Say's Law, Time Value and the Secondary Market Problem

The subject of this post deserves a lot more attention than I'll be able to give it today. However, at least these thoughts serve as a renewed starting point, in response to Say's Law "denial" reasoning. While I've not found the typical objections of recessionary "general gluts" or withheld savings particularly compelling, what amounts to a secondary market for time based knowledge product, is compelling, in terms of employment and shifts in output.

When classical economists were still advancing their arguments, many forms of services were scarcely enough of a marketplace component to be taken seriously. And "unproductive" though the knowledge based employment of these earlier economists might have been (according to their own language), their observer role was invaluable. These early understandings of wealth formation, also made it possible to determine what was responsible, for the progression of supply and demand from a given point in time.

Whereas now, the extensive nature of services product in the marketplace, makes this process more difficult to discern. Some problems in this regard are apparent in an Investopedia interpretation, which includes a bit of wishful thinking:

According to Say's Law, when an individual produces a product or service, he or she gets paid for that work, and is then able to use that pay to demand other goods and services.

What's at stake in the above quote? For instance, does this individual's production generate product which represents a new addition to output? Or, is he or she compensated via redistribution, instead of the proceeds from new product? Another consideration: to what degree does one's spending patterns contribute to new product formation, versus other forms of consumption? Asymmetric compensation for time based product on the terms of a secondary marketplace for time value, does not advance the cycle of new supply and demand. Instead, asymmetric compensation provides some means to maintain the marketplace which already exists.

Regular readers may recall my defense of Say's Law from earlier posts, and I apologize for letting too much time get by before making a closer examination of the secondary market problem. Is cynicism or ridicule of Say's Law warranted? I want to say "no", but who really envisions a new unit of tradable goods value as a guarantor of equal value in time based service product - if indeed that is what is sought?

Despite the fact money equally represents goods and services, this does not mean goods and services are automatically interchangeable, in aggregate. As a secondary market, time based service product corresponds to disposable income or redistribution, instead of the broader coordination which takes place via today's tradable sectors. Consequently, it's not possible for asymmetrically compensated time based services, to hold a dominant or wealth originating market position, in the same sense as tradable goods.

Again, as someone who wants Say's law to remain a valid construct, I continue to promote the potential of time based services as a primary market, to address the problem of balance between tradable and non tradable sectors which presently inhibits growth and employment. Also, the Wikipedia quotes below serve as a reminder, just how different the marketplace really was when Say's Law was envisioned:

"A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value...As each of us can only purchase the productions of others with his own productions - as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase." Say further argued that a general glut (the term used in Say's time for a widespread excess of supply over demand) cannot occur. If there is a shortage of one good, there must be unmet demand for another. "If certain goods remain unsold, it is because other goods are not produced. 

I wish I could shout those last two sentences from the rooftops. Despite current services based wealth, there is not enough aggregate participation in the form of production and consumption, for time based services product. As a result, demand for the product of tradable sectors is also lacking.

And the first part of the above quote echoes my description of primary markets, which today happen to be the tradable sectors which serve as a point of wealth origination. In these markets, the value of each product, can readily be met by that of another new product. Time value could accomplish this same function, should symmetric compensation create time based services product in a quantifiable form. However, when time value exists solely as a partial and secondary market, that lack of representation distorts the actual contribution of time based product in the marketplace. This service formation also appears as relative inflation, in contrast with the good deflation of manufacture and tradable sector production.

Fortunately, one process for bringing time value into accordance with Say's Law, is also a process which makes it possible to quantify productivity for time based services product. However, in order to do so, time value needs to be utilized as the standard unit of measure it actually represents, in relation to itself. Once time value is coordinated along a continuum, it becomes possible to match (purchase) new time based product with other (newly emerged) time based product.

Granted, there are plenty of well reasoned arguments against symmetric compensation as an economic option. At this point, however, rationale re underlying differences in ability, could further derail long term growth patterns. Even though aptitude widely varies, it no longer makes sense to purposely exclude individuals from the workplace. Long term growth and gains in output remain possible, through greater economic inclusion.