2018 Cambridge Business & Economics Conference ISBN : 9780974211428
SAY’S LAW OF MARKETS ANDINCOME INEQUALITY IN THE
MARKET ECONOMIES
By
Madina Ndefru, Ph.D.
Formerly Senior Lecturer, Economics, Bayero University, Kano, Nigeria
Currently, Adjunct Professor, Cuyahoga Community College, U.S. A.
Phone: 1 – 937 – 241-6366
July 2-3, 2018CAMBRIDGE, UK
Say’s law of markets and income inequality in the market
economies
ABSTRACT
Economists continue to focus interest on the links between rising income inequality and the
corresponding tenuous economic growth rates. Different economic models show negative causal
relationships between economic growth and income inequality. In the supply-side model, income
inequality leads to less-productive labor inputs. In the demand-side model, inequality leads to
less-robust consumption and investment. In the credit-bust model, inequality leads to an
overleveraged middle class, financial market instability, and credit bubble-and-bust cycle.
In the simplicity of Say’s Law of Markets lies a fundamental necessary condition for economic
equilibrium and stability that is still relevant for today’s market economies. According to Say,
demand is constituted by supply; firms only need to produce the maximum production
possibilities to obtain full employment. When they do, there will be sufficient spending to
purchase all the output.Recessions are caused not by a failure of demand but instead due to
problems associated with the structure of supply and hence supply-side market failures. Lop-
sided structure of market demand and supply upsets economic balance and cause more frequent
economic instability. One supply-side market failure is increasing income inequality. A free
market economy will self-correct towards full employment. By this link, Keynesian economics
serve as a continuation of the classical economists’ discourse on markets. This paper focuses on
the market failure of rising income inequality and its obstructions and increasing strangle-hold
on the operations of the modern market economies.
This study starts out with a review and interpretations of the basic tenets of Say’s Law that
include the assumption that aggregate demand could be less than potential production in the short
run. The study goes on to link these basic tenets with the Keynesian perspective in which the
saving-investment relationship is key; and that demand, rather than supply, is the key variable
July 2-3, 2018CAMBRIDGE, UK 1
that determines the overall level of economic activity. The analysis proceeds to explore and
assess the potency of the market economy options versus the government intervention options
for achieving economic growth and long run economic equilibrium as well as for creating
economic mobility.
1. INTRODUCTION
Say’s Law is predicated upon production of goods (supply) and thereby the generation of
demand in the general market economy. Say’s Law, in the perspective of “laissez-faire” classical
economics implies that free markets can operate efficiently to solve economic problems
automatically, and when production precedes demand.
Basic tenet of Say’s Law
Les citations exactes, extraites du Traitéd'économiepolitique de 1803 6eéd. (Livre I, chapitre XV,
Des débouchés), sont les suivantes :
« c’est la production qui ouvre des débouchés aux produits »;
« l’achat d’un produit ne peutêtre fait qu’avec la valeur d’un autre »;
« un produitterminéoffre, dèscet instant, un débouché à d’autresproduits pour tout le
montant de savaleur »;
« le fait seul de la formation d’un produitouvre, dèsl’instantmême, un débouché à
d’autresproduits ».
[The exact quotations, extracted from the Treaty of Political Economy of 1803 6th ed. (Book I,
Chapter XV, Outlets), are the following:
"it is production that opens up markets for products";
"the purchase of one product can only be done with the value of another";
"a finished product offers, from that moment, an outlet for other products for the whole
amount of its value";
"The fact alone of the formation of a product opens, at the same time, an outlet to other
products".(Say J. B., 1855)]
July 2-3, 2018CAMBRIDGE, UK 2
In these few lines lies a fundamental necessary condition for economic stability and equilibrium:
That production and sales generate sufficient incomes for spending on the output produced.
Hence, supply is a precondition for demand (Sowell, Say's Law: An Historical Analysis, 2015
[originally published in 1972]).
In agreement with Say, recessions are caused not by a failure of demand but instead due to
problems associated with conditions of supply; the determinants of supply that could cause
supply-side market failures. Income distribution is considered in this study as another
determinant of supply because it has been shown to impact production and economic growth
(Jonsson, 1997) and hence the impetus for this study.
Demand is constituted by supply; firms only need to produce the maximum production
possibilities to obtain full employment; when they do, there will be sufficient spending to
purchase all the output. A free market economy that is inherently capable of self-correcting will
move towards Keynesian economics full employment. Recessions are caused not by a failure of
demand but instead due to problems associated with the structure of supply and hence supply-
side market failures. Impediments in the structure of market demand and supply upset economic
balance and create frequent economic instability. Markets fail when they do not function to bring
about society’s desired outcomes.(Wolf, 1979) In today’s markets, market failure occurs when
increases in labor productivity do not lead to increases in labor demand and when the market
mechanism causes an inequitable distribution of income that further reduces consumer demand.
The ensuing decreases in total production cause increases in unemployment (and
underemployment) ultimately impedes the continuous circular flow of money (products and
resources) between sectors of the economy. (Sechrest, 2000)
Implicit in Say’s Law of markets is not only a necessary condition for economic expansion and
growth but also the preconditions for economic downturn, recession and possibly depression
such as Great Recession and the Great Depression. This postulation that production creates
demand, presupposes the necessary market conditions of productive and allocative efficiencies
and equitable distribution of income that promote economic expansion. Supply-side market
failures negatively affecting growth in aggregate supply and thereby aggregate demand in
modern market economies point directly to and strongly affirm Say’s Law. In this way, Say’s
July 2-3, 2018CAMBRIDGE, UK 3
law is at once a prescription for economic growth as well as an explanation for the lack of
growth. In this regard, one could argue, therefore, that Keynesian economics stand not in
contradiction to but as a continuation of the classical economists’ discourse on markets with
applications that explain existing market deviations from the underlying assumptions of Say’s
Law. The antecedent or mainspring of real economic activities is production with use of
productive resources and other determinants. In this paper, the determinants of production are
considered to include an equitable income distribution since income inequality has been shown
to be a despoiler of economic growth.
The research question in this study becomes does Say’s Law relate to income distribution?
Alternately, what are the implications of Say’s Law for income distribution? How does income
distribution impact production is the basis for economic growth as postulated in Say’s Law?
How is Say’s Law in defense of the invisible hand of free markets? Furthermore, is the analysis
of Say as “an ancestor of modern general-equilibrium” an adequate interpretation of him as in A
History of Economic Thought by Eric Roll?(Sechrest, 2000). These questions provide insights
that continue the theoretical extrapolation of Say’s Law. Their theoretical analysis will support
the view that “inequality and unsustainable growth are two sides of the same coin”,(Berg &
Ostry, 2011), a relationship that is established in this study to be a fundamental supposition in
Say’s Law. The methodology of analysis used is Say's approach to economics; that of an
emphasis on observing the facts of reality(Sechrest, 2000). This paper’s major contribution is
that it extends the economic discussion from production, growth and income inequality to Say’s
Law from antiquity. This is because in this analysis all three economic phenomena are
considered interrelated and, therefore, intuitive and logical implications of Say’s Law.
2. REVIEW OF LITERATURE
The historical context of Say’s Law is distinguished by the classical economics strong opposition
to mercantilism, an advocacy for laissez-faire economics and a focus on analysis of economic
growth elucidated in the writings of Adam Smith (1723 – 1790), Jean-Baptiste Say (1767 –
1832), Thomas Malthus (1766 – 1834), David Ricardo (1772 – 1823), James Mill (1773 – 1836)
and John Stuart Mill (1806 – 1873). Smith, in strong opposition to the mercantilism, argued for
economic self-interest, free competition and free trade. (Britannica, 2017).Thomas Malthus
July 2-3, 2018CAMBRIDGE, UK 4
veloped the idea that underconsumption as the cause of recession. (Wolf, 1979) The beliefs of
Malthus were revived during the Great Depression of the 1930s by John Maynard Keynes;and
James Mill expanded on Say's argument by opposing underconsumption as the cause of
economic recession. For Say, production creates wealth. John Stewart Mill emphasized the role
of savings rather than consumption in wealth-creation when he said "...to consume less than is
produced, is saving; and that is the process by which capital is increased." Classical economists
did not refer to the principle that "supply constitutes demand" as "Say's Law", but called it "the
law of markets".
A summary of the conclusions on the “Law of Markets” is given here. First, Say and other
writers emphasized the primary importance of the real sector of the economy for national
welfare, with money simply serving as an instrument to facilitate production and exchange.
Second, they rejected claims that excessive saving (or an unfavorable trade balance) would
reduce demand for home products. Third, Say, James Mill and Ricardo, following Adam Smith,
opposed the view that general lack of demand was the prime threat to prosperity, arguing that the
main obstacle is inability or unwillingness to produce? Fourth, they argued that saving, seeking
earnings goes quickly into investment in production. Fifth, they emphasized that investment does
far more for growth than demand for wasteful expenditure of resources, such as military activity
and consumption of luxuries. Sixth, they disagreed with those who feared technical change.
Though Say and Ricardo both admitted that innovation can destroy jobs in the short run, Say
emphasized historical evidence that it created jobs in the long-run.(Baumol, 1999)
The several concepts derived from Say’s Law include flexible prices, market forces of supply
and demand, market disequilibrium and equilibrium conditions, the law of demand, price signals,
the rationing function of prices and the saving-investment equality are explained in the
following: “According to Say, it was possible to have a surplus or a shortage of any specific
commodity. Production can be misdirected. Too much of some products can be produced for
which there is insufficient demand. Gluts of production did not occur through general
overproduction, but instead through overproduction of certain goods in proportion to others,
which were under produced. The market, left to its own devices, permits such imbalances to be
corrected through adjustments of prices and costs. (Younkins, 2006) This writer goes on to
regard Say’s Law as a landmark achievement of integration in economic science; an
July 2-3, 2018CAMBRIDGE, UK 5
essentialfoundation for a reality-based macroeconomic theory. It reflects the interconnectedness,
reality, and harmony of human economic behavior in a free market economy. Sayrecognized
thatproduction opens the demand for products.Production leads to more consumption rather than
the other way around. For consumers to exist there must first be producers.(Younkins, 2006).
Say is best known for "Say's Law," also referred to as his theory of markets ( lathéorie des
dedébouchés) or law of markets ( loi des débouchés ). This principle still is one of the key
building blocks of the classical school of economics. Yet, some writers have questioned the
profundity of Say's Law. Alexander Gray refers to "this theory, which perhaps does not come to
much." Even Murray Rothbard calls it a "relatively minor facet of his [Say's] thought." Most
textbooks truncate Say's Law into the transparently false proposition "supply creates its own
demand." At minimum, this should be interpreted as “aggregate supply creates its own aggregate
demand." The production, or supply, of commodities (and complementary services) in general
leads to the consumption of, or demand for, commodities (and complementary services) in
general. (Sechrest, 2000)
Classical economics, especially as directed toward macroeconomics, relies on three key
assumptions--flexible prices, Say's law, and saving-investment equality. Flexible prices ensure
that markets adjust to equilibrium and eliminate shortages and surpluses. Enough income is
generated by production to purchase the resulting production. This law directed attention to the
production or supply-side of the economy. That is, focus on production and the rest of the
economy will fall in line. Say's law further implied that extended periods of excess production
and limited demand, that might cause an economic downturn, were unlikely. Economic
downturns could occur, but not due to the lack of aggregate demand. An assumption of classical
economics is that the aggregate production of good and services in the economy generates
enough income to purchase all output. This notion commonly summarized by the phrase "supply
creates its own demand" is attributed to the Jean-Baptiste Say and although it was subject to
intense criticism by Keynesian economists, it remains relevant in modern times and is reflected
in the circular flow model. The law actually applies to aggregate, economy-wide supply and
demand. A more accurate phrase is "aggregate supply creates its own aggregate demand." This
interpretation means that the act of production adds to the overall pool of aggregate income,
which is then used to buy a corresponding value of production--although most likely not the
July 2-3, 2018CAMBRIDGE, UK 6
original production. This lawdirected attention to the production or supply-side of the economy.
It postulated a focus on production and the rest of the economy will fall in line. Say's law further
implied that extended periods of excess production and limited demand, the sort of thing that
might cause an economic downturn, were unlikely. Economic downturns could occur, but not
due to the lack of aggregate demand. The saving-investment equality ensures that any income
leaked from consumption into saving is replaced by an equal amount of investment. These three
assumptions imply that the economy would operate at full employment. (ASSUMPTIONS,
CLASSICAL ECONOMICS)
Say has sometimes been considered primarily a diffuser of Adam Smith’s thought; however, it
deviates from it in the Treaty on many points. His treatise will have an important influence on
the economists of the French classical school. Bertrand Nogaro says of the book that it was "the
first book that makes the whole of economics a didactic presentation, following a rigorous plan."
In economics, "Say's Law" (named after the French industrialist and economist Jean-Baptiste
Say (1767-1832)) is commonly known as "the offer creates its own demand". This statement is
misleadingly attributed to Jean-Baptiste Say, who advanced the law of outlets, stating it in the
form "it is the production that opens outlets for the products" or "the purchase of a product can
not to be done only with the value of another." This wording expresses that putting a good on
the market is both a demand for something else, and an opportunity for others to offer something
else to get what the first offers. To make an offer is thus to create a demand, not for the product
which has just been offered, but for the other products. The formulation "the offer creates its
own demand" was simultaneously invented, attributed to Jean-Baptiste Say and refuted by John
Maynard Keynes. By some account, it means, "the value of aggregate demand is equal to the
value of aggregate supply, for all levels of production and employment". Jean-Baptiste Say's
formulation implies that overproduction cannot be general but is necessarily sectoral, because it
necessarily corresponds to an underproduction, that of the goods that are demanded by sellers
who fail to sell their goods. The formulation of John Maynard Keynes explains that a general
overproduction is possible, since money is not only a transitional means of barter, as Jean-
Baptiste Say thinks and says, but a good that some producers may wish to use it to buy other
goods and thus without offering any demand to other producers. Therefore, it is on the role of
money that the two authors, and therefore the two interpretations, oppose each other(Mouchot &
Tiran, 2006).
July 2-3, 2018CAMBRIDGE, UK 7
3. SAY’S LAW AND THE KEYNESIAN PERSPECTIVE
In particular, the phrase "the offer creates its own demand" does not appear in the writings of
Jean-Baptiste Say.
In other words, the producer of a new product opens up new prospects for trade, on the one hand
because he offers something more to others, and thus becomes more solvent; on the other hand,
because it offers the opportunity for other producers of a new outlet for their products.
The following paragraph, extracted from the aforementioned chapter of Jean-Baptiste Say's
Treatise on Political Economy, gives a concise summary of his argument:
"It is good to notice that a finished product offers, from this moment, an outlet to other products
for all the amount of its value. Indeed, when the last producer has finished a product, his greatest
desire is to sell it, so that the value of this product does not lie in his hands. But he is no less
anxious to get rid of the money that his sale gives him, so that the value of money does not fail
either. However, one can get rid of his money by asking to buy any product. We can see that the
mere fact of the formation of a product opens, from the very moment, an outlet for other
products."(Say J. , 1880 (reprint))
The more goods produced, the more these goods can open a demand for other goods(Mouchot &
Tiran, 2006).
Chez Jean-Baptiste Say Le traité a étééditéen 2006 par Economicadansuneédition des
Œuvrescomplètes de Jean-Baptiste Say dirigée par Claude Mouchot (Mouchot& Tiran,
2006) The formulation "the offer creates its own demand" was simultaneously invented,
attributed to Jean-Baptiste Say and refuted by John Maynard Keynes. "The value of aggregate
demand is equal to the value of aggregate supply, for all levels of production and employment".
Jean-Baptiste Say's formulation implies that overproduction cannot be general but is necessarily
sectoral, because it necessarily corresponds to an underproduction, that of the goods that are
demanded by sellers who fail to sell their goods.The formulation of John Maynard Keynes tends
to explain that a general overproduction is possible, since money is not only a transitional means
July 2-3, 2018CAMBRIDGE, UK 8
of barter, as Jean-Baptiste Say thinks and says, but a good that some producers may wish to use
it to buy other goods and thus without offering any demand to other producers.
(Mouchot & Tiran, 2006) (Translation)
"Say's Law" proper
The consequence of Say's law is that there is no demand without a prior offer from the person
who expresses the request. This impliesthat -
• Growth can only be achieved by stimulating production, not consumption;
• similarly, the solution to a crisis of overproduction in a sector is not in a stimulation of the
demand for the goods it produces, but in a stimulation of the supply of the sectors which are in
underproduction (which exist necessarily) and a displacement of the means of production from
the first to the second. For example, a producer who sells his product uses his recipe to buy other
products and creates a demand for an equivalent amount through his action. Any offer is also a
demand, and to any overproduction correlates an equal and opposite underproduction (the lack of
goods that the overproducers desire but do not get): a generalized crisis of overproduction cannot
exist for economic reasons alone. .There may, however, be sectoral crises because producers
may misjudge their demand (which must match the output of other sectors) and the output of
their competitors. These results in an imbalance between two groups of goods: those produced in
too large quantities and those produced in insufficient quantities. The former then no longer find
their counterpart because of the lack of the latter, and this until the means of production move
towards the production of the missing goods, which will have the effect of correcting the
imbalance. In other words, many people have bought less, because they have earned less; and
they won less, because they found difficulties in using their means of production, or because they
missed them. "
What increases the purchasing power that people have, that is, the amount of assets they have,
like the John Stuart Mill formula quoted by John Maynard Keynes, is not the consumption of
others. is their own production. Conversely, if people experience a decline in their production, or
even a smaller increase than that in the rest of the economy, their fellow citizens will experience
overproduction.(Mouchot & Tiran, 2006)
July 2-3, 2018CAMBRIDGE, UK 9
Perspective of John Maynard Keynes
In General Theory of Employment, Interest and Money, Chapter 2, Section VI, p18, John
Maynard Keynes expresses the following, citing John Stuart Mill:
In the days of Say and Ricardo classical economists taught that supply creates its own demand; -
thereby expressing in a significant sense, although not clearly defined, that all production costs
are necessarily spent aggregately, directly or indirectly, when the product is purchased.
In John Stuart Mill's Principles of Political Economy, this doctrine is expressly put forward:
What constitutes the means of payment for goods is simply property. What each person has to
pay for other people's productions is what he owns himself. All sellers are inevitably, and by the
very sense of the word, buyers. If we could suddenly double the productive forces of the country,
we would double the supply of goods in all markets; but, at the same time, we would double the
purchasing power; everyone could buy twice as much, because everyone would have twice as
much to offer in exchange. (Mill, 1909)
John Maynard Keynes thus expresses "the supply creates its own demand" by linking it to the
costs of production: the producer has incurred costs, he has expressed a demand before having a
product to sell, and he will ask the buyer of his product to cover these costs. He expresses that
this is (according to him) the teaching of classical economists; what he thinks of himself is not
expressed here.John Maynard Keynes goes on to explain in section VII his wording of the law
that supply creates its own demand in the sense that the aggregate price is equal to the aggregate
supply price for all levels of output and employment. (Keynes, The General Theory of
Employment, Interest, and Money, 1964).
Keynesian Criticism
For John Maynard Keynes, on the contrary, it is the demand that creates the supply, and
especially the demand for money for itself: people produce and sell for money. This currency
they will not necessarily use to buy goods from other producers, which makes possible a general
crisis of overproduction (in the extreme, everyone wants to sell for money, and nobody bought).
July 2-3, 2018CAMBRIDGE, UK 10
The criticism of John Maynard Keynes therefore focuses on the postulate of currency neutrality,
which Jean-Baptiste Say expresses, certainly, but which is not at the heart of the law that bears
his name.
Nevertheless, John Maynard Keynes's criticism can be understood by noting that it is at the
macroeconomic level and is concerned with aggregate supply and demand, while Jean-Baptiste
Say speaks of the microeconomic level and the supply and demand side of the economy. John
Maynard Keynes, in turn, was challenged by monetarists, who believe that money and its value
are less important than expectations about their variation, and therefore play on the currency to
stimulate the Economy was mostly about playing with money. They believe it is a dangerous
game causing more long-term inconvenience than short-term benefits. (Mouchot & Tiran, 2006)
The assumptions derived from Say’s Law include free enterprise markets; a price mechanism
operates with flexible prices; efficient allocation of resources into production processes;
competitive markets; a continuous circular flow of money between sectors of the economy;
equality of savings and Investment; long run equilibrium of aggregate demand and aggregate
supply; laissez-faire policy of the government; and limited government intervention. Supply is a
precondition for demand. A produced good (supply of a good) constitutes demand for other
goods; the very act of producing goods generates income equal to the value of the goods
produced; people work in order to earn income and they plan to spend the income on output;
general gluts cannot occur. There cannot be overproduction of goods in general for a very long
time because those who produce the goods, by their act of producing, produce the purchasing
power to buy other goods. An economy’s output is essentially its income because money is
“recycled”; income earned will be recycled or spent on output; the economy’s spending flow is
continuously recycled in production and earning income;. Unspent part of consumer income is
redirected via saving into investment spending on capital goods. Consumers borrow to finance
purchases. Government taxes income to spend in the economy. Aggregate demand could be less
than potential production in the short run. The major point is that sales proceeds from production
are what enable consumers to buy goods and services and which further more production and
sales. Therefore, supply creates its own demand; firms only need to produce the maximum
production possibilities in order to obtain full employment. When they do, there will be
sufficient spending to purchase all the output; a free market economy will self-correct towards
July 2-3, 2018CAMBRIDGE, UK 11
what Keynesian economists call full employment. Self-correction occurs in the market economy
as income earned is re-used or spent on output.What increases the purchasing power that people
have, that is, the amount of assets they have, like the John Stuart Mill formula quoted by John
Maynard Keynes, is not the consumption of others. It is their production. Conversely, if people
experience a decline in their production, or even a smaller increase than that in the rest of the
economy, their fellow citizens will experience overproduction.(Mouchot & Tiran, 2006)
Steven Kate, writing on the ‘true meaning of Say’s Law argued.“The disappearance of the
guiding principles underlying Say’s Law has grievously damaged our understanding of economic
processes”. He referred to Jonsson to have correctly demonstrated that J. –B, Say not only had a
theory of the cycle, but that this theory was also, in its basic features, the same as the modern
theory of the cycle based on co-indication failure. Indeed, the importance of the law of markets
in classical economic theory was precisely that it denied that demand failure might be a cause of
recession. Whether expressed by the words “there is no such thing as a general glut’ or stated as
the proposition that overproduction is impossible, it was this conclusion which was meant.
Recessions and the associated high unemployment were neer the consequence of demand failure.
And it was this proposition that every major economist, prior of the publication of the General
Theory, assented…. Say’s Law meant Say’s Equality: i.e. supply and demand are always equated
by a rapid and powerful equilibration mechanism.(Kates, 1997)
Say’s Law: a restatement and criticism gives a list of diverse views on Say’s Law collectively
referred to as the “Proportionality Interpretation”: (1) Our supply of goods and services is
ultimately what constitutes our demand. (2) Gluts of one good are necessarily accompanied by a
shortage of another good. (3) For all scarce goods, unemployment is a sign of
disproportionality. (4) Saving is a reduction, not the negation, of demand. (5) In general
equilibrium, all goods will be sold at cost-covering prices. It is also stated that this emphasis on
proportionality is being recognized among non-supporter of Say’s Law as well. For according to
Thomas Sowell in his book Say’s Law: An Historical Analysis: It is clear that Say’s Law … did
not preclude disequilibrium and that the ‘balance’ referred to was not an accounting identity
persisting through all conditions of the market, but an equilibrium condition that could be
reached in a ‘properly functioning economy.’ (Combs, 2016)
July 2-3, 2018CAMBRIDGE, UK 12
The assumptions derived from Say’s Law are those of classical economics. They include the
concepts of –
the ‘Invisible Hand of markets
free enterprise markets
a price mechanism and competitive markets
a continuous circular flow of money between sectors of the economy
equality of savings and investment
long run equilibrium of aggregate demand and aggregate supply
laissez-faire policy of government, and
limited government intervention
The derived interpretations are those of –
supply is a precondition for demand
a produced good (supply of a good) constitutes demand for other goods
income earned will be recycled or spent on output
the economy’s spending flow is continuously recycled in production and earning
income, and unspent part of consumer income is redirected via saving into investment
spending on capital goods
consumer borrow to finance purchases and government taxes income to spend in the
economy
aggregate demand could be less than potential production in the short run
sales proceeds from production are what enable consumers to buy goods and services and
which further more production and sales; therefore, supply creates its own demand
a free market economy will self-correct towards its production possibilities frontier
self-correction occurs in the market economy as income earned gets re-used or spent on
output
July 2-3, 2018CAMBRIDGE, UK 13
4. RISING INCOME INEQUALITY AND ITS IMPACT ON ECONOMIC
GROWTH
As production provides incomes for factors of productions including labor which in turn creates
demand for goods and services, is becomes imperative, therefore, to examine the links between
distribution of income and Say’s Law. Say’s Law assumes a distribution of income supportive of
a continuous circular flow of incomes. When this is empeded, by market imperfections such as
labor and credit market imperfections, persistent unemployment and skewed education and work
opportunities, the circular flow of resources, products and money is hampered and aggregate
economic activity diminishes. Various studies show rising income and wealth inequality. This
economic phenomenon is observed within most advanced and emerging markets developing
countries (EMDCs) (Dabla-Norris, Kochhar, Suphaphiphat, Ricka, & Tsounta, 2015). Their
study shows that widening inequality can be an indication of lack of income mobility and
opportunity; which could have significant implications for macroeconomic stability.
Studies affirm thegap between rich and poor is at its highest level since 30 years in most OECD
countries. Econometric analysis suggests that income inequality has a negative and statistically
significant impact on subsequent growth. However, no evidence is found that those with high
incomes pulling away from the rest of the population harms growth.(Cingano, 2014) From
another perspective, excessive levels of inequality can erode social cohesion, lead to political
polarization, and ultimately lower economic growth, but whether inequality is excessive depends
on country-specific factors, including the growth context in which inequality arises, along with
societal preferences. (IMF, 2017)
Depending on whether income inequality is assessed across or within countries, the evidence is
divergent(IMF, 2017). It is shown that at the global level, inequality has declined substantially
over the past three decades due to income convergence between developing and advanced
economies aided by globalization and technological advancement. Within national boundaries,
however, the evidence is mixed. For some countries, inequality is declining while for other
countries, particularly advanced economies, inequality is on the rise. Excessive inequality
resulting in the erosion of social cohesion and political polarization ultimately lowers economic
growth (Berg and Ostry 2011; Rodrik 1999).
July 2-3, 2018CAMBRIDGE, UK 14
At the global lever, income inequality has declined substantially in the past three. However,
within countries, the picture is mixed with some countries experiencing a reduction in inequality
while others, particularly advanced economies, have seen a significant increase. Research
indicates that increased inequality can erode social cohesion, lead to political polarization, and
ultimately lower economic growth(IMF, 2017).
Poverty rates in the United States increased over the 2000s. This trend worsened by the Great
Recession and its aftermath. In an international context, the U.S. experience with poverty is
studied in a comparison of the lower end of the wage and income distribution in the United
States with that of “peer” countries, largely countries within the Organisation for Economic Co-
operation and Development (OECD) with roughly similar GDP per hour worked as the United
States. (Gould, 2012) Figure 1below compares the level of earnings (a measure of living
standards) of low-earning workers in the United States with the living standards of low-earning
workers in peer countries. The figure is scaled such that earnings at the 10th percentile in the
United States equal 100 percent, making it easy to identify countries with higher relative
earnings by their longer bars. Despite the relatively high earnings at the top of the U.S. income
scale (as illustrated in the forthcoming (Michel, Bivens, Gould, &Shierholz, 2012)) inequality in
the United States is so severe that low-earning U.S. workers are actually worse off than low-
earning workers in all but seven peer countries. In Figure 1, the United States ranks 12th out of
the 19 peer countries shown.(Gould & Wething, 2012)
Early views on the distribution of income in classical economics are expressed by Thomas
Sowellwriting on ‘Social Philosophy of Classical Economists’. ‘The emphasis of the Ricardian
School on the distribution of income by social class certainly was not one which exemplified any
‘harmony of interests.’ In Ricardo, as in Smith, the landlord gained in the long run at the expense
of capitalists and workers, and, in addition, wages and profits – in Ricardo’s particular definition,
always moved inversely to one another. Furthermore, “John Stewart Mill found the distribution
of income anything but harmonious. “The largest portions” going to those who have never
worked at all, the next largest to those whose work is almost nominal, and so in a descending
scale, the remuneration dwindling as the work grows harder and more disagreeable, until the
most fatiguing and exhausting bodily labour cannot count with certainty on being able to earn the
July 2-3, 2018CAMBRIDGE, UK 15
necessaries of life”. Those views hold true until today in many ways regarding aspects of the
distribution of income in many economies.(Sowell, 2006)
Figure 1:Earnings at the 10th percentile in selected OECD countries relative to the United States,
late 2000s.Source “U.S. poverty rates higher, safety net weaker than in peer countries” Figure
B(Gould & Wething, 2012)
Poverty rates in the United States increased over the 2000s, a trend exacerbated by the Great
Recession and its aftermath. By 2010, just over 46 million people fell below the U.S. Census
Bureau’s official poverty line (according to data from the Current Population Survey). This
preview of The State of Working America, 12th Edition puts the U.S. experience with poverty in
an international context, comparing the lower end of the wage and income distribution in the
United States with that of “peer” countries, largely countries within the Organization for
Economic Co-operation and Development (OECD) with roughly similar GDP per hour worked
as the United States.(Gould & Wething, 2012)
July 2-3, 2018CAMBRIDGE, UK 16
In their international comparison of poverty rates above, they examine the share of the
population living below half the median household income in the United States and select OECD
countries, a measure known as the relative poverty rate. According to Figure 2, in the late
2000s, 17.3 percent of the U.S. population lived in poverty—the highest relative poverty rate
among OECD peers.
Figure 2:Relative poverty rate in the United States and selected OECD countries, late
2000s.Source “U.S. poverty rates higher, safety net weaker than in peer countries” Figure
C(Gould & Wething, 2012)
The U.S. relative poverty rate was nearly three times higher than that of Denmark, which had the
lowest rate (6.1 percent), and about 1.8 times higher than the (unweighted) peer country average
of 9.6 percent. (Gould, 2012)
July 2-3, 2018CAMBRIDGE, UK 17
Figure 3:Child poverty rates in selected developed countries, 2009. Source “U.S. poverty rates
higher, safety net weaker than in peer countries” Figure D(Gould & Wething, 2012)
The overall relative poverty rate in the United States is higher than that of peer countries as
shown in Figure 2. Moreover, the extent of child poverty is even more severe as reported in
Figure 3(Gould & Wething, 2012).In 2009, the United States had the highest rate of child
poverty among peer countries, at 23.1 percent. This study shows that in 2009 more than one in
five children in the United States lived in poverty (as measured by the share of children living in
households with household income below half of median household income). This level is
almost five times as high as that of Iceland, which had the lowest level, at 4.7 percent, and over
two times higher than the (unweighted) peer-country average of 9.8 percent. (Gould & Wething,
2012)
July 2-3, 2018CAMBRIDGE, UK 18
Figure 4: Effect of Increase of Different Factors on Growth Spell Duration.Source “Inequality
and Unsustainable Growth: Two Sides of the Same Coin?” Figure 3(Berg & Ostry, 2011)
In another study, results for questions on income distribution and economic growth offer more
understanding on the subject matter. The questions are asked. Can growth be sustained in the
face of a highly uneven income distribution? Does less inequality help to increase the duration of
growth? Are inequality and unsustainable growth two sides of the same coin, or largely unrelated
issues? (Berg & Ostry, 2011) They indicate that by the late 1990s, many authors had examined
empirically the relationship between income distribution and growth and that an empirical
consensus had emerged that countries with more equal income distributions tended to grow
faster (e.g., Alesina and Rodrik, 1994), though the evidence was admittedly not robust
(Deininger and Squire, 1998; Barro, 2000).
In ‘Putting the Hazards Together’, identified determinants of growth spells duration are
correlated with one another in a multivariate analysis. The Figure below, (The Effects of Increase
of Different Factors on Growth Spell Duration) presents the results. The drivers of growth spells
show varying growth spells durations. The key result from the joint analysis is that income
distribution is one of the most robust and important factors associated with growth duration.
Also, that inequality retains a similar statistical and economic significance in the joint analysis
July 2-3, 2018CAMBRIDGE, UK 19
despite the inclusion of many more possible determinants. This suggests that inequality matters
in itself and not just as a proxy for other factors. Inequality also preserves its significance more
systematically across different samples and definitions of growth spells than the other variables.
Inequality, therefore, is a more robust predictor of growth duration than many variables widely
understood to be central to growth.(Berg & Ostry, 2011)
Figure 5: Income Gains Widely Shared in Early Postwar Decades – But Not Since Then. Source: https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality Figure 1
July 2-3, 2018CAMBRIDGE, UK 20
Figure 6: Wealth distribution in the United States in 2017. Source: https://www.statista.com/statistics/203961/wealth-distribution-for-the-us/. This statistic shows the wealth distribution in the United States in 2017 based on family data. The distribution indicates that the lower-income 50 percent of the American population owned about 1.1 percent of the total wealth, while the 1percent top-earners were in possession of about 35.5 percent of the wealth.
July 2-3, 2018CAMBRIDGE, UK 21
Figure 7: The United States and other Western industrialized Nations economic mobility. Source http://www.elearningark.com/social-mobility/ [citing] Grusky, et al., 2016 The Fading American Dream: Trends in Absolute Income Mobility Since 1940
Table 1:US Business Cycle Expansions and ContractionsSource: Public Information Office,
National Bureau of Economic Research, Inc.,1050 Massachusetts Avenue, Cambridge MA
02138, USA, 617-868-3900 (Public Information Office, The National Bureau of Economic
Research, 2010)shows US BUSINESS CYCLE EXPANSIONS AND CONTRACTIONS, 1857
– 2007 dating peaks and troughs and showing duration of expansion.
The NBER defines a significant decline in economic activity spread across the economy, lasting
more than a few months, normally visible in real GDP, real income, employment, industrial
production, and wholesale-retail sales.
July 2-3, 2018CAMBRIDGE, UK 22
5.ANALYSIS
The starting point for this analysis is provided by these statements on the failure of markets:
“Markets have clearly not been working in the way that their boosters claim. Markets are
supposed to be stable, but the global financial crisis showed that they could be very unstable,
with devastating consequences. … The virtue of the market is supposed to be its efficiency. But
the market obviously is not efficient. The most basic law of economics – necessary if the
economy is to be efficient – is that demand equals supply. But we have a world in which there
are huge unmet needs – investments to bring the poor out of poverty, … to retrofit the global
economy … At the same time, we have vast underutilized resources – workers and machines
that are idle or are not producing up to their potential. Unemployment – the inability of the
market to generate jobs for so many citizens – is the worst failure of the market, the greatest
source of inefficiency, and a major cause of inequality. … The underlying thesis is that we are
paying a high price for our inequality – an economic system that is less stable and less efficient,
with less growth, and a democracy that has been put into peril. (Stiglitz, 2013)
The theoretical explanation of Say’s Law
Different studies have been presented that show negative causal relationships between economic
growth and income inequality. Different economic models show negative causal relationships
between economic growth and income inequality. The supply-side model of income inequality h
leads to less-productive labor inputs; demand-side model, inequality that leads to less-robust
consumption and investment; and the credit-bust model which explains how changes in spending
patterns affect relative prices which in turn alter the pattern of use of productive resources
causing boom and bust in the economy. In this section, the key questions of the paper are
discussed to establish the economic links between rising income inequality and weak and
unsustainable economic growth. The discussion will demonstrate that Say’s Law is in defense of
efficientlyfunctioning free market economies; “an ancestor of modern general-equilibrium
theory”; and that “inequality and unsustainable growth are two sides of the same coin”.
July 2-3, 2018CAMBRIDGE, UK 23
Income inequality and economic growth – supply-side models
Economic growth theories emphasize the supply side of the economy(Feldstein, 1986);
The amount and quality of inputs that go into the production of goods and services;
Inequality of labor income –with the explanatory factors of the educational system, the
structure of the labor market, determination of wages, technology and human capital,
discrimination;
Income inequality from capital – with the explanatory factors that include ability, education,
training, discrimination, monopoly market power, the ability to rig the market
Discrimination transfers earnings from some people to others thereby contributing to income
inequality and increasing poverty.
Income inequality from capital and labor - the more unequally distributed each of these two
components is the greater the total inequality.
Income inequality impact demand negatively when high levels of income and wealth are
concentrated at the higher quintiles in the distribution of income where the propensity to
consume is low;
Investment itself is a function of output growth and thus consumption.
The supply-side model, income inequality leads to less-productive labor inputs. Credit
market imperfections influence the labor market and aggregate economic activity. In turn,
macroeconomic factors have an impact on the credit sector. We demonstrate that credit
frictions amplify macroeconomic volatility through a financial accelerator. The magnitude of
this general-equilibrium accelerator is proportional to the credit gap, defined as the deviation
of actual output from its perfect credit market level. (Wasmer, 2004).
Credit market frictions may be an important contributor to high unemployment in Europe.
although credit market imperfections are unlikely to have been the major cause of the
increase in European unemployment, they may have played some role in limiting European
employment growth. (Acemoglu, 2001)
Income inequality and economic growth – demand-side models
The demand-side model, inequality leads to less-robust consumption and … investment.
July 2-3, 2018CAMBRIDGE, UK 24
On the demand site, inequality is likely to affect growth negatively; through the differences
in the marginal propensity to consume across the income scale.
Assumed is diminishing marginal utility of money.
Economists believe that individuals with higher incomes have lower marginal propensities to
consume and thus have higher tendencies to save.
The U.S. economy is 70 percent consumer spending—much higher than the 55 percent
average in Europe, for example.
The shares of income going to the top 1%, 5% and 10% of income earners in an economy are
strong indicators of income inequality in a society.
They reflect the extent of income inequality as well as the relative sizes of the total
population involved.
The fundamental point of Say’s Law is that revenue from production and sale of products
create incomes for consumer demand. Thus, demand is constituted by supply.
Investment demand itself is a function of output growth and thus consumption.
Income inequality and economic growth – credit-bust models
Inequality leads to an overleveraged middle class, financial market instability, and a credit
bubble-and-bust cycle.
The cycle starts out with a period of easy credit that encourages increased investments. An
excess of investment could result into declining asset values. When this leads to investment
loses andcredit becomes difficult. The bust phase ensues asinvestors reduce
employment.output declines, and consumers cut spending.
The reduction in available credit could lead to a recession or depression. The recent Great
Recession is a case in point.
Counties in the U.S. that experienced a large increase in household leverage from 2002 to
2006 showed a sharp relative decline in durable consumption starting in the third quarter of
2006 – a year before any significant change in unemployment. Similarly, counties with the
highest reliance on credit card borrowing reduced durable consumption by significantly more
following the financial crisis of the fall of 2008. Overall, our estimates show that household
leverage growth and dependence on credit card borrowing explain a large fraction of the
overall consumer default, house price, unemployment, residential investment, and durable
July 2-3, 2018CAMBRIDGE, UK 25
consumption patterns during the recession.(Mian, 2010 - Springer)Our main results are
consistent with the view that the dramatic increase in household leverage from 2000 to 2007
was a primary driver of the recession of 2007 to 2009.(Mian, 2010 - Springer)
Also, this is explained by the Cantillon effects of the Austrian boom-bust cycle which is a
general principle of monetary theory based on monetary changes and their impact on
spending;
In the Cantillon effects, the monetary changes temporarily misdirect production which could
result in economic crisis with the accompanying existence of discrepancies between the
distribution of demand for goods and services and the allocation of labor and other resources;
With Cantillon effects, the allocation of resources and the valuation of assets (bubbles) are
shaped by non-neutral monetary changes. (BOETTKE & Coyne, 2015)
Market Economy Options versus Government Options
Market Economy Options
• promote efficient allocation of labor resources into production processes
• Increase opportunity in access to and quality of education
• Pay wages equal to the MRP of labor
• Promote employment for the middle class through effective labor market policies
• greater redistribute income
• Promote economic mobility
• Promote market competition
• Reduce barriers to free market competition
• Promote price mechanism with flexible prices and wages
• Promote the “laissez-faire” economic doctrines
July 2-3, 2018CAMBRIDGE, UK 26
• increasing the income share of the poor and the middle class actually increases growth
while a rising income share of the top 20 percent results in lower growth—that is, when
the rich get richer, benefits do not trickle down. (Dabla-Norris, Kochhar, Suphaphiphat,
Ricka, & Tsounta, 2015)
Government Intervention Options
• More government taxing and spending in the economy
• Expanding redistribution policies of taxes and transfers
• Deficit-funding spending increases
• More government regulation
• Increasing national debt
• Anti-poverty government programs
• Antidiscrimination policies
• Income-maintenance programs
• Fighting inequality, a pillar of the Obama administration policy – economic mobility
• Well-targeted subsidies, improvements in economic opportunities for the poor, and active
labor market policies that promote employment. (Gould & Wething, 2012)
• Policies of inclusive growth that involve tax rates at the top of the income distribution,
the introduction of a universal basic income, and the role of public spending on education
and health. (Tackling Inequality, 2017)
• This Fiscal Monitor discusses how fiscal policies can help achieve redistributive
objectives. It focuses on three salient policy debates: tax rates at the top of the income
distribution, the introduction of a universal basic income, and the role of public spending
on education and health. (Tackling Inequality, 2017)
July 2-3, 2018CAMBRIDGE, UK 27
• Drawbacks are Supply-side economics concerns for distortions of economic incentives to
save, investment and work and increasing the national debt.
6. CONCLUSION Say’s Law was the basis for the classical theory of the cycle.Say’s Law was part of the
explanation of the business cycle.Say illustrated the particular significant role of the
supply side of the economy. In Say’s Law lies a fundamental necessary condition for
economic stability and equilibrium because production and sales generate sufficient
incomes for spending on the output produced. Hence, Supply is a precondition for
Demand.
Recessions were not caused by a failure of demand, but rather due to problems associated
with the structure of demand relative to the structure supply.
Lopsided application of market economic theories upsets economic balance
The 90% becoming poorer as the economy becomes more and more unstable.
Different economic models show negative causal relationships between growth and
inequality. These are the supply-side model, the demand-side model, and the credit-bust
model.
Widening income inequality that leads to decreases in spending, total production and
chronic unemploymentcauses a break down in the continuous circular flow model of the
economy.
Market failure occurs when increases in labor productivity do not lead to increases in
demand for labor;market failure occurs when the market mechanism causes an
inequitable distribution of income;
Market failure includes unacceptable levels of unemployment or under-employment;
An economy’s output is essentially its income because money is “recycled”.
While the market options for promoting economic growth and mobility in the market
economies are ideal based on the laissez-faire economic system institutions, the existence of
imperfectionsin today’s markets frequently impede their efficiencies.Hence, market failures,
including increasing income inequality, are justifications for government intervention;
intervention that sometimes results in various types of government failure.
July 2-3, 2018CAMBRIDGE, UK 28
Extensive studies have shown various implications of widening income inequality on growth.
In this paper, distribution of income is assumed a determinant of supply, an assumption that
has not been derived in any previous study. It is derived in this study as the operational
factor that creates the implied link. As a determinant of supply, widening income inequality
has been shown to have declining effects on growth. Appropriate market and or government
options that improve income distribution could promote market efficiencies, reduce income
inequality, and promote growth. Thus is the link between Say’s Law and income inequality
that has been explored with data sources and analysis in this paper.
REFERENCES
Acemoglu, D. (2001). Credit market imperfections and persistent unemployment. European
Economic Review.
ASSUMPTIONS, CLASSICAL ECONOMICS. (n.d.). From AmosWEB Encyclonomic:
http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=assumptions,
+classical+economics
Baumol, W. J. (1999). Retrospectives, Say's Law. Journal of Economic Perspectives, 195-2.
Berg, A. G., & Ostry, J. D. (2011, April 8). Inequality and Unsustainable Growth: Two Sides of
the Same Coin? IMF Staff Discussion Notes. International Monetary Fund.
BOETTKE, P. J., & Coyne, C. J. (2015, October). Austrian Monetary Theory and CAPITAL -
STRUCTURE - BASE MACROECONOMICS. Oxford handbook of Austrian economics,
pp. 165-167.
Britannica, T. E. (2017). Classical economics. ENCYCLOPAEDIA BRITANNICA.
Cingano, F. (2014). Trends in Income Inequality and its Impact on Economic Growth. JEL, 64.
Combs, C. (2016). Say's Law: Critisms, Responses, And Restatement.
July 2-3, 2018CAMBRIDGE, UK 29
Dabla-Norris, E., Kochhar, K., Suphaphiphat, N., Ricka, F., & Tsounta, E. (2015). Causes and
Consequences of Income Inequality : A Global Perspective. IMF: International Monetary
Fund.
Ebrary. (n.d.). Essentials of Macroeconomics. From Growth Theories:
https://ebrary.net/693/economics/growth_theories
Feldstein, M. (1986). SUPPLY SIDE ECONOMICS:. Cambridge, MA: National Bureau of
Econonic Research.
Gould, E., & Wething, H. (2012). U.S. poverty rates higher, safety net weaker than in peer
countries. WASHINGTON, DC : Economic Policy Institute.
IMF. (2014). Fiscal Policy And Income Inequality. International Monetary Fund.
IMF. (2017). Tackling Inequality. International Monetary Fund.
Jonsson, P. O. (1997). On gluts, effective demand, and the true meaning of Say's law. Eastern
Economic Journal, 203-218.
Kates, S. (1997). ON THE TRUE MEANING OF SAY'S LAW. Eastern Economic Journal.
Keynes, J. M. (1964). The General Theory of Employment, Interest and Money. First
Harvest/Harcourt, Inc.
Keynes, J. M. (1964). The General Theory of Employment, Interest, and Money. First
Harvest/Harcourt, Inc. .
McConnell, B. &. (n.d.). Microeconomics. McGraw Hill.
Mian, A. &. (2010 - Springer). Household Leverage and the Recession of 2007-09. IMF
Economic Review.
Milberg, W. (2002). Say's Law in the open economy: Keynes's rejection of the theory of
comparative advantage. In S. C. Dow, & J. Hillard, Keynes, Uncertainty and the Global
(pp. 239-253). Northampton: Edward Elgar Publishing, Inc.
Mill, J. S. (1909). Book III: Of Excess of Supply . In J. S. Mill, & W. J. Ashley (Ed.), Principles
of Political Economy with some of their Applications to Social Philosophy (pp. III.14.5,
§2.). London: Longmans, Green and Co. .
July 2-3, 2018CAMBRIDGE, UK 30
Mouchot, C., & Tiran, A. (2006). "Oeuvres complètes / Jean-Baptiste Say. I, Traité d'économie
politique : ou Simple exposition de la manière dont se forment, se distribuent et se
consomment les richesses,". Post-Print halshs-00174622, HAL.
Ostry, e. (2014). Redistribution, Inequality and Growth. IMF.
Public Information Office, The National Bureau of Economic Research. (2010, September 20).
US Business Cycle Expansions and Contractions ¹. From The National Bureau of
Economic Research: http://www.nber.org/cycles.html
Say, J. (1880 (reprint)). A Treatise on Political Economy; Or the Production, Distribution, and
Consumption of Wealth (New American Edition ed.). (C. R. Prinsep, & C. C. Biddle,
Trans.) Philadelphia, Remsen & Haffelfinger: Claxton,.
Say, J. B. (1855). A Treatise on Political Economy; or the Production, Distribution, and
Consumption of Wealth, trans. C. R. Prinsep from the 4th ed. of the original French
[1803]. (C. C. Biddle, Ed.) Retrieved January 15, 2018 from Online Library of Liberty: A
collection of scholarly works about individual liberty and free markets.:
http://oll.libertyfund.org/titles/274
Sechrest, L. J. (2000, 7 15). Jean-Baptiste Say: Neglected Champion of Laissez-Faire. From
MISES INSTITUTE - Austrian Economics, Freedom and Peace:
https://mises.org/library/jean-baptiste-say-neglected-champion-laissez-faire-0
Sowell, T. (2006). ON CLASSICAL ECONOMICS. Yale University Press.
Sowell, T. (2015 [originally published in 1972]). Say's Law: An Historical Analysis. Princeton:
Princeton University Press.
Stiglitz, J. E. (2013). The Price of Inequality. New York: W.W. Norton & Company.
Wasmer, E. &. (2004). The macroeconoics of labor and credit market imperfections. American
Economic Review.
Wolf, C. (1979). A theory of nonmarket failure: Framework for implementation analysis.
Journal of Law and Economics, 107-139.
July 2-3, 2018CAMBRIDGE, UK 31
Younkins, E. W. (2006, February 12). JEAN-BAPTISTE SAY'S LAW OF MARKETS: A
FUNDAMENTAL, CONCEPTUAL INTEGRATION. From Le Quebecois Libre:
http://www.quebecoislibre.org/06/060212-4.htm
July 2-3, 2018CAMBRIDGE, UK 32
TABLES
Table 1:US Business Cycle Expansions and ContractionsSource: Public Information Office,
National Bureau of Economic Research, Inc.,1050 Massachusetts Avenue, Cambridge MA
02138, USA, 617-868-3900 (Public Information Office, The National Bureau of Economic
Research, 2010)
BUSINESS CYCLE
REFERENCE DATESDURATION IN MONTHS
Peak month Trough monthPeak month
number
Trough
month
number
Duration, peak
to trough
Duration,
trough to peak
Duration,
peak to peak
Duration,
trough to
trough
December 1854 660
June 1857 December 1858 690 708 18 30 48
October 1860 June 1861 730 738 8 22 40 30
April 1865 December 1867 784 816 32 46 54 78
June 1869 December 1870 834 852 18 18 50 36
October 1873 March 1879 886 951 65 34 52 99
March 1882 May 1885 987 1025 38 36 101 74
March 1887 April 1888 1047 1060 13 22 60 35
July 1890 May 1891 1087 1097 10 27 40 37
July 2-3, 2018CAMBRIDGE, UK 33
January 1893 June 1894 1117 1134 17 20 30 37
December 1895 June 1897 1152 1170 18 18 35 36
June 1899 December 1900 1194 1212 18 24 42 42
September 1902 August 1904 1233 1256 23 21 39 44
May 1907 June 1908 1289 1302 13 33 56 46
January 1910 January 1912 1321 1345 24 19 32 43
January 1913 December 1914 1357 1380 23 12 36 35
August 1918 March 1919 1424 1431 7 44 67 51
January 1920 July 1921 1441 1459 18 10 17 28
May 1923 July 1924 1481 1495 14 22 40 36
October 1926 November 1927 1522 1535 13 27 41 40
August 1929 March 1933 1556 1599 43 21 34 64
May 1937 June 1938 1649 1662 13 50 93 63
February 1945 October 1945 1742 1750 8 80 93 88
November 1948 October 1949 1787 1798 11 37 45 48
July 1953 May 1954 1843 1853 10 45 56 55
August 1957 April 1958 1892 1900 8 39 49 47
July 2-3, 2018CAMBRIDGE, UK 34
April 1960 February 1961 1924 1934 10 24 32 34
December 1969 November 1970 2040 2051 11 106 116 117
November 1973 March 1975 2087 2103 16 36 47 52
January 1980 July 1980 2161 2167 6 58 74 64
July 1981 November 1982 2179 2195 16 12 18 28
July 1990 March 1991 2287 2295 8 92 108 100
March 2001 November 2001 2415 2423 8 120 128 128
December 2007 June 2009 2496 2514 18 73 81 91
1854-2009 (33 cycles) 17.5 38.7 56.4 56.2
1854-1919 (16 cycles) 21.6 26.6 48.9 48.2
1919-1945 (6 cycles) 18.2 35.0 53.0 53.2
1945-2009 (11 cycles) 11.1 58.4 68.5 69.5
Note: Month numbers start in January 1800
July 2-3, 2018CAMBRIDGE, UK 35