The basis of Say's Law is that because every buyer has money, because they were themselves previously a seller, there is an equality between buyers and sellers. That is true under barter, but not under systems of exchange based on money. Every buyer has money, because previously, they were a seller, but not every seller necessarily becomes a buyer. They may, instead, simply hoard the money they receive.
Simply because producers of various commodities produce quantities of those commodities at values, and in proportions, that mean that they could all be happily exchanged with each other, at those values, does not at all mean that they will be. And, this is a point that many Marxist economists also fail to take account of, in formulating their theories of crisis, because they fail to take into account any question of demand.
“It is true that the man who buys has in his possession merely the converted form of a commodity—money—i.e., the commodity in the form of exchange-value, and he can act as a buyer only because he or others have earlier acted as sellers of commodities which now exist in the form of money. This, however, is no reason why he should reconvert his money into my commodity or why his need for my commodity should be determined by the quantity of it that I have produced. Insofar as he wants to buy my commodity, he may want either a smaller quantity than I supply, or the entire quantity, but below its value. His demand does not have to correspond to my supply any more than the quantity I supply and the value at which I supply it are identical.” (p 102)
If I am a worker who has produced 100 metres of linen, I may have £100 in money paid to me as wages, the price of my labour-power. The linen I produced may be bought by a producer of chocolate, who, in buying the linen, realises the profit of my employer, and provides him with the £100 required to reproduce my wages. But, there is no reason why I will use my £100 to buy chocolate, so as to realise the value of the commodities produced by the chocolate producer. Indeed, there is no reason why my employer will use his profit for that purpose either, and that is true for the entire complex of relations between buyers and sellers of these various commodities throughout the economy.
The potential exists in all these exchanges for the sellers of commodities having realised the value of their own commodity to simply hold on to the general commodity – money.
“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.”
(Theories of Surplus Value, Chapter 17)
If we examine things even at the level of individual commodity producers, the reason that demand and supply, production and consumption, which form opposing poles within a contradictory unity that comprises the process of exchange, can fall apart, is quite clear. If I produce iron, I do not demand iron. This is not the condition of the self-sufficient producer who produces only to satisfy their own needs. I may take some iron from my own production to meet my limited need for it, but the reason I produce iron, what I demand, having produced iron, is its equivalent value, i.e. money. And, I want money, because, with money, I can buy coal, iron ore etc., so as to be able to produce more iron, but I will also be able to use the money to buy food, clothing etc., required for my own personal consumption. However, how much I demand, i.e. buy, of these other commodities, and how much I am prepared to pay for them, is not at all determined by, or equal to the exchange-value I recover from selling my iron. What I receive in money, from its sale, only puts a limit on how much I can spend, it does not force me to spend to that limit.
The reason I sell the iron is because it only constitutes a use value for me up to a certain extent. The same applies to the producer of yarn, linen or any other commodity. There could never be a crisis of overproduction if the producers of commodities had their own endless need for the commodities they produce. They could simply consume any overproduction themselves. But, that does not apply for commodity production, in general, let alone for capitalism, which produces commodities on a vast scale only for sale in the market, rather than for direct consumption.
And, what applies for my demand of other commodities, having sold my own, applies to others' demand for the commodities I produce. The maker of railway tracks only has a demand for a certain quantity of iron, and it is no concern of theirs if I produce too much iron for that requirement. Their demand for iron is determined by how much they need to produce track, not by the amount I produce, or the value of it when produced.
“Insofar as I supply iron, I do not demand iron, but money. I supply a particular use-value and demand its value. My supply and demand are therefore as different as use-value and exchange-value. Insofar as I supply a value in the iron itself, I demand the realisation of this value. My supply and demand are thus as different as something conceptual is from something real. Further, the quantity I supply and its value stand in no proportion to each other. The demand for the quantity of use-value I supply is however measured not by the value I wish to realise, but by the quantity which the buyer requires at a definite price.” (p 102)
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