia entry.
In fact many economics text books today devote
considerable attention to 'refuting' Say. The reason Say's Law is attacked (or
totally ignored) today is that his theory opposes the demands of politicians
now who advocate expansion of money via credit. Establishment economists today
relay on politicians to fund their existence. In this short essay, as in so
many other full books, von Mises excoriates such economists.
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Summary:
The author considers Keynes' followers to champion Keynes' main contribution to
economic theory as a refutation of Say's Law of Markets. They consider this
refutation to be the fundamental basis for the rest of his theories. If this is
so, the author concludes, then showing that this 'refutation' itself fails will
refute the rest of Keynes' doctrines.
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Summary:
He continues by pointing out that J. B. Say was himself refuting then popular
doctrines which Say's held were blocking the development of modern economics
theories of Adam Smith, David Ricardo and others. At the time when business
declined the merchants resorted to one of two explanations - (a) there was a
shortage of money. (b) there was a general over production that created
unsalable surplus. Von Mises notes that Adam Smith in Wealth of Nations' had
refuted the first excuse. Say was aiming to refute the second excuse.
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Summary:
The author begins by noting that an 'economic good' is by definition not a
'free good' that means its supply is not 'absolutely abundant'. The whole
structure of economic theory is focused on goods and services that are limited
in supply and must be allocated by the economic process. In other words, as he
notes. there are people who would like to have more of whatever it is. Thus
there can never be an 'overproduction' of all goods and services. Such 'goods'
like air are not economic goods subject to economic analysis. Therefore there
can only be a 'relative overproduction' of some good. The 'overproduction' of
one or several goods has its counter part in the under production of other
goods. In a free market this will result in a decrease in the overproduction of
that one and increase in the production in whatever is in short supply relative
to demand.
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Summary:
Now comes the critical point.
According to Say commodities - goods and services - 'are ultimately paid for
not by money but by other commodities. Money is merely the commonly used medium
of exchange; it plays only an intermediate role.' Von Mises continues by noting
that Say believes as does von Mises himself, that 'Every commodity produced is
therefore a price, as it were, for other commodities produced.' Therefore, the
producer's problem if he has an overproduction is his failure to understand the
future demand for his production and under evaluated the future demand for
alternatives. Von Mises writes that this is Say's point.
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Summary:
Von Mises writes that: 'Thus Smith and Say demolished the oldest and most naive
explanation of the trade cycle as provided by the popular effusions of
inefficient traders.' They refuted the theory that 'bad business was caused by
a scarcity of money and by a general overproduction. But they did not give us
an elaborated theory of he trade cycle.' He continues by noting that Say then
became the main target of supporters of the previous and discredited theories,
such as Malthus and Sismondi. But Say won by proving his case resulting in his
theory being accepted as as main basis for economic ideas throughout the 19th
century. However, there did remain advocates of money expansion who claimed
there was a money shortage. For the rest of that century proponents of 'easy
money' were considered ignorant radicals.
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Stephen Kates - Why Your Grandfather's
Economics Was Better than Yours: On the Catastrophic Disappearance of Say's
LAw
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Say's Law
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