Say’s law of markets

Law the definition ‘to talk about the markets’

Say’s law of markets is a classic economic theory, which States that production is the source of demand. According to say’s law, the ability to demand something funded through the provision of another good.

‘They say it’s the law of the market

Say’s law of markets, developed in 1803, the French classical economist and journalist Jean-Baptiste sey, was influential, because he does, as a society creates wealth and the nature of economic activities. There are tools to buy, you first need something to sell, say arguments. Thus, the source of demand is production, not money. Offer creates in other words, creates its own demand.

The law of markets is inconsistent with the mercantilist point of view, money is the source of wealth. It supports the view that the government should not interfere in the free market and have to accept the liberalization of the economy. They say the law still lives in the modern neoclassical economic model assumes that all markets clear.

They say the law also influenced the proposal of economists who believe that tax breaks for business and other policies designed to stimulate production, and Austrian economists, believe that the law will say, if the government intervention and monetary policy have not led to the distortion of the economy, creating economic boom and bust and cause a misallocation of capital.

The implications of say’s law of markets

One of the burning issues of the day, they say, was the question whether there is a free economy can survive depression in a result of overproduction, or excess demand. Say’s law States that the excess in the offer may not be the cause of such downturns, because macroeconomic performance, committed to stability and the economy should always be close to full employment. Since the supply of one type of represents the demand for other various commodities, aggregate demand not only equal, but identical, aggregate supply. To stimulate the economy, efforts should focus on increasing production, not demand.

The Keynesian challenge to classical Economics

The great depression seemed to prove that the country may experience crises, market forces are unable to fix it – as there was abundance of production capacity, but not enough demand. British economist John Maynard Keynes challenged say’s law in his seminal book “the General theory of employment, interest and money”.

Keynesian Economic theory holds that governments should intervene to stimulate demand through expansionary fiscal policy and the issue of money — for structural imbalances in the economy can lead to unused resources. Banks, businesses and consumers are hoarding the money in difficult times and during liquidity trap, as we saw during the global financial crisis.

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