PKT message, Re: Say's Law, Walras, Schumpeter, and Keynes

Bill:

Two points.

First. Let me concede that I "fail to grasp the most basic concepts of analytical mathematics".

Second. This is how William J. Baumol - a respected mathematical economist - summarized the various forms of Say's Law advanced by Jean Baptiste Say himself:

"Say's First Proposition. A community's purchasing power (effective demand) is limited by and is equal to its output, because production provides the means by which outputs can be purchased. Furthermore,

"Say's Second Proposition. Expenditure increases when output rises.

"Note that the first proposition deals with purchasing power, not with actual purchases. It tells us, as Keynes did, that output is the source of effective demand - that output is purchasing power. But it does not say that all of that purchasing power will always be used to buy goods. Rather, these assertions state, in effect, that the marginal propensity to consume and invest is greater than zero and that the average propensity is (generally) not greater than unity. That is, they tell us that people who produce more are in a position to consume more and will generally do so. These points, which most of us would still accept, are made most emphatically in the very brief chapter on debouches in the first edition, which I now present in its entirety...."

"There is a pair of related propositions which may have been even of more importance at least to Say, judging by the space he devoted to them and the vehemence with which he espoused them. Those observations which deal with the relation between consumption and investment ("unproductive" and "reproductive" expenditures, can be described as:

"Say's Third Proposition. A given investment expenditure is a far more effective stimulant to the wealth of an economy than an equal amount of consumption.

"This proposition is the main substance of Say's chapter on consumption, whose translation now follows..."

"Like all classical economists, Say was very much interested in the longer run. From the first edition on, Say never ceased to emphasize, as an empirical observation:

"Say's Fourth Proposition. Over the centuries the community will always find demands for increased outputs, even for increases that are enormous.

"In other words, there was in his opinion no basis for fear of secular stagnation. This view he based on the argument that production provides the purchasing power with which output can be acquired. [...]

"Note that this proposition, which is clearly of some considerable importance for the analysis of economic development, is virtually irrelevant for stabilization policy. Say's observation that in the long run demand keeps up with rises in production is perfectly consistent with the existence of protracted periods of substantial unemployment. There is nothing in the principle that is inconsistent with a "general glut" whose possibility is denied by Say's identity."

As for "Say's identity", Baumol notes up front that it was formulated by writers other than Say.

Baumol's paper, entitled 'Says (at Least) Eight Laws, or What Say and James Mill May Really Have Meant', was published in Economica, 1977.

Your construction of "what Say really meant" does not square with that of Baumol - nor, absent any indication that Jean Baptiste Say was a fool, could he 'really have meant' what you think he meant.

Gunnar

----- Original Message -----

From: William B. Ryan

To: pkt@xxxxxxxxxxxxxxxx

Sent: Friday, March 23, 2001 4:38 PM

Subject: Re: Say's Law, Walras, Schumpeter, and Keynes

You write: "[Keynes] chose to predicate his attack on the 'classical economists' on the pre-supposition that they...mistook Say's Law for a real-world proposition."

But Gunnar, firstly, Jean-Baptiste Say himself regarded it as a real world proposition, as is evident to me from the excerpt from his writings appended below. Please tell us how it can be interpreted any differently.

Secondly, you seem to fail to grasp the most basic concepts of analytical mathematics. Lacking such concepts it is possible to "prove" that Hercules never catches up to the Tortoise.

It is simply not true that "Nominal Factor Cost of Output Supplied and Sold = Nominal Final Sale Proceeds." It is indeed true in postulated steady-state that cost is proportional to sale proceeds. The error of the classical economists and their successors is in their assumption, more often implicit rather than expressly stated, that it is the normal condition pertaining to the real world.

John-Baptiste Say, *Treatise on Political Economy; or the Production, Distribution, and Consumption of Wealth,* 1821, Chapter XV:

"It is common to hear adventurers in the different channels of industry assert, that their difficulty lies not in the production, but in the disposal of commodities; that produce would always be abundant, if there were but a ready demand, or vent. When the vent for their commodities is slow, difficult, and productive of little advantage, they pronounce money to be scarce; the grand object of their desire is, a consumption brisk enough to quicken sales and keep up prices...

"A man, who applies his labour to the investing of objects with value by the creation of utility of some sort, cannot expect that the value to be appreciated and paid for, unless where other men have the means of purchasing it. Now, of what do those means consist? Of other values, of other products, likewise the fruit of industry, capital and land. Which leads us to a conclusion, that may at first sight appear paradoxical; vis. that it is production which opens a demand for products...

"Wherefore, it is products that you want, and not money. The silver coin you will have received on the sale of your own products, and given in the purchase of those of other people, will the next moment execute the same office between other contracting parties, and so from one to another to infinity; just as a public vehicle successively transports objects one after another. If you cannot find a ready sale for your commodity, will you say, it is merely for want of a vehicle to transport it? For after all, money is but the agent of the transfer of values. Its whole utility has consisted in conveying to your hands the value of the commodities, which your customer has sold, for the purpose of buying again from you; and the very next purchase you make, it will again convey to a third person the value of the products you have sold to others. So that you will have bought, and everybody must buy, the objects of want or desire, each with the value of his respective products transformed into money for the moment only."

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