This says that there cannot be a general excess demand or excess supply of goods, i.e. that the sum of the excess demands (excess supply if negative) across all goods must equal zero. There can be no "general gluts."
Walras says, not so fast. We also have to consider money demand and money supply. If there is an excess demand for money, there can be an economy-wide excess supply of goods. Walras Law:
Brad DeLong says, not so fast, we also need to consider the supply and demand of "high-quality interest bearing assets." Delong's Law:
This says that there can be a general gluts of goods offset by either an excess demand for money or an excess demand for assets (or some combination of the two that nets out correctly, and sometimes -- like now -- the assets in A and M are perfect substitutes). What is the cure for an excess supply of goods in this case? In Brad's own words:
I would say that the right way to think about the current situation is to move from a two-commodity model--money and goods--to a three-commodity model: goods, money, and "high-quality interest bearing assets." When there is an excess demand for high-quality interest bearing assets the interest rate goes to zero, in which case money becomes a perfectly good high-quality interest bearing asset. Then money gets swapped out of the "transactions" balance account into the "speculative" (or "insurance") balance account, and all of a sudden you have an excess demand for transactions-balance account money and so by Walras's Law a deficient demand for currently-produced goods and services.
I'm happy to call that a "monetary phenomenon" if it will make Nick Rowe happy.
But might it not be more illuminating to call it a financial phenomenon? A Minkyite or Kindlebergian or Bagehotian phenomenon?
Elsewhere, Brad adds:
Hicks and Wicksell would say that you also have to include the supply and demand for bonds--for interest-yielding savings vehicles. And, of course, at the ZLB money becomes a perfectly good savings vehicle and a perfectly good safe asset: it is no longer dominated by the other assets for those wanting a savings vehicle or safety because interest rates are zero.