In Prosperity should be increased by stimulating production, not consumption, some commenters at reddit/Economics were confused by the Law of Markets, which was first proposed by French economist Jean Baptiste Say in the early 19th century. It is pretty clear to me that they see “Supply creates its own demand” and immediately try to square that with some backwards Labor theory of value, or they smuggle in the Keynesian “prices are rigid downwards” objection, or some combination of the two. One person even wanted to know why there wasn’t “painful unemployment” during an economic boom.
The rate of employment need not change at all (although it may certainly fluctuate) during a boom. During a boom, scarce resources are reallocated from industries where they were more-or-less optimally employed, towards the production of some other goods/services previously deemed unprofitable, which only appear profitable now in light of the distortions in the price system caused by inflation.
Inflation is the illusion of prosperity, and since it leads necessarily to malinvestment, its necessary consequence is not increased wealth, but eventually increased suffering brought about by the squandering of real goods and services during the boom. Of course, I chided them with lolspeak taunts of “oh noes ur doing it rong”.
In the interest of full disclosure, I should warn you that I am a fan of Say’s Law of Markets. I generally (ummm, always) agree per Mill, that an abundance of goods and services, rather than an abundance of money, which signifies prosperty (cf. here
here.), it is of paramount importance to recognize that such an abundance of goods and services can only arise through production at some historical time, or in other words, that in order to consume, production must first occur.
According to Peter Anderson, in Say’s Law in Context”
If individuals wish to procure a good they must give something in return that is also desirable to individuals. Therefore in order for one to be a consumer one must first be a producer of a good in which others find utility.
Simple enough, right? I’m not entirely convinced that the person posting the item knows fully the implications of the argument, “Prosperity should be increased by stimulating production, not consumption.”
But this is too vague. Intentionally or not, in certain contexts, it is completely wrong. Does the author mean “Production tends to increase where production is stimulated” or does he mean that “The proper way to create prosperity is by stimulating production”? They’re two very different statements. The former is closer to being an economic statement (i.e., without judgment) than the latter, although it could be interpreted in such a manner as to imply that the government should “do things to increase production.” Neither of these positions is a satisfactory treatment of Say’s Law.
The real argument is, “Prosperity increases where production is permitted.” Period.
Anderson says that, “Say’s Law cannot be separated from the Treatise as a whole and still be accurately understood”. I’ve never read Say’s Treatise, but I had some excellent professors in graduate school, who introduced me to these ideas, and taught us well. For that, I’m fortunate. When I allude to Say’s Law, I am not suggesting that the government should do X, Y or Z. I am suggesting that the government should allow, should tolerate, should permit people to produce value. This is the essence of Say’s Law, in context.
All that needs to be done is nothing! Let people produce wealth unimpeded, let them be free in order that they may propser.