In classical though, hoarding (beyond the short-term) would always be balanced by dishoarding, in which people were accumulating inventory. However, Keynesian economics acknowledges that there are different decision makers in the hoarding and dishoarding process, so that it is unlikely that hoarding and dishoarding will always remain in equilibrium. Classical theorists suggest that financial markets and interest rates can help balance hoarding and dishoarding, but this is generally seen to occur with a recession, not in a manner that can prevent a recession. The Keynesian approach to this is to stimulate demand for products. The theory is that the increase for demand in a single product leads to increased (or maintained) production, which leads to increased (or maintained) employment, which increases the demand for other products. Obviously, demand is the driving factor in Keynesian economics rather while supply is the driving factor in Say's Law.
Many people may wonder if Say's Law is even important for an understanding of modern economic theory, given the prevalence of Keynesian economics in the field. While Say's Law may be part of classical economic theory, it is important to understand it as more than a historic relic. "Say's law is not just an obsolete theory. It has been refashioned and is currently an important foundation of microeconomic theory among some U.S. economists (such as the New Classical economists, and supply-side economists)" (Sherman & Kolk 1996, p4). Say's Law is, in many ways, a laissez-faire approach to economics; though government can certainly play a role in helping maintain the desired equilibrium of the economy.
Say's Law becomes much more difficult to understand in a global economy. Supply may indeed increase demand, but that might not have an impact on a local economy when that supply is created in another location. This can make it very difficult to apply Say's Law to the current monetary and fiscal policies; because of the economy is a global one. However, Say's law suggests that consumption, alone is not enough to stimulate an economy. The idea that consumption can do so is one that has been proven false, at least locally....
The fiscal policies of the last two administrations has pushed the idea that stimulating the economy through consumption would be enough for forestall a recession. That did not occur. However, it may have helped establish equilibrium across global populations, which is something that was not considered in discussions of classical economics, because there was no global economy, but that does not mean improvements for the local economy.
However, the logical conclusion, which appears to be that the government should not interfere in the market, because doing so actually impacts consumption in a way that challenges the naturally workings of the market, is only partially true. Say's Law suggests that simply increasing demand, or consumption, is not going to be sufficient to lead to long-term economic changes. Instead, one would need to stimulate the supply of local goods. In the context of U.S. monetary and fiscal policy, this means it is not enough to give tax breaks or other incentives to spend, because that spending can be on foreign products, and not stimulate labor and demand in the home environment. Using the money to increase the ability to supply products may be the solution. In that context, the money to bail out American auto manufacturers, which ideally led to an increase in projected supply, retention of jobs, may have been the best use of stimulus money. It would certainly suggest that it is fruitless to put money into the economy unless doing so increases supply.
References
Aggregate Demand and Aggregate Supply. www.coursework.info
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