An interview with me on Say’s Law

canlorbe-conversation-with-steve-kates

An interview with me on Say’s Law by the French journalist Grégoire Canlorbe has just been published in Man and the Economy, the journal of The Coase Society. It is the most comprehensive summary statement I have put together of Say’s Law – it runs to 31 pages – and I could not be more grateful to Grégoire who spent more than a year in discussing the relevant issues with me before we actually got down to the interview. You can download a copy of the article here .

Say’s Law remains the single most important principle in all of economics. Policy decisions that go against the grain of Say’s Law are guaranteed to fail, for which the evidence remains overwhelming. The obvious failure of every one of the stimulus packages that were attempted after the GFC, along with the failures that have been associated with attempts to stimulate investment by reducing rates of interest, ought to have at least made some economists consider that perhaps Say’s Law is valid. The reason this does not happen is that virtually no economist understands even what the underlying principle of Say’s Law is. My article will, I hope, at least create some interest in what had been the bedrock proposition of classical economic theory almost from the time of Adam Smith through until the publication of The General Theory in 1936.

The journal is itself attempting to redirect economic theory in a more fruitful direction. These are the journal’s published objectives.

When modern economics was born in the 18th century, Adam Smith made it a historical study of man and the rising commercial society. For Smith, economics is first and foremost concerned with wealth-creation, where the division of labor is the key organizing principle. In the next century, David Ricardo shifted the focus of economics from production to distribution. Over the course of the 20th century, economics has gradually metamorphosed into the logic of choice and taken mathematics as its language. These two transformations have together made economics a towering discipline in the social sciences. But this achievement comes with a heavy price. Economics has largely become a theory-driven subject, severed from the ordinary business of life. Rather than seeing this disconnection as a fatal flaw undermining the vitality of the discipline, many economists take pride in that economics is no longer confined to any subject matter, but stands as a versatile, subject-free analytical approach.

The Coase Society aims to reorient economics as a study of man and the economy. The human economy is a man-made, evolving complex system of cooperation and competition. The defining character of the market economy is its continuous innovation, churning out novel products from the constantly adapting structure of production. This dynamics is kept alive by entrepreneurship and the growth of knowledge. To understand how this open system works requires both empirical and theoretical efforts. But theory-building, unless informed and disciplined by facts on the ground, can easily degenerate into “blackboard economics”. Empirical work is most valuable only when it changes the way we look at the problem. The paucity of systematic interaction and mutual learning between empiricists and theorists and the lack of competition in research methodology in modern economics have severely sterilized the discipline.

Man and the Economy is not to replace the prevailing paradigm in economics with what the Society believes as a different and superior one. Such a paradigm simply does not exist yet. But economics as currently practiced ought to change. Working with students of economies across disciplines and all over the world, and bringing diversity and competition into the marketplace for economics ideas, Man and the Economy can help to make it happen. We welcome empirical (historical, qualitative, statistical, experimental) investigations and theoretical explorations that deepen our understanding of how the economy works and how it changes over time. Man and the Economy is keen to publish articles that examine how the market economy spreads throughout the globe and adapts to local conditions as well as studies that cross disciplinary boundaries and/or integrate diverse methods to shed light on the working of the economy.

A necessary journal for our times.

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9 Responses to An interview with me on Say’s Law

  1. Tel

    Say’s Law remains the single most important principle in all of economics.

    Only because Keynesians need to insist they have disproven Say’s Law in order to perpetrate their price manipulation and power grab.

    The problem being that there are methods to confuse a lot of people for a limited time, and give a convincing illusion that Say’s Law no longer applies. How long this illusion can be extended is questionable, but with sufficient power behind it, seems like quite a while.

    That’s why I prefer the explanation, “Money is a veil over barter” which is easier to understand and contains within it the concept of two layers: the barter layer where every good or service exchanges for another good or service, plus the money layer which attaches prices to these things and (just like any “veil”) also hides something. Say’s Law in it’s pure sense applies to a barter economy and when all we have is a barter economy it becomes so obvious and irrefutable that it seems barely worth a mention. Once the veil is in place it’s possible to lose track of what’s happening underneath.

  2. Steve Kates

    Dear Tel

    That is very nicely put. It is exactly that problem that the last two chapters of my textbook tries to deal with. The hardest imaginable thing to get others to see, but once they do, things become remarkably clear.

  3. C.L.

    Very impressive.
    Congratulations.

  4. Ronaldo

    CL, did you pay the US$42 for the download, or is there another way to read the interview?

  5. RobK

    Thanks Steve. Thanks Tel.
    You are both good teachers. A pleasure to read.

  6. Yohan

    That’s why I prefer the explanation, “Money is a veil over barter” which is easier to understand and contains within it the concept of two layers: the barter layer where every good or service exchanges for another good or service, plus the money layer which attaches prices to these things and (just like any “veil”) also hides something. Say’s Law in it’s pure sense applies to a barter economy and when all we have is a barter economy it becomes so obvious and irrefutable that it seems barely worth a mention. Once the veil is in place it’s possible to lose track of what’s happening underneath.

    Yes me too. Even though money it’s not a neutral veil, it’s a great tool to understand really how things work.

    But you will note that Kates barely touches on this core aspect of Say’s Law. For him it’s all about can there be a general glut/oversupply aka failure of demand.

  7. Yohan

    It is very frustrating that in this modern age of the internet, higher education, which is totally funded by the taxpayer still wants to charge us $30-50 just to read an article in a journal. HEC/government student loans boost Uni courses by 5x what a free market would sell them for.

    Luckily there is this tool…
    http://sci-hub.bz/
    Anything on Jstor can be gotten through here.

  8. Ronaldo

    Thank you for this, Yohan. I had been under the impression that the site had been closed down. I wouldn’t mind paying a few dollars for an article that is worthwhile, but US$42 is gouging.

  9. Yohan

    Same here Ronaldo. I would gladly pay a subscription to access Jstor, but instead they want us to pay $42 for a single 5 page article written in 1930. They can fuck off.

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