lördag, augusti 08, 2009


Say's law

Since I doubt that Stefan Karlsson will publish any refutation of his explanation of Say's law I hereby publish my own explanation of Say's law.

We agree that man's material wishes are enormous. Most people would live like millionaires, could they just afford it.

However, that is not the core of Say's law. Say's law means that anyone offering goods or services on the market is in reality trying to buy that which he is not selling. If somebody grows potatoes and offers them for sale, the reason for that is, of course, that he wants to buy something else, be it pork, eggs, carrots or whatever.

For this reason the person who offers potatoes for sale is in reality creating additional demand, since what he offers for sale is in reality the means of payments for what he wants to buy. If, for example, he accepts silver coins as means of payments for the potatoes he offers he usually does so because he knows that silver coins will buy him what he wants.

But what about people who save what they earn? Well, strictly speaking, saving, in most cases, is not saving in the truest sense of the word. If the man who offers potatoes for sale accepts silver coins and thereafter deposits those silver coins in a silver bullion bank, he is in reality not saving what he has earned but actually lending the bank silver coins and if there were no demand for credit the bank would of course not offer him any interest.

But what about if he is hoarding the silver coins? Well, in that case he reduces the amount of silver coins in circulation, but in doing so he strengthens the purchasing power of silver whereby he makes silver mining more profitable which in turn causes silver mining companies to increase their exploration and mining expenditures.

We can therefore assume that any economic downturn in a truly free market is temporary and usually related to the fact that it takes time to adjust to new conditions. If, for example, people start hoarding gold and silver, it takes some time until prices start to fall, and thereafter it takes some time for gold and silver mining companies to start to increase their spending. That time lag is what we call a recession.

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