How to live a better life is the theme everyone faces. If happiness or enjoyment is used as the standard, then the goal of life is to pursue happiness or enjoyment.
American economist Irving Fisher defined income as spiritual enjoyment in his Interest Theory. According to this, a person's salary is not income, but the enjoyment obtained by buying apples with his salary is income.
As a science, the proposition of economics should be verified by facts. Spiritual enjoyment is a psychological concept, which is difficult to be verified by facts. In order to facilitate measurement and verification, economists replace spiritual enjoyment income with income in the form of material objects and currency.
The act of enjoying immediately is called consumption, for example, buying apples; The act of enjoying in the future is called investment, such as planting an apple tree and waiting for future results. Whether a person spends more or invests more depends on the level of market interest rate.
Whether it is consumption or investment, in order to pursue more income, we must improve production efficiency and create more products for enjoyment. In the market economy, we mainly improve enjoyment by exchanging products with others. Say's Law - Supply can create its own demand, which is exactly what it means.
Contrary to Say's Law, Keynes's Law believes that demand can create its own supply. When effective demand is insufficient, the government can promote economic growth by stimulating consumption and investment. The problem is that the source of government revenue mainly depends on tax revenue, which comes from individual and enterprise production. Compared with personal consumption and investment, government consumption and investment can only increase enjoyment by improving efficiency and enriching products, which itself remains unchanged. The key lies in whether personal investment or government investment is more efficient. Generally, it is better than information and incentive. Personal investment is more efficient in private goods, and government investment is more efficient in common goods.
Some people may ask why there is an economic crisis in which supply exceeds demand, general price level continues to decline, and the economy continues to decline, since supply can create its own demand?
There is a time process of production, exchange and consumption. When enterprises decide what to produce and how to produce, they face the future needs of consumers. The future demand of consumers is uncertain, and the future technology and organization mode are also uncertain, which determines that the product benefits and costs are uncertain. In the face of uncertain supply and demand, enterprises may make mistakes in production, products may be unpopular, and supply may exceed demand.
In addition, exchange in modern society is often carried out through monetary media, and commodity prices expressed in money will change depending on the amount of money issued. For example, if the government issues more money for a period of time, it will initially show that the prices of some commodities will rise and the profits of enterprises will increase. Since it is difficult to distinguish whether the increase of market demand leads to the rise of commodity prices or the increase of currency leads to the rise of commodity prices, entrepreneurs tend to expand input and increase output.
However, the price rise caused by too much money will eventually be transmitted to various commodities, including production factors. When the price rise of factors leads to an increase in production costs and a decrease in corporate profits, entrepreneurs will reduce input and output scale. This will reduce the demand for production factors, reduce factor prices, reduce employee income, and reduce commodity demand.
The uncertainty of supply and demand in the future, together with the possible instability of monetary value, may lead to a sustained decline in the general price level and a sustained slowdown in the economy. Modern economy is an economy with specialized division of labor, and large-scale production in capital deepening and circuitous ways is common, which will aggravate economic fluctuations.
What entrepreneurs need to do is to pay attention to and adapt to the uncertainty of supply and demand, better predict market preferences and demand, timely improve technology and organizational methods, and grasp the macroeconomic situation, including currency issuance and interest rates. Only in this way can we increase enterprise income, reduce production costs and improve production efficiency. Of course, these are also the meanings that should be included in the topic of Say's Law. (The author is an economist)
