What is the driver of economic activity? One core debate in economics is: what is the driver of economic activity? Supply or demand? Are supply-side policies on their own enough to stimulate the economy?Jean-BaptisteSay, an early economist, argues that yes - supply-side policies are enough.

As you recall fromsubtopic1.2, Say's law states thatsupply creates its own demand.

Say argued that in order to produce, firms hire workers. Therefore the very act of productioncreateswages for workers, as well as profit for the entrepreneur. The worker and the entrepreneur will spend their income and demand goods and services.

According to Say, wealth is created by production, not by consumption. A worker's ability to demand goods and services is derived only from the productivity of labour.

The Great Depression of 1929 challenged Say's law.

One of the drivers of the Great Depression was the overproduction of the 1920s. Consumers were excited to purchase futuristic goods such as radios and refrigerators. Mass consumerism was driven by access to loans and credit. But by 1929, the market was saturated, and aggregate demand dropped below production levels. In the US, unemployment reached 25%.

In 1936, Keynes argued that Say's law simply did not hold. Keynes said it is demand, not supply, that determines economic activity. Even if firms pay workers to produce goods and services, it doesn't necessarily mean workers will spend all of their income on buying goods and services. Workers may save.\

Who is correct, Say or Keynes? Does supply create its own demand? Can supply-side policies succeed without stimulus from the demand side of the economy?