What are the implications of the Say's Law

                

        Implications of the Say’s Law:

Prof. Mahendra Kumar Ghadoliya

1.      Over Production and Unemployment: According to Say’s law general over-production and general unemployment are logical impossibilities. As production increases, incomes of the concerned factors increase. As a result new demand is created and the increased stocks sold off in the market.

2.      Automatic Adjustment: Supply creates its own demand and therefore the sufficient purchasing power arrives in  the market before the product comes in. In other words every output brought into existence injects an equivalent amount of purchasing power in circulation which is sufficient for its sale. Thus, there is no need for any external force to jump in or intervene in the automatic functioning to price mechanism.

3.      Employment to Unemployed Resources: It is always profitable to employ the unemployed labour force (resources) because they help in increase in production in the economy. As such, the size of national income increases and it becomes possible to pay the unemployed factors out of it.

4.      Interest and wage rate flexibility: As per the law savings and investment equality is guaranteed through changes in the rate of interest. In fact the mechanism of flexibility brings about the desired equality. Similarly, the flexibility in wages guarantees the full employment in the economy.

5.      Absence of any Role of Government: In the Say’s Law no role is envisaged for the government. Economic system is automatic and self-equilibrating. As such according to this law government should leave the economic forces free to adjust and government should not interfere in the free functioning of the market forces.

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