It’s not that “supply creates its own demand,” but rather that supply is demand. One produces a good either to consume it oneself or, more commonly, to trade it for another good. Demand and supply are two sides of the same, well, coin—which reminds me to add that Say’s Law holds not just in a barter economy but a monetary one also—a freed one, that is, unlike the corporate state we all occupy.True, someone might sell a good and not spend the money received. But this would lead to idleness only if the economy did not consist in a time structure of production coordinated by interest rates. In other words, money not spent is saved and available for investment (that is, payments for producer goods and labor, which will be spent on consumer goods) at stages remote from the consumer-goods level; that is, long-term investment in production for future consumption…Given our insatiable demand for goods, in a freed market a general glut couldn’t happen; if prices were free to fluctuate in response to changed conditions or entrepreneurial error, the price of goods plentiful relative to demand would fall, while the price of goods deficient relative to demand would rise. Entrepreneurs would then adjust their plans, but since change is the rule, the market would never reach a state of rest. Say’s Law is about a (free) process through time, not general equilibrium.
Thursday, November 01, 2012
Quote of the Day: Demand and Supply are Two sides of the Same Coin
This is from American political writer and libertarian Sheldon Richman at the Reason.com refuting progressives who deliberately misstate the great proto Austrian Frédéric Bastiat’s “Broken Window fallacy” or the fallacious economic doctrine which sees, from the perspective of spending, net benefits from destruction (e.g. natural calamities or wars).