Part one here. The gist: Steve Horwitz wrote an exposition of Say’s Law that mixed in cheerleading for banks printing money. In Part One, I pointed out some flaws. Here are some more. Quotes in italics, my comments in normal font.
Because all market exchanges are of goods or services for money, all markets are money markets…
Yes, you could say that. Let’s see what he concludes from it.
…and the only way there can be an excess supply or demand for goods is if there is an opposite excess supply or demand for money.
To illustrate, say a reader of this humble blog gets very enthusiastic about Smiling Dave. He is certain that Dave will go viral, and that there’s a lot of money to be made marketing Smiling Dave. So he spends millions investing in Smiling Dave T-shirts, stationary, smiley buttons, and the Little Blue Book of Dave’s Pithy Sayings.
One day Dave visits his fan. Fan looks glum. Tapping Fan’s shoulder and muttering “There, there” is Steve Horwitz.
“What happened,” asks Dave? “Why so glum, Fan?”
“I’m broke. Nobody is buying my Smiling Dave gear.”
“But why?” asks Dave.
“There’s a new fad on the internet, Scowling Stan. Scowls are in, smiles are out. Woe is me.”
Dave looks it up on the internet, and sure enough, Scowling Stan is hot. Scowly shirts and all things scowl are selling like hotcakes.
“Looks like you malinvested, Fan. You guessed wrong about the market.”
Steve Horwitz looks up. “That’s not what hapenned at at all,” he says. There is just an excess demand for money. That’s why there is an excess supply of Smiling Dave stuff.”
“Wait, what? Are you really saying that, Steve?”
“Sure am. Why don’t you quote me a little more, for real? From my analysis of Say’s Law.”
Take the more obvious case of a glut of goods [= too many Smileys], such as one might find in a recession. Say’s Law, properly understood [= the way I, Steve Horwitz, properly understand it], suggests that the explanation for an excess supply of goods is an excess demand for money. Goods are going unsold because buyers cannot get their hands on the money they need to buy them despite being potentially productive suppliers of labor.
I mean, seriously.
Now, don’t think I was smart enough to make up the case of Scowly Stan on my own. The idea of malinvestment is from Mises. Readers of Mises.org know all about it, how Mises claims it is the cause of recessions [not Horwitz's idea of buyers not being able to get their hands on money because everyone has suddenly pushed their cash under a mattress, which never happens], and how it is the basis of ABCT [=Austrian Business Cycle Theory]. Steve Horwitz knows all this, and claims to understand it and believe it.
Furthermore, Say originally wrote his Law precisely for the purpose of refuting Horwitz’s notion. Horwitz is not the first to come up with it. Ignorant people back in Say’s time were making the same mistake. So Horwitz is basically claiming that the “properly understood” version of Say’s Law is the denial of Say’s Law. Hello, Bizzaro World.
Here’s Say himself speaking. It’s from the famous Chapter 15 of his book, and he’s laying out the background before he enunciates his famous law [all emphasis mine]:
OF THE DEMAND OR MARKET FOR PRODUCTS.
It is common to hear adventurers in the different channels of industry assert, that their difficulty lies not in the production, but in the disposal of commodities; that products would always be abundant, if there were but a ready demand, or market for them. When the demand for their commodities is slow, difficult, and productive of little advantage, they pronounce money to be scarce; the grand object of their desire is, a consumption brisk enough to quicken sales and keep up prices. But ask them what peculiar causes and circumstances facilitate the demand for their products, and you will soon perceive that most of them have extremely vague notions of these matters; that their observation of facts is imperfect, and their explanation still more so; that they treat doubtful points as matter of certainty, often pray for what is directly opposite to their interests, and importunately solicit from authority a protection of the most mischievous tendency.
There you have it. The whole reason Say wrote his law in the first place is to show why Steve Horwitz is wrong.
Let’s gild the lily and set up an imaginary dialogue between Steve Horwitz and J. B. Say, using actual quotes from each in italics, and made up quotes in normal font:
Steve: Say’s Law, properly understood, suggests that the explanation for an excess supply of goods is an excess demand for money. Goods are going unsold because buyers cannot get their hands on the money they need to buy them…
Say: When the demand for their commodities is slow, difficult, and productive of little advantage, they pronounce money to be scarce.
Steve: Glad you properly understand your own law, J. B. I see we are on the same page. Money is scarce, buyers cannot get their hands on money, that’s what causes recessions.
Say: Your opinion is precisely the one I think is wrong. I wrote of those who blame recessions on scarcity of money that their observation of facts is imperfect, and their explanation still more so. The whole point of my law was to show why your explanation is, to put it mildly, “imperfect”.
Steve: Yes, that’s what you wrote, and it’s wrong. You don’t properly understand your own stupid law.
Why did you hide this in your article, Steve? Why didn’t you write that Say didn’t even understand his own law?
The rest of the Horwitz article is just more in the same vein.