Say's Law Was the Basis for the Classical Theory of the Business Cycle and Recession

What therefore remains the greatest irony is that Say's Law, far from assuming full employment, was instead the basis for the classical theory of the cycle. Rather than Say's Law being a denial of the possibility of recession, it was actually part of the explanation for it. Recessions were not caused by a failure of demand, but rather were due to problems associated with the structure of demand relative to the structure of supply. Demand, according to Say's Law, was constituted by supply, that is, by the sale receipts received from selling one's production. If one could not sell then one could not buy. The reason for a failure to sell was that one had miscalculated about what others wished to buy. If production miscalculations occurred in one part of the economy during the expansion phase of the cycle, then excess stocks of unsold goods would be the result, and incomes lower than anticipated would be earned. In consequence, demand for other products would be lower than was originally anticipated, and the economy would contract.

--Steven Kates, introduction to Say's Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way (Cheltenham, UK: Edward Elgar, 2009), 4.