PKT message, Say's Law

In Ch. 3, Section I of the General Theory, Keynes writes of Say's Law, inter alia, as follows:

"...Say's law, that the aggregate demand price of output as a whole is equal to its aggregate supply price for all volumes of output, is equivalent to the proposition that there is no obstacle to full employment. If, however, this is not the true law relating the aggregate demand and supply functions, there is a vitally important chapter of economic theory which remains to be written and without which all discussions concerning the volume of aggregate employment are futile."

To the best of my knowledge, there is nothing on record in the writings of Say himself to support this construction of Say's Law - indeed, according to Baumol, it is wholly inconsistent with the clear thrust of Say's argument, as detailed in Section V of his Economica article which reads substantively as follows:

"Like all classical economists, Say was very much interersted 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. Thus, from the first edition on, he recalled to the reader how much the output of his country had risen since the humiliating days of Henry V, and the end of the Hundred Years' War. He points out that the total income accruing to factors of production expands equally with the total output of the community. "Otherwise, by what means could one purchase nowadays in France at least to two or three times the quantity of things that were purchased in the miserable and unfortunate reign of Charles VI?" (Say, 1803, Vol II, p. 180.) A translation of the full selection from which this quotation is taken is provided later in this paper. [...]

"Now, it must be admitted that Say seems never to have devoted much space to a discussion of the very long-run correspondence of demand with supply, and I have not found any place where [James] Mill dealt with it at all. Yet it seems to me to be implicit in their emphasis on production as the source of growth in the wealth of a nation. The fact that in the second edition Say moved his remark on Charles VI into the body of the chapter on 'débouchés' and that he kept it there in the subsequent editions attests to the value he placed on the observation that demand in the long run is capable of keeping up with the most enormous increases in output.

"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. Note in this connection, Sowell's (1974, pp. 64ff) contention (against Patinkin and Blaug) that even Malthus' position in the glut controversy did not include a secular stagnation thesis."

The underlined sentence accords with my own construction of Say's Law as an axiomatic construct which Say's less-clear-headed successors transformed into the empirical proposition which, in the above citation from Ch. 3, Keynes effectively embraced - in my view, for the purpose of engaging Say's less-clear-headed successors among his peers on their own turf.

For it strikes me as inconceivable that Keynes, having clearly distinguished the analytical aspects of 'The Theory of Economics' from their empirical application in his 1922 definition thereof cited earlier, could have lost sight of that distinction by the early 1930s.

Gunnar

Say's Law - Addendum