Macroscope | French economist's long-forgotten demand theory gets its due after new US policy
JB Say’s message was that a demand failure could not cause an economic slump
In late April this year, the Bureau of Economic Analysis (BEA) at the US Department of Commerce announced that it would start reporting a new data series as part of the US national income accounts.
In addition to gross domestic product (GDP), the BEA will start reporting gross output (GO). This announcement went virtually unnoticed and unreported.
Yet GO represents a significant breakthrough.
The Classical School of economics prevailed roughly from Adam Smith’s Wealth of Nations time (1776) to the mid-19th century. It focused on the supply side of the economy. Production was the wellspring of prosperity.
The French economist JB Say (1767-1832) was a highly regarded member of the Classical School. To this day, he is best known for Say’s Law of Markets. In the popular lexicon – courtesy of John Maynard Keynes – this law simply states that “supply creates its own demand”.
But, according to Steven Kates, one of the world’s leading experts on Say, Keynes’ rendition of Say’s Law distorts its true meaning and leaves its main message on the cutting room floor.
