A Pleasure to Serve

The previous installment of “Economics for English Majors,” on the subject of comparative advantage and its role in producing gains from trade, emphasized the cooperative nature of the market economy: Cooperation in the form of specialization and the division of labor produces wealth and abundance beyond what each of us could do on our own, while an ethos of narrow self-sufficiency produces poverty and shortages. If you want to make a ham sandwich with no help from anybody else, be prepared to wait a long time for your croque-monsieur—turning seed grain into bread takes a long time—and be prepared for it to be the most expensive sandwich you’ve ever heard of. 

In reality, even the most ruthlessly competitive capitalist is entirely dependent upon partners who produce the raw materials and tools he needs to do his work—and they, in turn, are dependent upon him for whatever it is he produces. Looked at with the right kind of eyes, capitalism is the opposite of the cartoon Social Darwinism of the anti-capitalist imagination—it is based on an understanding that we are, after all, in this together. 

“That sounds a little too close to, ‘You didn’t build that!’” some of you protested. But if my presentation of comparative advantage sounded like goo-goo socialist horse pucky to you, wait until you hear about this week’s subject: Say’s Law, sometimes summarized (clumsily, in my view) as the principle that “supply creates its own demand.” 

Like comparative advantage, Say’s Law is often misunderstood, and at times it is intentionally misrepresented by those who do not like its implications. Whether Say’s Law is coherent as a technical economic matter is, in fact, a lively issue, one that typically breaks down along tribal cleavages: Free-market types tend to be better disposed toward it, while capitalism-skeptical would-be social engineers reject it in part because it complicates their political ambition to follow a policy of “fine tuning” the economy, particularly through neo-Keynesian monkeying around with “aggregate demand.” 

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