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Date: | Fri Mar 31 17:18:19 2006 |
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----------------- HES POSTING -----------------
Thought I might add this bit to the discussion:
When teaching Say's law to my history of thought classes I like to use
the little Chapter 14 in Book III of J S Mill's _Principles_ called "Of
Excess of Supply". Mill first supports Say's law in its strong form,
arguing "A general over-supply , or excess of all commodities above
the demand, so far as demand consists in means of payment, is thus
shown to be an impossibility."
I like this as an example of the idea that an excess of supply IS
IMPOSSIBLE. No one supplies except to demand, no one can
demand except by supplying.
However, less than two pages further on Mill starts discussiong
commercial crises, and states "I have already described the state of the
markets for commodities which accompanies what is termed a
commercial crisis. At such times there is really an excess of all
commodities above the money demand: in other words, there is an
under-supply of money. From the sudden annihilation of a great mass
of credit, every one dislikes to part with ready money, and many are
anxious to procure it at any sacrifice. Almost everybody therefore is a
seller, and there are scarcely any buyers; so that there may really be,
though only while the crisis lasts, an extreme depression of general
prices, from what may be indiscriminately called a glut of commodities
or a dearth of money."
So excess of supply is not impossible after all. Say's law is an
equilibrium condition that may not hold during a crisis, but an excess
of supply cannot be a permanent state.
Malcolm Rutherford
University of Victoria
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