With A Rehabilitation of Say's Law, Professor William H. Hutt produced a magnificent work that Austrians would love to claim as one of their own, but that Hutt himself viewed as thoroughly classical in nature. The topic addressed here is Say's law: the view that macroeconomic activity tends toward stability — which is to say, under a free market there will be no systemic gluts or shortages absent government intervention.
J.M. Keynes considered the foundation of his own work his refutation of Say's law, for which (according to Hutt) he coined the phrase "supply creates its own demand." Hutt formulates the law, which he says is fundamental to all economic thinking, that "all power to demand is derived from production and supply." Hutt argues that there is no inherent flaw in the market that leads it to provide a deficiency in aggregate demand, contrary to what Keynes claimed.
Hutt's argument is that Say's law must be completely restored before the root of the Keynesian error can be seen and understood.
This book was originally published in 1974 and appears again in this edition for the first time.
It is obvious that Dinesh Desai did not read the book, did not comprehend what was said in the book, or just chose to approach the book with his Leftist Keynesian bias. Every student of economics must read this book. I think that Keynesians do not understand it because of their methodology. They do not understand human action. And if you approach this book without grasping the subjective theory of value and humans and their relationship to goods, services, production, and consumption then you will not understand Say's Law. This is why there are so many people who think Say's Law is a fallacy..Keynesians do not understand human action. If they did then they would have to give up their whole pious claptrap.
The demand for goods is never satiated, thus there can never be "inadequate demand" in the general sense, but only in the relative sense. Since productions are only bought with productions, relative overproduction's, caused by disturbing the price mechanism, must mean a depression in the exchange rate between that good (relatively abundant good) and other goods (relatively scarce goods).
The time lag you seem to take issue with is not important. The point is that the economy will correct itself through the price mechanism.
"As each of us can only purchase the productions of others with his own productions—as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase. Thence follows the other conclusion, which you refuse to admit; that if certain goods remain unsold, it is because other goods are not produced; and that it is production alone which opens markets to produce." -JP Say to Mr. Malthus.
EX POST, SAY'S LAW IS A TAUTOLOGY. EX ANTE,IT IS A BEHAVIORAL RELATIONSHIP. OBVIOUSLY, PRODUCTION GENERATES INCOME AND INCOME GENERATES DEMAND. BUT, DOES IT GENERATE ENOUGH DEMAND TO ABSORB PRODUCTION? NOT IN THE REAL WORLD WE LIVE IN. THE MAJOR FLAW WITH SAY'S LAW IS THAT IT MAKES NO REFERENCE TO STRUCTURE OF PRODUCTION, INCOME DISTRIBUTION AND ECONOMIC TIME LAGS. DEMAND DEPENDS NOT ONLY ON THE LEVEL OF INCOME, BUT ALSO ON THE DISTRIBTUION OF INCOME.
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