Sunday, December 12, 2010

Say's Law to the Rescue

As much as mainstream economists hodernially feed us their Keynesian attempts of what best suits the time, in the hopes of creating a perpetual economic inclination, they are actually only reiterating phenomena already once explained in a more basic sense. Many times their short-run stimuli actually have very negative long-run repercussions, which keep hindering the basic principals of the science of human choice, withering away the fabrics of freedom. Little do many economists know that their best bet is to go back to the basics.

Jean-Baptiste Say was a famous classical economist that came right after Adam Smith. He was famous for creating Say's Law, which in a nutshell suggests that "supply creates its own demand." Jean Baptiste Say grasped the fundamental problem of economics, in that we live in a world of scarce means, but have unlimited desire or demands. Only such things as sunlight, air, or water are freely afforded to man. Thus man uses nature to transform goods that give utility to others. In conjunction, Say recognized that all men were both producers and consumers.

From these two basic truisms arises Say's Law. If individuals wish to procure a good they must give something in return that is also desirable to individuals. Therefore in order for one to be a consumer one must first be a producer of a good in which others find utility. Thus individuals desire the commodity of money not as an end in itself, but rather as a means to procure more desirable goods. However, in order to acquire money one must first produce a good that will exchange for money. The most important point in Say's formulation is that the individual must produce something that is desirable to others.

Of course one would see that Say's Law gives light and is painted quite similarly in the Laffer Curve, as well as the Rahn Curve. Both successful theories, most assuredly of contemporary libertarian economic thought, are only delineating and showing how Say's Law wreaks the most success. Say writes that taxes reduce the consumption of a good and consequently make production of the good less profitable. This has the twofold effect of hurting both the consumer and producer – especially those with specific capital in the taxed area – as well as creating market distortions because some areas of production will now be less profitable. Consequently individuals will move to formerly less profitable areas of production.

Essentially, The Laffer Curve works quite well, obviously reiterating Say's notion, but was created to simply ease the power of the government. It's clout was somewhat illucid since spending coupled it's government downsizing, yet it was still formulated to accept the dogmas of the day; those being the plethora of social programs and handouts implemented by FDR and which everyone rashly sees as necessary. A similar model to demonstrating Say's argument for limited government is The Rahn Curve, and surely we can see that government is never good for growth.

John Maynard Keynes was a fierce opponent of Say's Law. The policies he advocated were precisely those which almost all governments, including the British, had already adopted many years before his "General Theory" was published. The unprecedented success of Keynesianism is due to the fact that it provides an apparent justification for the "deficit spending" policies of contemporary governments. It is the pseudo-philosophy of those who can think of nothing else than to dissipate the capital accumulated by previous generations. Yet no effusions of authors however brilliant and sophisticated can alter the perennial economic laws. They are and work and take care of themselves. Notwithstanding all the passionate fulminations of the spokesmen of governments, the inevitable consequences of inflationism and expansionism as depicted by the "orthodox" economists are coming to pass.

It is precisely "basic" theories that promote the simplest yet most effective methods of creating prosperity and future success. There is absolutely nothing complicated about "the basics." As much as we try to elaborate on something basic, that yielded the best outcomes and with its simplicity defines natural science, the basics will always be the foundation of happenings. And we must remember that success is most assuredly effused by freedom and the individual. As we have seen time and time again, it is policies that promote the dynamics of Say's Law that bring us out of Recessions. It is until these simple mechanics are freed up, allowing the human mind it's free access of reasoning out the best method to satisfy their needs, that people will naturally come together to overcome a downturn.

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