Re: Does Say's Law prevail?

["William B. Ryan" <william_b_ryan@xxxxxxxxxx>]

"A lack of effective demand occurs when people who earn income do not
spend it all on the products of industry but instead "oversave" i.e.,
save income in the form of NEW AND SECOND HAND LIQUID ASSETS or hold
'money' so that the total volume of savings exceeds the borrowing of
debtors equal to NEW issues of equities, and debt instruments of all
kinds..."
---

1.  We may assume that every dollar received is eventually spent in the
fullness of time, either by the person who receives it, his heirs or
his lawyers.  A lack of effective demand will occur if the rate of spending
from income present and past, for the economy as a whole, is decreasing
in proportion to income over time as instantaneously measured.

Also:

2.  A lack of effective demand will occur if income being received by
consumers is decreasing in proportion to the costs of production over
time, so that the reflux from income being spent on goods and services
intended for final consumption cannot fail to be decreasing in proportion
to the costs of production.

These considerations pertain to the long-term production cycle and factor
out considerations of short-term perturbations or transients.
---

The first occurs if the "propensity to consume" from income is decreasing
as income is increasing.  We would expect this to occur as wealth is
increasing concomitant to increasing productive capacity, whether "psychological,"
"physiological" or otherwise.

The second occurs if the period of production is lengthening, that is
to say, transactional account balances held by the firms sector are differentially
increasing in ratio to balances held consumers.  We would expect this
to occur during industrialization.
---

A lack of effective demand does not occur because of the existence of
liquid assets.  There is a quasi-physical relationship between the volume
of transactional account balances and the level of transactions that
cannot be easily altered nor should it be altered, except in technical
improvement.

Firms sell goods, services AND securities.  A lack of effective demand
will occur if the ratio of securities is increasing to goods and services
in the sales mix, as a matter of accounting practice.  Receipts from
the sale of securities do not count as income to firms in terms of profit
and loss.  Therefore, there can be a lack of effective demand even in
the face of a falling "liquidity preference."
---

The solution is not to change human behavior but to construct a financial
system that accommodates the behavior.  Consequently, the most efficient
solution is not to be found in schemes of confiscation or redistribution.



--
William B. Ryan
william_b_ryan@xxxxxxxxxx - email
voicemail/fax - 1-866-678-3967 - toll free



---- Paul Davidson <pdavidson@xxxxxxx> wrote:
> At 08:47 PM 5/10/2002 -0400, you wrote:
>
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