{"id":523,"date":"2015-05-06T03:54:49","date_gmt":"2015-05-06T03:54:49","guid":{"rendered":"https:\/\/courses.candelalearning.com\/masterymacro1xngcxmaster\/?post_type=chapter&p=523"},"modified":"2015-12-28T21:51:47","modified_gmt":"2015-12-28T21:51:47","slug":"says-law-and-the-macroeconomics-of-supply","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-hccc-macroeconomics\/chapter\/says-law-and-the-macroeconomics-of-supply\/","title":{"raw":"Reading: Say\u2019s Law and the Macroeconomics of Supply","rendered":"Reading: Say\u2019s Law and the Macroeconomics of Supply"},"content":{"raw":"

Say\u2019s Law and the Macroeconomics of Supply<\/h2>\r\nNeoclassical economists emphasize Say\u2019s law, which holds that supply creates its own demand.\u00a0Those economists who emphasize the role of supply in the macroeconomy often refer to the work of a famous French economist of the early nineteenth century named Jean-Baptiste Say<\/em><\/a> (1767\u20131832).\u00a0Say\u2019s law<\/em><\/a> is: \u201cSupply creates its own demand.\u201d As a matter of historical accuracy, Say never actually wrote down this law and it may oversimplify his beliefs, but the law lives on as useful shorthand for summarizing a point of view.\r\n\r\nThe philosophy behind Say\u2019s law is that each time a good or service is produced and sold, it generates income that is earned for someone: a worker, a manager, an owner, or those who are workers, managers, and owners at firms that supply inputs along the chain of production. The forces of supply and demand in individual markets will cause prices to rise and fall. The bottom line remains, however, that every sale represents income to someone, and so, Say\u2019s law argues, a given value of supply must create an equivalent value of demand somewhere else in the economy. Because Jean-Baptiste Say, Adam Smith<\/em><\/a>, and other economists writing around the turn of the nineteenth century who discussed this view were known as \u201cclassical\u201d economists, modern economists who generally subscribe to the Say\u2019s law view on the importance of supply for determining the size of the macroeconomy are called neoclassical economists<\/em><\/a>.\r\n\r\nIf supply<\/em><\/a> always creates exactly enough demand at the macroeconomic level, then (as Say himself recognized) it is hard to understand why periods of recession and high unemployment should ever occur. To be sure, even if total supply always creates an equal amount of total demand, the economy could still experience a situation of some firms earning profits while other firms suffer losses. Nevertheless, a recession<\/em><\/a> is not a situation where all business failures are exactly counterbalanced by an offsetting number of successes. A recession is a situation in which the economy as a whole is shrinking in size, business failures outnumber the remaining success stories, and many firms end up suffering losses and lying off workers.\r\n\r\nSay\u2019s law reminds us that supply creates its own demand<\/em><\/a>\u00a0can be a good approximation for the long run. Over periods of some years or decades, as the productive power of an economy to supply goods and services increases, total demand in the economy grows at roughly the same pace. However, over shorter time horizons of a few months or even years, recessions or even depressions occur in which firms, as a group, seem to face a lack of demand for their products.","rendered":"

Say\u2019s Law and the Macroeconomics of Supply<\/h2>\n

Neoclassical economists emphasize Say\u2019s law, which holds that supply creates its own demand.\u00a0Those economists who emphasize the role of supply in the macroeconomy often refer to the work of a famous French economist of the early nineteenth century named Jean-Baptiste Say<\/em><\/a> (1767\u20131832).\u00a0Say\u2019s law<\/em><\/a> is: \u201cSupply creates its own demand.\u201d As a matter of historical accuracy, Say never actually wrote down this law and it may oversimplify his beliefs, but the law lives on as useful shorthand for summarizing a point of view.<\/p>\n

The philosophy behind Say\u2019s law is that each time a good or service is produced and sold, it generates income that is earned for someone: a worker, a manager, an owner, or those who are workers, managers, and owners at firms that supply inputs along the chain of production. The forces of supply and demand in individual markets will cause prices to rise and fall. The bottom line remains, however, that every sale represents income to someone, and so, Say\u2019s law argues, a given value of supply must create an equivalent value of demand somewhere else in the economy. Because Jean-Baptiste Say, Adam Smith<\/em><\/a>, and other economists writing around the turn of the nineteenth century who discussed this view were known as \u201cclassical\u201d economists, modern economists who generally subscribe to the Say\u2019s law view on the importance of supply for determining the size of the macroeconomy are called neoclassical economists<\/em><\/a>.<\/p>\n

If supply<\/em><\/a> always creates exactly enough demand at the macroeconomic level, then (as Say himself recognized) it is hard to understand why periods of recession and high unemployment should ever occur. To be sure, even if total supply always creates an equal amount of total demand, the economy could still experience a situation of some firms earning profits while other firms suffer losses. Nevertheless, a recession<\/em><\/a> is not a situation where all business failures are exactly counterbalanced by an offsetting number of successes. A recession is a situation in which the economy as a whole is shrinking in size, business failures outnumber the remaining success stories, and many firms end up suffering losses and lying off workers.<\/p>\n

Say\u2019s law reminds us that supply creates its own demand<\/em><\/a>\u00a0can be a good approximation for the long run. Over periods of some years or decades, as the productive power of an economy to supply goods and services increases, total demand in the economy grows at roughly the same pace. However, over shorter time horizons of a few months or even years, recessions or even depressions occur in which firms, as a group, seem to face a lack of demand for their products.<\/p>\n\n\t\t\t

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Candela Citations<\/h3>\n\t\t\t\t\t
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