Callahan on Sowell on Say

He (Gene) writes:

"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
."

I can't speak exactly for Keynes (I'd have to review a few things before I tried to), but another thing to remember regarding Gene's last paragraph is that most Keynesians don't think Say's Law stated that way is all that crazy in most circumstances. Supply is calibrated to expectations about what the market will bear, as well as cost and profit requirements. As everyone knows, those wage earners and rentiers that get payments from the entrepreneur (costs, from the entrepreneur's perspective) and the profits of the entrepreneur himself are earmarked either for reinvestment, a cash cushion, or consumption. Demand is implicit in supply in "normal times" in exactly the sense that Say was discussing. There really has to be something exogenous to this whole logic to upset Say's Law. It's not that Say's Law is nonsense - it's that it doesn't consider a few other things.

I also think one of the biggest problems with discussions of Say's Law is this confusion between "general gluts" and recessions. They're related, but not the same. The former is a fundamentally Walrasian concern, while the latter is a fundamentally Keynesian concern.

It's the exact same confusion that comes up when people mix up excess supply of labor and unemployment. They're not the same thing.