Say's law

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Say's Law

The concept that, because that which is consumed must be produced, supply creates its own demand. That is, supply of products will eventually be consumed by demand. This is an important concept for supply-side economics; Keynesianism, however, holds the opposite view.

Say's law

the proposition that AGGREGATE SUPPLY creates its own AGGREGATE DEMAND. The very act of producing a given level of national output generates an amount of income (wages, profits, etc.) exactly equal to that output, which, if spent, is just sufficient to take up the purchases of the whole of the output that has been produced. It follows that, in order to reach the full-employment level at national output, all that needs to be done is to increase aggregate supply.

The key assumptions are that the economic system is ‘supply-led’ and that all income is spent. In practice, however, some income is leaked’ into saving, taxation, etc. (see CIRCULAR FLOW OF NATIONAL INCOME) and there is no automatic guarantee that all this income will be subsequently ‘injected’ back as spending. Thus, in contrast to the above proposition, the economic system is ‘demand-led’, a fall in aggregate demand leading to a multiple contraction of national income and output. See EQUILIBRIUM LEVEL OF NATIONAL INCOME.

References in periodicals archive ?
The classic "old Keynesian" approach was to spend in recessions and tax in recoveries, thereby evening out the business cycle and making Say's law that supply creates its own demand true by approximation.
Let it be stipulated that, just as Keynes wrote, Say's Law was part of the very foundation of classical economic theory, universally accepted with no important dissent amongst the mainstream.
Topics include absolute income hypothesis, business cycle theory, demand management, inflation, multiplier effect, Say's Law, Ricardo Effect and more.
The first of the implicit assumptions of orthodox theory that Keynes identified was Say's Law, the doctrine that "supply creates its own demand.
Krey's observation is not in conformity with Say's Law, which asserts that supply creates its own demand.
He repeats claims that have been corrected since the early 1970s, especially on the classical theory of value and Say's Law of markets.
Monsieur Say's law was not exactly apparent a few weeks ago when Dunfermline played Hibernian in the Scottish Cup semi-final and a little over 8,000 rattled around in Hampden Park.
The meaning, usefulness, and validity of Say's Law and the concept of aggregate demand are still debated, but Coleman would probably consider modern Say's-Law advocates anti-economists.
Underlying all this is the fact that medicine is particularly vulnerable to perversions of Say's Law, which states that supply creates its own demand.
The meaning and the significance of Say's Law have spawned numerous controversies, and the issues at stake have shaped theoretical models and policy advice for generations of economists.
Given such cost flexibility, Say's Law of Markets remained in force in Japan.
The report states that two principal problems continue to weigh on real estate --even if bank stocks ignored them in the first quarter of 1992: first, the probability that real estate entered a down phase in 1989 after 50-year cycle, and second, the reversal of Say's Law, which states that supply creates its own demand.