How does Say’s Law relate to Austrian business cycle theory?
Say’s Law debunks rival theories, i.e Keynesian ones of all stripes.
Say’s law, simply restated, is that there can never be overproduction throughout the entire economy (or general overproduction). Austrian business cycle theory starts with this and proceeds to explain the causes and effects of overproduction in some sectors of the economy relative to others.
I’ve been meaning to read up on Say’s Law, anyone got links to good articles?
Obviously book XV in Say’s Treatise, then perhaps Bill Anderson’s foray into the subject. Also Hazlitt’s chapter on Keynes and Say’s Law in Failure of the New Economics.
Sadly, I find an immense amount of time is spent arguing over what Say’s Law is, and more importantly, what it isn’t.
It’s necessary considering Keynesians have a warped interpretation of what it is.
Here’s what I want to know: Does Say’s law state that demand for houses will increase because of the housing boom?
bump
Short answer: no.
This quote from Bill Anderson’s paper should get you thinking about the housing market:
“If we doubled the productive power of the country, we should not double the supply of commodities in every market . . . . If we doubled the supply in the salt market, for example, we should have an appalling glut of salt.”
Sounds like you think Say’s Law is “supply creates its own demand” (eg. one can build a new widget factory and demand for the good will immediately spring into being). This is incorrect defenition of SL. SL basically states that our ability to consume is borne out of production - production and consumption are two sides of the same coin.
Note that SL did not purport to explain why recessions or bubbles happen, nor claim that they are impossible. Also, SL does not imply that a glut in one industry cannot occur, only that general overproduction is impossible.