Say's Law: An Historical Analysis

Say's Law: An Historical Analysis

Copyright Date: 1972
Pages: 256
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  • Book Info
    Say's Law: An Historical Analysis
    Book Description:

    Say's Law-the idea that "supply creates its own demand"-has been a basic concept in economics for almost two centuries. Thomas Sowell traces its evolution as it emerged from successive controversies, particularly two of the most bitter and long lasting in the history of the discipline, the "general glut controversy" that reached a peak in the 1820s, and the Keynesian Revolution of the 1930s. These controversies not only involved almost every noted economist of the time but had repercussions on basic economic theory, methodology, and sociopolitical theory. This book, the first comprehensive coverage of the subject, will be an indispensable addition to the history of economic thought. It is also relevant to all social sciences concerned with economic prosperity, with the nature of intellectual orthodoxy and insurgency, or with the complex relationships among ideology, concepts, and policies.

    Originally published in 1972.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-7122-3
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
    (pp. vii-2)
    Thomas Sowell
  4. CHAPTER 1 The Early Development of Say’s Law
    (pp. 3-38)

    The idea that supply creates its own demand—Say’s Law—appears on the surface to be one of the simplest propositions in economics, and one which should be readily proved or disproved. Yet this doctrine has produced two of the most sweeping, bitter, and longlasting controversies in the history of economics—first in the early nineteenth century and then erupting again a hundred years later in the Keynesian revolution of the 1930’s. Each of these outbursts of controversy lasted more than twenty years, involved almost every noted economist of the time, and had repercussions on basic economic theory, methodology, and...

  5. CHAPTER 2 Sismondi and Equilibrium Income
    (pp. 39-78)

    J. C. L. Simonde de Sismondi (1773–1842) was in many ways the most important of the general glut theorists. He has also been the most neglected, with many of his ideas being attributed to Malthus, and others being forgotten entirely. The concept of equilibrium appeared in Sismondi’s earliest economic writing,Richesse Commercialein 1803, and reappeared with increased frequency and importance in his later works. He used both the modern word, “equilibrium” (“l’equilibre”)¹ and the modern concept. Occasionally he used the word in a sense which was so vague that it might have implied mere equality,² as some of...

  6. CHAPTER 3 The British Dissenters
    (pp. 79-114)

    Lauderdale, Malthus, and Chalmers were the major figures in the emergence of a British school of thought which developed parallel to Sismondi on the continent, as far as economic analysis was concerned, though vastly different from him in its sociopolitical outlook. In 1804 Lauderdale publishedAn Inquiry into the Nature and Origin of Public Wealth and into the Means and Causes of Its Increase, thereby launching some of the basic ideas common to the glut theorists, but in a highly sketchy and unsystematic manner. Malthus was the major developer of the British version of the glut thesis, with Thomas Chalmers...

  7. CHAPTER 4 The General Glut Controversy
    (pp. 115-141)

    The controversies over Say’s Law and the possibility of general gluts reached a peak of intensity and volume of output in the 1820’s, involving every major economist of the period, in a way unrivaled until the Keynesian revolution of the 1930’s. There were also earlier and later controversies on the same issues which extended well beyond the major figures covered here,¹ in addition to the later Marxian and other challenges which involved different issues. Like the later Keynesian controversies, the general glut controversy involved not only classes of substantive propositions, but also clashes over empirical assumptions and policy views, misunderstandings,...

  8. CHAPTER 5 The Counterrevolution of John Stuart Mill
    (pp. 142-167)

    Despite the advances in mutual understanding finally achieved by some of the main participants in the general glut controversy, John Stuart Mill’sPrinciples of Political Economyin 1848 proceeded with precisely the same arguments—and precisely the same misinterpretation of the general glut theories—that the supporters of Say’s Law had put forth in the beginning, nearly three decades earlier. The long, unchallenged dominance of Mill’sPrinciplesas the leading work in economics effectively put an end to the questioning of Say’s Law, and turned the clock back to a position which remained largely unchallenged by respectable economists until Keynes’...

  9. CHAPTER 6 The Marxian Challenge
    (pp. 168-190)

    The last great challenge to Say’s Law in classical economics, though not a challenge heard in respectable circles, was that of Karl Marx. As in the case of the general glut theorists, the Marxian attack on Say’s Law entailed a challenge to the classical theory of value as well. An analysis of disequilibrium and the dynamic forces it sets in motion cannot accept a theory of price determination which holds only in long-run equilibrium. Marxian value and business cycle theory are intimately related, and not overly complicated in themselves, but both must be disentangled from an elaborate mythology which has...

  10. CHAPTER 7 The Neoclassical Period
    (pp. 191-200)

    Discussion of Say’s Law practically disappeared from the writings of the leading economists during the neoclassical period. The marginalist revolution in microeconomics and general equilibrium theory did not call forth any similar questioning of this pillar of classical economics. Even Jevons, who made the most sweeping condemnations of John Stuart Mill and of the Ricardians generally,¹ left Say’s Law unchallenged. Marshall was content to quote or paraphrase Mill. There was, in effect, a “thoroughgoing intellectual boycott”² and an “almost total obliteration”³ of the dissenting doctrines. At the same time, the more systematic development of the quantity theory of money, in...

  11. CHAPTER 8 The Keynesian Revolution
    (pp. 201-218)

    The attack by Keynes on Say’s Law, like that of Sismondi more than a century earlier, centered on its denial of a unique equilibrium income. The Keynesian equilibrium income determined by “the point of intersection between the aggregate demand function and the aggregate supply function” was contrasted with Say’s Law as “a special assumption as to the relationship between these functions.”¹ The statement that “Supply creates its own Demand” meant for Keynes that aggregate demand and aggregate supply functions were “equal forallvalues” of income,² “for all levels of output and employment.”³ Instead of a “unique equilibrium value” for...

  12. CHAPTER 9 General Implications
    (pp. 219-232)

    Both Say’s Law and the theory of equilibrium income—its intellectual complement and historical rival—can be traced back to a common origin in the Physiocrats and are reunited in post-Keynesian macroeconomics. The basic notion of a circular flow of equal output and purchasing power, moving in opposite directions, had appeared inL’Ordre Naturelby Mercier de la Rivière in 1767, along with discussions of short-run expansions and contractions of this flow in response to changing spending habits.¹ The nearly two hundred years which elapsed before these related ideas were reunited were not wasted, for the various concepts involved developed...

    (pp. 235-240)
  14. INDEX
    (pp. 241-247)