Say's Law of Markets: What Did It Mean and Why Should We Care?

Abstract

When the Classical economists asserted the "impossibility of general overproduction," or what we now call Say's Law of Markets, they had in mind not periodic crises or business cycles but secular stagnation. Could the capitalist system absorb the constant increases in output without breakdown from limits inherent in the system? Say's Law supplied an affirmative answer to the question: with flexible prices, the system is forever tending to full employment, full-capacity equilibrium. The issue of what was meant by Say's Law has been hopelessly misunderstood in modern times, first by a Keynesian reading but more by a Walrasian reading of the doctrine.Business Cycles; Cycle; Employment; Full Employment; Prices; Stagnation