Understanding Say’s Law of Markets | The Freeman | Ideas On Libe rty

“Because all market exchanges are of goods or services for money, all markets are money markets, and the only way there can be an excess supply or demand for goods is if there is an opposite excess supply or demand for money. Take the more obvious case of a glut of goods, such as one might find in a recession. Say’s Law, properly understood, suggests that the explanation for an excess supply of goods is an excess demand for money. Goods are going unsold because buyers cannot get their hands on the money they need to buy them despite being potentially productive suppliers of labor. Conversely, a general shortage, or excess demand for goods, can only arise if there is an excess supply of the thing goods trade against, which can only be money. Recessions and inflations are, therefore, fundamentally monetary phenomena, as Say’s Law points us in the direction of looking at what is going on in the production of money to explain the breakdown of the translation process of production into demand.”


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