Supply-Side Economics

Abstract

"Supply-side economics" is a new name but what it stands for has been around for a long time. It is essentially a latter-day version of the doctrine given its classic formulation in what is known as Say's Law. It holds that in an unfettered market economy supply creates its own demand. In other words, if the system is allowed to work freely, production will generate incomes (wages, profit, and rent) which, when spent, will be just sufficient to clear the market of all the commodities produced. Two corollaries follow: (1) if there is unemployment and idle capacity, they can be automatically eliminated by an increase in production (supply); and hence (2) policy aimed at stimulating the economy need only be concerned with increasing production (or removing barriers to such an increase): everything else, including the demand for the resulting output, will take care of itself.

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