What is Say's Law?
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Last updated 6 Jan 2023
Say's Law is an economic principle that states that the production of goods (supply) creates its own demand.
The law is named after Jean-Baptiste Say, a French economist who first articulated it in the early 19th century. According to Say's Law, the act of producing goods and services generates income for the producer, employees and input suppliers, which can then be used to buy the goods that have been produced. This process creates a self-sustaining cycle of production, factor incomes and consumption that then drives economic activity.
Say's Law suggests that there can be no general overproduction of goods, as any excess production will eventually be absorbed by the increased purchasing power of the producers. Say's Law is often associated with classical economics and the idea of a self-regulating market.
However, it has been the subject of much debate and has been challenged by other economic theories, such as Keynesian economics, which argues that aggregate demand (AD) can be insufficient to ensure full employment and that government intervention may be necessary to stimulate economic activity. Keynes argued that free markets often did not clear and that a state of semi-permanent recession can exist and persist if there the government and/or the central bank does not intervene with counter-cyclical policies.