Posts Tagged ‘Benefit Societies’

Jess on Say’s Law and the Tory Denial that Increase in Food Banks Represents Genuine Demand

April 20, 2014

Jess, one of the commenters on this blog has posted a detailed critique of the economic law behind the Tories’ refusal to admit that the rise in food banks is due to a massive increase in poverty. The Tories cannot admit that there is mass starvation in this country due to their austerity campaign. They therefore claim instead that food banks are increasing simply because there are more food banks, and their mere existence attracts more customers.

In her comment to Mike’s post on Vox Political, ‘Food bank blow is new low for the Mail on Sunday’, Jess attacks this assertion, and shows that it is based on Say’s Law, an economic doctrine that has now been comprehensively refuted in the form it has been adopted under Lord Freud to justify the attacks food banks. She states

“Another claim – that “volunteers revealed that increased awareness of food banks is driving a rise in their use” is unsubstantiated, and is clearly an attempt to support the government’s claim that this is the case. But it is silly. Of course starving people will go to a food bank after they have been told it exists; that doesn’t mean they aren’t starving.”

The DWP appear to be pushing this line rather hard, as their response to the public’s growing awareness of the scandal of food banks. Their argument, based on Say’s Law, is utterly fallacious, and they must know it is.

Say’s Law, roughly formulated, is “”Supply creates its own demand”[http://en.wikipedia.org/wiki/Supply_creates_its_own_demand].
In the present context it seems to have been first invoked by Lord Freud, and then taken up by his department.

It will be familiar to most people through its mention by Keynes in his ‘General Theory’;
“From the time of Say and Ricardo the classical economists have taught that supply creates its own demand; meaning by this in some significant, but not clearly defined, sense that the whole of the costs of production must necessarily be spent in the aggregate, directly or indirectly, on purchasing the product.” [http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch02.htm]

But even the free marketeers regard Freud’s interpretation of Say as ridiculous;
“W. H. Hutt once referred to Say’s Law as the most fundamental ‘economic law’ in all economic theory. In its crude and colloquial form, Say’s Law is frequently understood as supply creates its own demand, as if the simple act of supplying some good or service on the market was sufficient to call forth demand for that product. It is certainly true that producers can undertake expenses, such as advertising, to persuade people to purchase a good they have already chosen to supply, but that is not the same thing as saying that an act of supply necessarily creates demand for the good in question. This understanding of the law is obviously nonsensical as numerous business and product failures can attest to. If Say’s Law were true in this colloquial sense, then we could all get very rich just by producing whatever we wanted.” [http://www.fee.org/the_freeman/detail/understanding-says-law-of-markets]

How then, did this silly ‘aphorism’ creep into the language of the DWP?

One route may have been through the IEA and it’s then Director David G Green.. He wrote a couple of pamphlets in the late ’90′s advocating the demolition of Social Security, and a return to the Friendly Societies of Victorian England [Benefit dependency : how welfare undermines dependency.1998; An end to welfare rights : the rediscovery of independence 1999]

Most people, at the time, thought Green was ‘off his trolley’, It is tragic that Say, and Green is being used to attack food banks. The last refuge of the destitute.

This last paragraph, where she mentions IEA and its director, David G Green, is also important. I remember back in the 1990s the Daily Mail criticising the establishment of the modern welfare state for the way it sidelined the Friendly Societies. The Daily Mail had clearly been influenced by Green’s bonkers views, and it shows just how extreme and reactionary the Mail is.

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