Say's Law

(1803)

Also known as Say's law of markets.

Named after Jean-Baptiste Say (1767-1832), Say's law argued that an economy is self-regulating provided that all prices, including wages, are flexible enough to maintain it in equilibrium.

In a more simplistic, and somewhat inaccurate form, Say's law states that supply creates its own demand and over-production is impossible. This theory has major implications for how governments respond to periods of high unemployment or widespread underemployment.

Say's law was accepted as a major plank in classical macroeconomic theory until English economist John Maynard Keynes (1883-1946) challenged its applicability in modern economies.

Also see: equilibrium theory, general equilibrium theory, partial equilibrium theory

Source:
J B Say, Traite d'economiepolitique, vol I, (Paris, 1803);
T Sowell, Say's Law: An Historical Analysis (Princeton, N.J., 1972)

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