A Rehabilitation of Say’s Law

A Rehabilitation of Say’s Law, in addition to being a contribution to pure economic theory, deals with the most urgent current issue in the economic field. It shows that exactly the same problem is baffling statesmen and opinion-makers today (1974) as was baffling them in the 1930’s. They are trying vainly to perceive the path to a healthy (as distinct from an inflationary) prosperity. The solution, according to Professor Hutt, becomes clear when the problem is seen in relation to the economic theory expressed in the work of the early nineteenth century economist, J. B. Say.

Known as Say’s law this theory, when properly interpreted, states that any input or output “supplied” is, at the moment of supply, a source of demand for some non-competing thing, namely, what it is destined to be exchanged for elsewhere in the economic system. In a money economy, unless one is reducing one’s money stocks, one buys with “money’s worth,” not with “money.” And “supplies” are “money’s worth.” The demand for and supply of money have no special relevance to Say’s law.

Depression and unemployment are caused, not by insufficient demand (or insufficient expenditure, or insufficient “consumption” – extermination of value – or insufficient “investment”), but by insufficient supply. General contractions of supply occur through potential inputs or outputs being priced above “market-clearing” values, any one such pricing failure tending to bring about infectious, self-aggravating failures to price potential inputs and outputs for “market-clearance” in other, non-competing, sectors of the economy. Say’s law makes it clear that, for these reasons, there is an inherent tendency to depression in modern society. Say’s law explains also how, if depression has once emerged, the “market-clearing” input prices needed to set the process of recovery going are reduced, by reason of their having to be adjusted to depressed prospective yields.

This thesis is diametrically opposite from that of the Keynesians. In putting it forward for discussion and possibly refutation, the author examines and criticizes with respect the scholarly and impressive contributions (all non-Keynesian) of A. Leijonhufvud, R. Clower, J. Yeager and T. Sowell.

Dr. Hutt was a Professor of Economics at the University of Dallas at Irving, Texas. He is the author of several books, including Keynesianism—Retrospect and Prospect

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