Supply creates its own demand
Encyclopedia
"Supply creates its own demand" is the formulation of Say's law
by John Maynard Keynes
, and is considered by him one of the defining characteristics of classical economics
. The rejection of this doctrine is a central component of The General Theory of Employment, Interest and Money (1936) and a central tenet of Keynesian economics
.
Keynes's rejection of Say's law is on the whole accepted within mainstream economics
since the 1940s and 50s, in the neoclassical synthesis
, but debate continues between more Keynesian economists and more neoclassical
economists – see saltwater and freshwater economics.
The exact phrase "supply creates its own demand" does not appear to be found in the writings of classical economists; similar sentiments, though different wordings, appear in the work of John Stuart Mill
(1848), whom Keynes credits and quotes, and his father, James Mill
(1808), whom Keynes does not.
Keynes's interpretation is rejected as a misinterpretation or caricature of Say's law by proponents of same – see Say's law: Keynes vs. Say – and the advocacy of the phrase "supply creates its own demand" is today most associated with supply-side economics
, which retorts that "Keynes turned Say on his head and instead stated that 'demand creates its own supply'".
Keynes then restates this in the language of Keynesian economics as:
Keynes does not cite a specific source for the phrase, and, as it does not appear to be found in the pre-Keynesian literature, some consider its ultimate origin a "mystery". The phrase "supply creates its own demand" appears earlier, in quotes, in a 1934 letter of Keynes, and has been suggested that the phrase was an oral tradition
at Cambridge, in the circle of Joan Robinson
, and that it may have derived from the following 1844 formulation by John Stuart Mill:
Say's law
Say's law, or the law of market, is an economic principle of classical economics named after the French businessman and economist Jean-Baptiste Say , who stated that "products are paid for with products" and "a glut can take place only when there are too many means of production applied to one kind...
by John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
, and is considered by him one of the defining characteristics of classical economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....
. The rejection of this doctrine is a central component of The General Theory of Employment, Interest and Money (1936) and a central tenet of Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
.
Keynes's rejection of Say's law is on the whole accepted within mainstream economics
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...
since the 1940s and 50s, in the neoclassical synthesis
Neoclassical synthesis
Neoclassical synthesis is a postwar academic movement in economics that attempts to absorb the macroeconomic thought of John Maynard Keynes into the thought of neoclassical economics...
, but debate continues between more Keynesian economists and more neoclassical
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
economists – see saltwater and freshwater economics.
The exact phrase "supply creates its own demand" does not appear to be found in the writings of classical economists; similar sentiments, though different wordings, appear in the work of John Stuart Mill
John Stuart Mill
John Stuart Mill was a British philosopher, economist and civil servant. An influential contributor to social theory, political theory, and political economy, his conception of liberty justified the freedom of the individual in opposition to unlimited state control. He was a proponent of...
(1848), whom Keynes credits and quotes, and his father, James Mill
James Mill
James Mill was a Scottish historian, economist, political theorist, and philosopher. He was a founder of classical economics, together with David Ricardo, and the father of influential philosopher of classical liberalism, John Stuart Mill.-Life:Mill was born at Northwater Bridge, in the parish of...
(1808), whom Keynes does not.
Keynes's interpretation is rejected as a misinterpretation or caricature of Say's law by proponents of same – see Say's law: Keynes vs. Say – and the advocacy of the phrase "supply creates its own demand" is today most associated with supply-side economics
Supply-side economics
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing...
, which retorts that "Keynes turned Say on his head and instead stated that 'demand creates its own supply'".
Keynes's formulation
Keynes coined the phrase thusly (emphasis added):Keynes then restates this in the language of Keynesian economics as:
Other sources
Another source widely cited as a classical expression of the idea, and the original statement of Say's law in English, is by James Mill, in Commerce Defended (1808):Keynes does not cite a specific source for the phrase, and, as it does not appear to be found in the pre-Keynesian literature, some consider its ultimate origin a "mystery". The phrase "supply creates its own demand" appears earlier, in quotes, in a 1934 letter of Keynes, and has been suggested that the phrase was an oral tradition
Oral tradition
Oral tradition and oral lore is cultural material and traditions transmitted orally from one generation to another. The messages or testimony are verbally transmitted in speech or song and may take the form, for example, of folktales, sayings, ballads, songs, or chants...
at Cambridge, in the circle of Joan Robinson
Joan Robinson
Joan Violet Robinson FBA was a post-Keynesian economist who was well known for her knowledge of monetary economics and wide-ranging contributions to economic theory...
, and that it may have derived from the following 1844 formulation by John Stuart Mill: