Speaking of Say’s Law
I am now on a 40,000 kilometre round trip to present a paper that will last but a single hour. The nature of this trip can be understood in the context of the invitation I received:
“On behalf of the Mises Institute, I am pleased to invite you to present the Ludwig von Mises Lecture at the Austrian Scholars’ Conference to be held at the Mises Institute. The topic would be of your own choosing and could cover any aspect of your research that is in the spirit of Mises’ efforts to refine and advance economic theory. Your work on Say’s Law in modern macroeconomics is a fine example of this and is also very timely.”
I have now put together a presentation titled, “Why Your Grandfather’s Economics was Better than Yours: On the Catastrophic Disappearance of Say’s Law.” It rounds up the origins of modern macroeconomics in Keynes’ discovery of Malthus, his taking up Malthus’s theme of demand deficiency as the cause of recessions, and his consequent rejection of what we now call Say’s Law, a rejection which has been accepted to this day across virtually the entire world of economics.
I, however, think Say’s Law is true. And to show how very far off the beaten track this is, for those unfamiliar with economics I will put it this way. To accept Say’s Law as valid is equivalent amongst economists to the denial of global warming amongst those who believe climate change is taking place.
What Say’s Law argues, to put it briefly, is that you can never give an economy momentum from the demand side. You can never spend your way to recovery. All expenditure must be backed by value-adding production.
Mises was himself one of the greatest economists in history. I have read much of what he wrote which is accessible to anyone who will make the effort. And while he wrote on Say’s Law, he did so on only a single occasion. Here is part of what he wrote:
“The Keynesians tell us that his immortal achievement consists in the entire refutation of what has come to be known as Say’s Law of Markets. The rejection of this law, they declare, is the gist of all Keynes’s teachings; all other propositions of his doctrine follow with logical necessity from this fundamental insight and must collapse if the futility of his attack on Say’s Law can be demonstrated.”
To which Mises added:
“The exuberant epithets which these admirers have bestowed upon his work cannot obscure the fact that Keynes did not refute Say’s Law. He rejected it emotionally, but he did not advance a single tenable argument to invalidate its rationale.”
The rot Keynes commenced continues. Public spending and deficit finance in times of recession are now automatically taken. For all that we live in an exchange economy. The only thing that will create demand is the production of goods and services people not only want but are willing and able to pay for in full. It is these sorts of things I will be talking to the Mises Institute about.