Say's Law of Markets - Notes
Say's Law of Markets An early 19th century French Economist, J.B. Say, states that "supply creates its own demand." The logic behind this law is that supply of goods itself generates sufficient income to generate a demand equal to the supply of goods. This is how supply creates its own demand. In its original form, the law is applicable to a barter economy where goods are ultimately sold for goods. Therefore, whatever is produced is ultimately consumed in the economy. This law can be explained in the context of both a barter system and a monetized economy. Barter economy where goods are ultimately sold for goods. people tend to specialize in the production of goods or services which they can produce relatively more efficiently. When they offer their produce in barter for other goods, they create demand for other goods. For example, a farmer offers his surplus produce (say, wheat) to the weaver in exchange for cloth. Thus, the farmer creates demand for cloth. The weaver ...