Question

Say's law states that supply creates its own demand. Explain what that means. How realistic is that? There is NOT an anti-Say's Law - but if there was - would one that states "demand creates its own supply"be a better, more realistic law? Discuss that.

Answer 1

The Say's law - supply creates its own demand - means that any commodity which is supplied in an economy will automatically find consumers and will thus be demanded at one point or the other and hence there will be no excess supply (unplanned inventories) in the economy. Thus the economy will always be in a market equilibrium.

However, real-life market economies are far from Say's law. Any commodity which is supplied is not necessarily demanded and there are planned/unplanned inventories in any current financial year.

Although there may not be an anti-Say's law, but J.M.Keynes refuted this doctrine in his "The General Theory of Employment, Interest and Money" (1936). A proper anti-Says law (interpreting Keynes' explanation) would be "Effective demand creates its own supply".