11
Aug
Jean Baptiste Say
Every Tuesday I offer up a classic proverb and decide whether it is relevant to modern business.
Today’s proverb:
“Supply creates its own demand.”
Attributed as Say’s Law, this is often refuted in Economics as a complete mistake. But there are some examples that may suggest it is true:
- Before the Wii, there wasn’t a known demand for video games for those who didn’t already play (and they would often decry them as a bad thing.)
- Before the iTunes App Store, was there a demand for fart noises on your phone?
- Before Twitter, was there a demand for knowing what everyone is doing in realtime?
The truth of Say’s Law seems to be in the definition of demand. If demand is defined as what people say they would buy, Say’s law seems to be accurate. Or perhaps marketing creates demand. Thoughts?
1
August 11th, 2009 at 11:09 am
Say was a great economist but I tend to side with the Keynesians and argue that demamnd plays a more crucial role than supply in a modern monetary economy. In the Wii example for instance, if people did not actually want (demand) it (i.e the wii), I doubt that the product would have been successfull. The manufacturers must done some sort of market research and correctly determined that there was a need for the product.
I just do not see how one can manufacture a product and simply expect people to embrace it. Also, the main course inflation in an economy is due to an excessive money supply in the system. If the demand for money is met with an equal money supply, then inflation would not happen in the first place. Unless you still live in the Middle Ages where the barter system ruled, then supply does not create demand.