"Supply creates its own demand" is the formulation of
Say's law. The rejection of this doctrine is a central component of ''
The General Theory of Employment, Interest and Money'' (1936) and a central tenet of
Keynesian economics
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output ...
. See
Principle of effective demand, which is an affirmative form of the negation of Say's law.
Keynes's rejection of Say's law has on the whole been accepted within
mainstream economics
Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a basis for discussion. Also known as orthodox economics, it can be contrasted to ...
since the 1940s and 1950s in the
neoclassical synthesis
The neoclassical synthesis (NCS), neoclassical–Keynesian synthesis, or just neo-Keynesianism was a neoclassical economics academic movement and paradigm in economics that worked towards reconciling the macroeconomic thought of John Maynard Key ...
, but debate continues between Keynesian economists and
neoclassical economists (''see
saltwater and freshwater economics'').
Keynes's interpretation is rejected by many economists as a misinterpretation or caricature of Say's law — see
Say's law: Keynes vs. Say — and the advocacy of the phrase "supply creates its own demand" is today most associated with
supply-side economics
Supply-side economics is a Macroeconomics, macroeconomic theory that postulates economic growth can be most effectively fostered by Tax cuts, lowering taxes, Deregulation, decreasing regulation, and allowing free trade. According to supply-sid ...
, which retorts that "Keynes turned Say on his head and instead stated that 'demand creates its own supply'".
The exact phrase "supply creates its own demand" does not appear to be found in the writings of classical economists;
similar sentiments, though different wordings, appear in the work of
John Stuart Mill
John Stuart Mill (20 May 1806 – 7 May 1873) was an English philosopher, political economist, Member of Parliament (MP) and civil servant. One of the most influential thinkers in the history of classical liberalism, he contributed widely to ...
(1848), whom Keynes credits and quotes, and his father,
James Mill
James Mill (born James Milne; 6 April 1773 – 23 June 1836) was a Scottish historian, economist, political theorist, and philosopher. He is counted among the founders of the Ricardian school of economics. He also wrote ''The History of Briti ...
(1808), whom Keynes does not. See for more detailed information Kates (1998)
Say's Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way..
Other sources
Another source widely cited as a classical expression of the idea, and the original statement of Say's law in English, is by James Mill, in ''Commerce Defended'' (1808):
Keynes does not cite a specific source for the phrase, and, as it does not appear to be found in the pre-Keynesian literature,
some consider its ultimate origin a "mystery".
The phrase "supply creates its own demand" appears earlier, in quotes, in a 1934 letter of Keynes,
and has been suggested that the phrase was an
oral tradition
Oral tradition, or oral lore, is a form of human communication wherein knowledge, art, ideas and Culture, cultural material is received, preserved, and transmitted orally from one generation to another.Jan Vansina, Vansina, Jan: ''Oral Traditio ...
at Cambridge, in the circle of
Joan Robinson
Joan Violet Robinson (''née'' Maurice; 31 October 1903 – 5 August 1983) was a British economist well known for her wide-ranging contributions to economic theory. She was a central figure in what became known as post-Keynesian economics.
...
,
and that it may have derived from the following 1844 formulation by John Stuart Mill:
References
Bibliography
*{{Cite book, last=Clower, first=Robert W., editor1-first=K. Vela, editor1-last=Velupillai, editor1-link=Vela Velupillai, date=22 April 2004, title=Macroeconomic Theory and Economic Policy: Essays in Honour of Jean-Paul Fitoussi, chapter=5: Trashing J.B. Say: The Story of a Mare's Nest, publisher=Routledge, isbn=978-0-203-35650-0, postscript=., url=https://books.google.com/books?id=tzzClShefiYC
Keynesian economics
Demand