Definition
Say's Law, named after the economist Jean-Baptiste Say, is the classical idea often summarized as supply creates its own demand. The claim is that producing goods generates income, in the form of wages, profits, and rents, which is then spent on other goods.
The deeper point is that people produce in order to consume. Production is the source of the purchasing power that demand requires, so a general, lasting shortage of demand should not be possible.
Why it matters
How it works
In Say's view, money is a medium of exchange, not a final goal, so income earned in production is ultimately spent or invested. Particular goods may be oversupplied, but the economy as a whole cannot suffer a permanent demand shortage, since every sale funds a purchase.
The Keynesian critique argued that people can hold money rather than spend it, especially in uncertain times. When desired saving exceeds investment, aggregate demand can fall short of potential output, opening a recessionary gap, which Say's Law had treated as impossible.