Say’s Law (correct me if I’m wrong) essentially states that general glut is impossible, since ‘supply creates it’s own demand’. I interpret Say’s Law as saying that recessions cannot occur because of a general lack of purchasing power. But can they occur from a lack of aggregate demand, since demand makes up not only the effectiveness of demand, i.e., purchasing power, but also a subjective portion as well?
I suppose that the answer would be that money must be spent somewhere, even investment is a form of spending. But what about pure saving, in the form of cash? What of the man who keeps $500 under his matress? This is not consumption, and it is not spending. So does Say’s law hold when, say, the demand for consumption is not full?
You have to be very careful when approaching the subject of hoarding. Hoarding is really just a demand for future goods rather than present goods.
I would say that Say’s Law will always hold in a barter economy. It’s true by definition if you follow it through. It becomes more complicated with a money economy because throwing in extra amounts of money creates the illusion of more resources than what really exists. This can result in a prolonged misshaped or wrongly coordinated production structure.
What Say’s law says is that ultimately there is no supply or demand, only ownership. If someone owns part of the supply of a good, then they must logically have a corresponding demand for that supply.
Money is in itself one of the resources that exist and that people own.
You’d have to be assuming a relatively static supply of money.
Once again, it’s a little bit more complicated with money, especially paper money. If a bank inflates, it is providing money which is already owned by one individual to another individual. Thus, they both use it simultaneously resulting in action which is in accordance with the possession of more resources than what really exists. Can two people own a real resouce like a car at once and both use it as though it’s their own? No, if one is using it than the other is not; material resources are excludable. This is why money economies make it possible for boom-bust cycles to occur; individuals can be simultaneously using more than what’s really there.
From what I am getting at, Say’s law basically says production creates consumption. But isn’t supply/demand two sides of the same coin? I mean, production always precedes consumption(because you can not consume something that hasn’t been produced), but doesn’t demand of consumers determine what suppliers produce?
To me, an economy can’t downfall because of a lack of demand. That would mean there is a lack of want, which is impossible. I can see recessions in specific industries, but never the economy as a whole due to a lack of demand.