The critics who oppose, Say, mention that Say’s law of markets can only be applied in one industry or firm and is not applicable on the whole economy as desired. For example, as a result of over-production in the industry there will be unemployment and hence rewards to factors of production will be cut down, under free competition. Cost of production will be going down and as a result prices of the products will go down too. Hence, there will be excess demand for goods and services and over-production will be eliminated. But this is possible only in case of an industry. However Say’s theory is not applicable on the economy as a whole because as a result of the low prices of the products the aggregate demand cannot be increased and hence over production will continue and unemployment will persist.

According to J.B. Say himself, prices of goods are highly flexible at the full employment level due to which the aggregate supply of the goods adjusts with the aggregate demand for it and therefore, eliminates the possible signs of over-production and unemployment. However, in the real world, today, prices of goods and services are generally stable. Hence, in case of absolute prices, over production cannot be eliminated and consequently unemployment takes place.

Say’s theory is explained with reference to the circular flow of national income; according to which people living in a country are in the aggregate sense, the producers as well as the ultimate consumers, Consequently, over production does not take place. For example, we already know that people get their rewards in the form of rent, interest, wages and profits respectively by which they create demand for the aggregate supply of goods and services. Now in reality, demand for consumer goods takes place immediately but the demand for capital goods takes some time to be initiated as the people would generally think first about their investment projects. As a result of this time lag, over-production and unemployment can take place.