Economics 101: Say’s Law
I wanted to share an excerpt from an email I sent to a friend:
. . . but what you allude to later is a version of what we Austrians call Say’s Law, Supply = Demand, or at least their tendency toward equilibrium. It contradicts Marx’s claim of capitalism always overproducing. It also contradicts the super-popular Keynesian notion that all problems can be solved by creating artificial demand with money from a printing press, i.e. money that isn’t backed by production. (See Paul Krugman, or just about any other main-stream voice in economics.)
In contrast with the Keynesian notion that demand can be manipulated, Austrians believe demand can only increase if supplies of goods and services increase.
Another was to look at Say’s law is that you produce in proportion to your desire for other goods and service. You produce legal services, I (hopefully) will produce books, a farmer produces corn – then we use our production to create demand for other goods and services. Indirect exchange.
So don’t believe people who tell you that government, which produces nothing besides a very inefficient postal service (Hidden History: Post Office sues Cub Scouts to maintain monopoly), can “create demand” by spending money that’s either printed from thin air, or forcibly taken from the actual producers.
