MAHARASHTRA NATIONAL LAW UNIVERSITY, MUMBAI

IN THE SUBJECT ECONOMICS - II

TOPIC: - CRTICAL ANALYSIS OF SAY’S LAW OF MARKET

FRIST DRAFT/ SYNOPSIS

ENROLMENT NO: - 2019 021

ROLL NO: - 19

SUBMITTED TO: - SUBMITTED BY: -

PROF. ROHIT JADHAV ANAND BHOMA
PROF. BOBBY GEORGE
 INTRODUCTION
Say’s law of Markets is one of the important elements of classical economics. This law has been
contemplated by J.B. Say, who was a French economist and the first to state the law in a systematic
form. The classical theory is bases on Say’s Law of Markets. The theory provided the basic
condition on which the macro economic framework of classical theory is based. Classical
economist believed that the economy will achieve its full employment automatically by the free
flow of the market forces without the state’s intervention.

Jean Baptist Say in his book ‘Treaties on political economy’ wrote about the law relating to the
market. Briefly stating, the law stated that ‘supply creates its own demand.’ In the words of J.B.
Say “It is production which creates market for goods.” According to J.B. Say there cannot be
general overproduction or general unemployment on account of the excess of supply over demand
because whatever is supplied or produced is automatically exchanged for money.

J.B. Say believed that whenever additional production takes place in the economy, the necessary
purchasing power is also generated at the same time to absorb the additional supply; Thus, there
is no scope that supply exceeds demand leading to unemployment. This law was the basis of the
assumption of full employment in the economy which itself rested on the assumption that income
is spent automatically at a rate which will always keep the resources fully employed.

J.B. Say popularized the idea of Adam Smith in the European continent especially in France. His
law of market was described as having had the status of article of faith with classical economists
for over a hundred years is the formal expression of h idea that widespread and involuntary
unemployment because of general over-production is impossible. To say that in other words, there
cannot be any involuntary unemployment because of a deficiency of effective demand or total
demand.

Say believed that during the process of production necessary power is generated which absorbs
the additional supply, for e.g., when a new car is manufactured, necessary purchasing power is
simultaneously generated in the form of wages, profit etc. so that the car is used. Hence there is no
possibility of the aggregate demand to become deficient.
 REVIEW OF LITERATURE.
Skinner1: In this article the researcher has given an detailed analysis about how J.B. Say came
with the law of Market. He has also researched up how the other classical economist reacted to
the aforesaid law and what led to acceptance of this law by almost all the classical economist. He
has provided with a detailed relationship of the law with production power and aggregate
demand. In the article the researcher has critically examined all the assumptions and exception of
the law and also has researched on the effects of money being introduced as a mode of exchange
instead of barter system.

Steven Kates2: In this article the researcher has researched about how the meaning of Say’s Law
seems as an issue of little relevance to economists and why it is only found on face or in interest
of the classical economists. HE has also researched about how the law was refuted by John
Maynard Keynes. The article talks about how the disappearance of the guiding principles
underlying Say’s Law has grievously damaged our understanding of economic process.

Neisser H3: According to him, J. B. Say's Law of Markets has been widely accepted by
economic theorists, even though Say's contention of the impossibility of general overproduction
and glutting of markets seemed contradicted by the recurring experiences of severe crises. The
presence of general over- production, however, so impressed Say that he felt compelled to
introduce modifications of his theory, which destroyed its inner consistency.3 This he did by
defining "production," not in the usual sense of physical output of goods and services but only as
the production of goods of which the sales receipts cover the costs. Thus, Say reduced his Law of
Markets to a meaningless tautology.

1
Skinner, A. (1967). Say's Law: Origins and Content. Economica, 34(134), new series, 153-166.
doi:10.2307/2552481
2
Kates, S. (1997). On the True Meaning of Say's Law. Eastern Economic Journal, 23(2), 191-202. Retrieved March
27, 2020, from www.jstor.org/stable/40325770
3
Neisser, H. (1934). General Overproduction: A Study of Say's Law of Markets. Journal of Political
Economy, 42(4), 433-465. Retrieved March 27, 2020, from www.jstor.org/stable/1823331
 AIMS AND OBJECTIVE
1. To study how the Say’s Law of Market was formed and what were the bases of the Law.
2. To understand the assumptions, exceptions, limitations and effects of the Law.
3. To understand the effect of adoption of money as a medium of exchange instead of barter
system.

RESEARCH METHODOLOGY
In this project the researcher has used the secondary method of research. Secondary research or
desk research is a research method that involves using already existing data. Secondary research
includes research material published in research reports and various books. Some governmental
and non-governmental agencies also store data which can be used for research purposes and can
be easily retrieved from their website. The researcher has used this method because most
information in secondary research is readily available and moreover this a less expensive and less
time-consuming process. Moreover, in this method existing data is summarized and collated to
increase the effectiveness of research.
 CHAPTER SCHEME

1. Introduction:
In this Chapter, the researcher will give the brief introduction of the Law and various aspects
of it. The researcher will explain the assumptions, exceptions and the limitation of the law and
critically analyze the Law.

2. Review of Literature:

In this chapter, the researcher will explain about the articles, books, research papers etc. written
by various authors on macro-economics and Say’s Law of Market. The researcher will cite
various articles, books, research-papers etc. in this chapter and try to understand various
aspects of the Law.

3. Classical theory of aggregate demand based on Law:

In this Chapter, the researcher will explain the theory of aggregate demand based on the law.
The researcher will try to understand that how the demand works in the market according to
the Law and explain various aspects of it.

4. Criticism of the Law.

In this chapter the researcher will explain the criticism to the law done by economists. Many
economists like Keynes criticized the law and explained its failures.

5. Conclusion:

In the Chapter, the researcher will draw a conclusion of his research and the analysis of various
aspects of law through various sources like articles, books etc.