Say´s Law is a classical economics‘ principle attributed to the French economist Jean-Baptiste Say, and it holds the apparently simple statement that “products are paid for with products”, as Say puts it in his “Traité d’économie politique”, 1803. One of the implications of this statement is that there can be neither overproduction nor unemployment. Later, in 1808, Scottish economist James Mill (father of the renowned John Stuart Mill), rephrased it as “production of commodities creates […] a market for the commodities produced”, and J. M. Keynes would rephrase it (although whilst making a point against it) in his “General Theory”, 1936, as “supply creates its own demand”, which is the better known restatement.
This law became a central piece of the classical economics doctrine and even more important in neoclassical economics. However, Say’s Law was criticized by many. One of the first to refute this law was Robert Malthus, who found that capitalists did not reinvest all their profits, but instead tend to keep them. Keynes thoroughly criticized it during 1930s when it was clear that the law was not being satisfied, indicating that a preference for hoarding money on consumption could occur, in what was called as liquidity preference. This law would then be retaken by monetarism and in the New Classical Macroeconomics.