Implication of Says Law for the Operation of a Free-Market Economy - Essay Example

The paper "Implication of Say’s Law for the Operation of a Free-Market Economy" is a good example of a macro & microeconomics essay. The Say’s law of markets is fundamental for the classical theory of employment. J.B Say, a French Economist enunciated the concept, supply creates its own demand.’ According to this theory or proposition, there can never be a general overproduction as well as unemployment problem in the economy. In case there is a general overproduction in the economy, there will be forced retrenchment or lay off of some labors. Accordingly, some unemployment problem may occur in the economy. As reflected in the theory, the economy will automatically tend towards full employment in the long-run. It is, therefore, the production that establishes a market for the commodities according to Say’s Law. A product is no sooner produced, than it from that moment, gives a market for the other product to the full degree of its own value. There is nothing favorable to the demand for a single product, compared to the supply of another product. The implication of these facts can therefore be explicated using the following sub-headings:

Production Creates Market (Demand) for Goods

According to this theory, where produces acquire the different factor inputs employed in the production process, there is a generation of required or necessary income. For instance, the producers pay wages to the workforce for the production of goods. The worker has received their payments, will in turn buy the goods from the market for individual consumption. Subsequently, the process culminates in the creation of demand for the products already produces by the producers. In this regard, the supply is said to have created its own demand.

Barter System as its Basis

The Say’s law originally applies to a barter economy in which the goods are eventually exchanged for other goods. Every good that is produced in the process of production is eventually used up in the economy as the law views the production of goods to sustain the levels of consumption. The Law. In its broadest perspective, describes the free-exchange market or economy.