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In his help to Peter Stillman,  
 
Tom Walker writes:  
 
> Because they were arguing that overproduction *in general* was  
> impossible. At a high enough level of abstraction, the logic is  
quite > unassailable. If one accepts that an economy is a logical  
structure rather > than a human cultural and social artifact,  
overproduction IS impossible. > Of course, the road leading up to  
that high a level of abstraction is full > of potholes and unbridgable  
chasms. But once there, the view is > breathtaking.  > Surely,  
Say's Law is about the real economy, not merely some logical  
structure.  At its simplest, the argument is that production is the  
source from which we earn income to spend.  Our incomes are  
titles to the goods and services produced, hence we cannot  
produce more than there is demand in the aggregate.  If income is  
not directly consumed, it may be saved -- loaned out -- and the  
borrowers spending instead of the income earners.  To quote J.S.  
Mill's statement of the point (from Keynes's GT, p. 18):   
 
What constitutes the means of payment for commodities is simply  
commodities.  Each person's means of paying for the production of  
other people consist of those which he himself possesses.  All  
sellers are inevitably, and by the meaning of the word, buyers.   
Could we suddenly double the productive powers of the country, we  
should double the supply of commodities in every market; but we  
should, by the same stroke, double the purchasing power.   
Everybody would bring a double demand as well as supply;  
everybody would be able to buy twice as much, because everybody  
would have twice as much to offer in exchange.   
 
Of course, Say's Law admits the over-production of some specific  
commodities -- which would lead to their prices falling in order to  
clear their supplies.  However, should their sellers refuse to let  
those prices fall, they may have to resort to borrowing other  
people's money (savings) in order to maintain their own desired  
consumption or purchases.  The latter action would cause interest  
rates to rise.   
 
David Ricardo makes the point thus: "Too much of a particular  
commodity may be produced, of which there may be such a glut in  
the market, as not to pay the capital expended on it; but this  
cannot be the case with respect of all commodities ..."  [Note that  
"capital" here means funds, not capital goods, as has become the  
practise in economics.]   
 
Thus, a glut in one market shows up as an excess demand in another. 
 
One of Keynes's paths to his misunderstanding of the law of  
markets was to have reasoned that consumption and investment  
spending are the only sources of aggregate demand (in a closed  
economy), while saving is a withdrawal from the expenditure  
stream.  Worse, saving is not the source of business "capital" or  
finance -- the banks take care of that without first taking deposits  
from the public.  And when Keynes reasons that saving may be all  
hoarding (against the classical explanation that saving is NOT  
hoarding), he felt quite justified in believing that there could be more  
prodution than sufficient aggregate demand to absorb the output.   
Hence Keynes's crusade to promote aggregate demand in order to  
promote employment and income growth.  Much of modern  
macroeconomics follows that line of reasoning.   
 
In the classical argument, if there is an excess demand for money  
(cash), there must be an excess supply of all goods and services.   
The price level must fall, with the result that there will be some  
unemployment (as average real wages rise) until nominal wages fall  
to restore that rate of employment -- the opposite of the forced- 
saving mechanism.   
 
Thus, viewed correctly as the classics stated it, the law of markets  
is not that much of a theoretical abstraction.  But stated as "supply  
creates its own demand," and that the proponents of the argument  
also asserted that "there is always full employment" as Keynes  
did, it is easy to wonder how anyone could have believed such  
mythology.   
 
James Ahiakpor 
California State University, Hayward.  
 
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