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Question
Critically explain Say’s law of market.
Short/Brief Note
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Solution
- According to Keynes, supply does not create its demand. It is not applicable where demand does not increase as much as production increases.
- Automatic adjustment process will not remove unemployment. Unemployment can be removed by the increase in the rate of investment.
- Money is not neutral. Individuals hold money for unforeseen contingencies while businessmen keep a cash reserve for future activities.
- Say’s law is based on the proposition that supply creates its own demand and there is no over production. Keynes said that over production is possible.
- Keynes regards full employment as a special case because there is under–employment in capitalist economies.
- The need for state intervention arises in the case of general over production and mass unemployment.
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Classical Theory of Employment
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