Say's law

Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say, stating that there can be no demand without supply. He theorized that the activity of production opens a demand for the products produced. Thus the mere creation of one product immediately opens an avenue for other products. To put it another way, Say was making the claim that production is the source of demand. One’s ability to demand goods and services from others derives from the income produced by one’s own acts of production. Wealth is created by production not by consumption. My ability to demand food, clothing, and shelter derives from the productivity of my labor or my nonlabor assets. The higher or lower that productivity is, the higher or lower is my power to demand other goods and services.

Other Formulations

In 1820, David Ricardo, writing to Thomas Malthus, said:

"Men err in their production; there is no deficiency of demand."

Henry Ford, in his autobiography My Life and Work (1922), implies Say's Law when he says:

"When a great many people want to buy, there is said to be a shortage of goods. When nobody wants to buy, there is said to be an overproduction of goods. I know that we have always had a shortage of goods, but I do not believe we have ever had an overproduction. We may have, at a particular time, too much of the wrong kind of goods. That is not overproduction—that is merely headless production. We may also have great stocks of goods at too high prices. That is not overproduction—it is either bad manufacturing or bad financing." (emphasis added)

John Maynard Keynes, in 1936, famously formulated Say's Law as:

"From the time of Say and Ricardo the classical economists have taught that supply creates its own demand..." (emphasis added)

Criticisms

Say's law was famously refuted, first by Karl Marx:

"The expansion of value, which is the objective basis or main-spring of the circulation M-C-M, becomes his subjective aim, and it is only is so far as the appropriation of ever more and more wealth in the abstract becomes the sole motive of his operations, that he functions as a capitalist . . . Use-values must therefore never be looked upon as the real aim of the capitalist. Neither must the profit on any single transaction. The restless never-ending process of profit making alone is what he aims at. This boundless greed after riches, this passionate chase after exchange-value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser. The never ending augmentation of exchange value, which the miser strives after, by seeking to save his money from circulation, is attained by the more acute capitalist, by constantly throwing it afresh into circulation...."

and later by John Maynard Keynes, in The General Theory of Employment, Interest and Money.

Links

• Say's law on Wikipedia
• Say's law
• Say's Law: Were (Are) The Critics Right (pdf), by William L. Anderson
• Lord Keynes and Say's Law by Ludwig von Mises
• A Rehabilitation of Say's Law (pdf), W.H.Hutt
• Say's Law in Context by Peter Anderson, July 2003
• Understanding Say’s Law of Markets by Steven Horwitz,
• Capital: a Critique of Political Economy on Google Books.
• The General Theory of Employment, Interest and Money on Google Books.

January 1997