The law of economics, what is it? -, Learning Economics... Solved!


The law of economics, what is it?

I have gotten a few questions about what "the law of economics is".  Unfortunately I don't even know the answer to this question.  I think because there is no answer to this question.  Here was my answer to the person asking this question:

Hi, I got your question the other day and I would like to clarify what you are asking.

First, economics is the science of resource allocation or decision making, so there is no real "law of economics" because many things come into play.
Second, most laws in economics are assigned to individual theories like the law of demand (negative relationship between price and quantity) or law of supply.

Let me know if that helps, or if I misinterpreted your question please give me some context so I can better help you.

But the more I think about it, I think that many things could be considered economic law,
such as cost minimization, utility maximization, and other behaviors we would expect individuals to exhibit based  on our assumptions. As economists, we believe that these behaviors hold, and when they don't we try to find out what we did wrong to get such a crazy outcome.

I was re-reading a macroeconomics textbook last night and I came across Say's Law, which basically says that all goods produced will be consumed, or that supply will equal demand.  If we supply it, they will demand it.  The reasoning was that money made from production would flow through the economy and allow these goods to be bought, and if they weren't bought, the price would fall until they were bought.  So Say's Law requires a lot of assumptions to hold, just like most standard economic theory outcomes.

The funny thing about Say's Law is that it makes perfect sense to an economist, but not so much to the average person.  I mean, just because someone gets produced, why does it mean that it has to be bought?  However, an economist would not see the rationality of production without consequent sale, so the law makes sense.  This is just one reason why I tell my students to forget their normal thought process when beginning an economics class.  If you can the theories from the ground up, you will have a much easier time than trying to reconcile economic thought processes with your own.

Ultimately, there is no real Law of Economics, because so many things have to be considered (have you ever heard the joke of the one-handed economist?).  While it would be easier if their was one big law that we could adhere to, there isn't.  And even some of the other laws, such as the law of demand, or Say's law, have violations if there assumptions do not hold (such as giffen goods for the law of demand, and a lack of demand for Say's law).