Governments around the world have been trying to fix the impact of the financial crisis with a Keynesian “prime the pump” model. In other words, when spending slows use government money to keep cash circulating or increase the supply of money. This assumes that when money reaches our hands, we spend it and the economy grows again. The focus is on creating demand.
Way back in the early 1800s Frenchman Jean-Baptiste Say described economics as supply-driven. You produce goods to buy goods. You only see unemployment emerge when you start to produce the wrong goods. The economy needs to restructure what it produces to get out of the subsequent downturn.
In this edition of BTalk Dr Steven Kates, from the RMIT School of Economics, Finance and Marketing, explains more about the principles of Says classical approach to economics, and questions the stimulus measures adopted by governments around the world over the last 70 years or so. He has written two books on the subject: Say’s Law and the Keynesian Revolution (1998) and Two Hundred Years of Say’s Law (2003).