Abstract for: Understanding Contingencies of Say’s Law of Markets

Jean Baptiste Say’s controversial proposal of supply fueling demand stands out as an abstract concept among other classical models of economic growth and limits that discussed in detail how everyday behavior of producers and consumers sets an invisible hand into motion. There indeed are many contingencies underlying the so-called Say’s law which are often ignored by the controversies. This short paper attempts to understand those contingencies and their relevance to economic policy using system dynamics modeling and computer simulation. A parsimonious model of the macroeconomic system is constructed and the gain of the growth process subsumed in it calculated. The limiting assumptions of the model are relaxed by adding structure for market dynamics and altering parameters. Simulation experiments with each change are interpreted. Say's Law seems to hold when assumptions pertaining to market equilibrium are relaxed, but its performance is highly sensitive to the functional distribution in the economy.It may not give carte blanche to supply side interventions nor refute demand side policy but should caution against their indiscriminate use. System dynamics modeling and computer simulation add great value to understanding the contingencies that have fueled unnecessary controversies. The value of Say’s law to economic development policy lies in understanding its contingencies. Supply side interventions in the face of low wages and widespread poverty may not stimulate the economy. Indiscriminate hiring by governments for income support may only reduce the production capacity by excluding so hired personnel from productive workforce. Defensive expenditures might likewise curtail production capacity while expanding demand, both creating inflation.