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Outline of a Show Segment:
Theory: Say’s Law
Definition
“Say’s Law of Markets states that the supply of a good or service creates demand for that good or service. Jean Baptiste Say, a classical French economist, studied the nature of markets in his 1803 book “Treatise on Political Economy” and put forth the view that supply creates its own demand and that economic agents must first engage in production before they can demand goods and services in the market.”[1]
Say’s Law was propagated by classical economist
Jean-Baptiste Say who lived between 5 January 1767 – 15 November 1832.
Say's Law can be summarized through the following quote:
·
"Aggregate supply creates its own aggregate
demand",
·
"Supply creates its own demand",
·
"Supply constitutes its own demand",
·
"Inherent in supply is the wherewithal for
its own consumption". (Direct translation from French Traité d'économie
politique.)[2]
In short, production comes before consumption. You cannot
re-distribute money from one individual to another and think you are improving
the economy. The economic “benefit” from spending that money is a wash – what
it takes from the productive, it gives to the non-productive which means that
it is a zero-sum policy. Another way of looking at re-distribution of income is
to say that consumption is not the way to stimulate production. Re-distribution
of income only makes one person poorer and another person richer – this does
not improve the economy. All it does is give the government the opportunity to
decide who gets rich and who gets poor. It is a wash; it adds no new money to
the economy.
Investopedia tells us about the implications of Say’s Law:
“Implications of Say's Law of Markets
- The
greater the number of producers and a variety of products in an economy,
the more prosperous it will be. Conversely, those members of a society who
consume and do not produce will be a drag on the economy.
- The
success of one producer or industry will benefit other producers and
industries whose output they subsequently purchase, and businesses will be
more successful when they locate near or trade with other successful
businesses. This also means that government policy that encourages
production, investment, and prosperity in neighboring countries will
redound to the benefit of the domestic economy as well.
- The
importation of goods, even at a trade deficit, is beneficial to the
domestic economy.
- The encouragement of consumption is not beneficial, but harmful, to the economy. The production and accumulation of goods over time constitutes prosperity; consuming without producing eats away the wealth and prosperity of an economy. Good economic policy should consist of encouraging industry and productive activity in general, while leaving the specific direction of which goods to produce and how up to investors, entrepreneurs, and workers in accord with market incentives.”[3]
Conclusion
Say’s Law is a brilliant statement of how government
destroys prosperity through a policy of re-distribution. It declares that
reason holds that you cannot improve an economy by the practice of printing
money and giving it away to others who would not use it wisely. History tells
us that the wiser man takes his production and more frugally spend it as
opposed to the person who does not produce this own product.
Potential other Show Segments Could Include
Our focus on free markets could lead to other shows (or
teacher segments) on the following topics:
Free Market Segments
·
Broken Window Fallacy
·
What is Re-distribution?
·
What is Fiat Money?
·
What is Capitalism?
·
How do Free Markets Work?
·
What is the Role of Production in Society?
·
What is Monetary Policy?
·
What is the Difference between Capitalism and
Socialism?
·
What is the difference between Keynesian
monetary policy and capitalist monetary policy
·
The benefits of capitalism
·
Knowledge Systems on the fly
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