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asked ago in General Economics Questions by (240 points)
Keynes has disapproved the say's law "supply creates its own demand" but I want to know if there is any empirical evidence that this law doesn't hold true? Theoretically, keynes successfully disapproved it by stating that if supply is there and no demand follows or demand doesn't rise in proportion to the supply then inventories will build up and producers will be forced to cut price and halt production and then we will have slowdown. But does this hold true?

The reason for my curiosity is if look at things whether in realm of society or business, supply does create its own demand. For eg - Every new invention or technological breakthrough ranging from Ipod to computers, e commerce to MOOCs, they are first supplied and then demands build up. If I may also put it in abstract terms also then it seems to hold valid. For eg - The more we love, the more generous we are, the more gratitude we supply from our own side the more we find we are capable to render. In my opinion only by consistently supplying goodwill or any good thing can we hope to increase the substantive over superficial in our individual lives and in the collective dream called culture.

1 Answer

+1 vote
answered ago by (2.6k points)
I recommend you to read my last work, which I uploaded here.

Supply creates its own demand. That's right. But what Keynes explains is that because of propensity to consume and other factors, demand created by supply is not enough to consume all output. So companies tend to halt production and cut prices. Both theorical approaches are valid. Supply creates demand and demand support supply.

Kind regards.
commented ago by (180 points)
Hello,

Could you provide some reasons why supply creates demand? I have been reflecting on this topic for a couple of days now and it seems to me that supply follows demand. It is worth noting that my idea only holds if we make no distinction between necessity and demand.
Let me illustrate my theory:

Individuals and societies always have natural needs. For example, washing clothe, drinking water or moving from one place to another. When people developed the need to wash their clothe they were probably going to the nearest river or body of water and scrub the dirt away by hand or something primitive of that sort. This method was very inefficient and physically demanding, as the individuals (probably women) had to dedicate a lot of time of their day to walk to the body of water and hand-wash every piece of clothe. Then, a creative and entrepreneurial individual observed the necessity for more efficient ways to wash clothe and decided to start working on some tool that would fulfill this need. He or she created the washing bat and the washing board, which created demand for those tools, and then went on even further to invent the washing machine which created demand for that specific technology. So, the supply of the washing machine created a demand for the washing machine but, in my opinion, no one would have ever invented such a technology if not for the existence of the need for better ways to wash clothe. In this case Supply arises from this necessity, which I see as the same thing as demand.

What are your opinions on this idea? Please ignore the facts of the story as this was not meant to be an illustration of the history of laundry but rather the idea was used to illustrate the main point I am trying to make. Supply arises from a necessity. Now, as I mentioned at the beginning of this post, if necessity is considered demand then I would argue that demand creates general supply. Then, some bright person goes on to develop some great technology to fulfill this need and thus creates demand for that specific item or technology, but the demand for something of that sort was already there. In other words, there is a demand for necessity goods that create supply, and then supply creates a demand for wants (which are goods people want but not necessarily need, like we need to drink water but not from an eco-friendly aluminum bottle).

Looking forward to a debate on the topic.

Kind regards.
commented ago by (2.6k points)
Hello Mr. Gonzalez.

Economically, there has to be a supply that produces goods to give wages to workers and create an "economic" demand in form of money. It's clear that you can't consume anything if you don't work or don't get any kind of monetary resource. Thus, there are always things that the society needs and there are an economic system that push people into improve the society in exchange of those goods and services provided by others. In this case, I think that the demand for washing machines can push investment into that production only if there are other suppliers who created their own demand.

Concerning desires and needs, nowadays there are a lot of companies that create new needs and desires for consumers that they had never thought of. Maybe those needs and desires are in our human nature, as a smartphone (communication with others) or an electric car (reducing carbon emissions because our climate is in danger). So in conclusion, I think that economically, supply always creates demand but in our human nature there are needs and desires that push entenpreneurs to create new goods and services.

Kind regards.
commented ago by (180 points)
Hello Mr. McConell,

I see your point and I understand the difference you draw between needs and demand. Needs may be an intrinsic source of motivation for entrepreneurial individuals in society who then go on and create something out of this motivation, which in turn creates the demand for that good or service. Indeed, many companies are creating "artificial" needs nowadays, specially in fashion. I agree that we all have some needs and desires but I doubt that having to change a pair of jeans every couple of months is one of those :)

Thank you, I appreciated the discussion.

Regards.
commented ago by (2.6k points)
Haha. Yes I agree with you. Anyway there is always confidence that comes from others' thoughts about you.

Kind Regards
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