Say's Law, also known as Say's Law of Markets, is named after Jean-Baptiste Say (1767-1832), Say's Law argued that an economy is self-regulating p[rovided that all prices, including wages, are flexible enough to maintain it in equilibrium. In a more simplistic, and showewhat inaccurate form, Say's law states that supply creates its own demand and over-production is impssible. This theory has major implications for how governments respond to periods of high unemployment or widespread underemployment.
Say's law was accepted as a major plank in classical macroeconomic theory until English economist John Maynard Keynes (1883-1946) challenged its applicability in modern economies.
Jean-Baptiste Say was born in Lyons to a family of textile merchants of Huguenot extraction. In 1787, after spending two years in England apprenticed to a merchant, Say took a job at an insurance company in Paris run by Claviere (later to become Minister of Finance). An ardent republican, Say was overjoyed by the French Revolution. He served as a volunteer in the 1792 military campaign to repulse the allied armies from France.
It was around this time that Say read Adam Smith's book and the work of and fell into with a group of laissez-faire economists, known as the ideologues, who sought to relaunch the spirit of Enlightenment liberalism in republican France. From 1794 to 1800, Say served as the editor of their journal, La Decade philosophique. His 1800 essay, Olbie, was submitted to a contest run by the Institut de France. Say's eminence grew such that he was nominated to the Tribunate in 1799, sitting in the finance section.
In 1803, he published his most famous work, Treatise on Political Economy. Say's distinctive approach to economics was an outcome of the muddled marriage of Condillac's utility theory of demand and Adam Smith's cost theory of supply. Value, Say claimed (with some inconsistency), was the outcome of the interaction of these two. In this respect, it departs considerably from the Classical Ricardian School, where value is determined purely from the cost side. Say's approach was taken up
by French Liberal School and he can be considered a precursor of the Marginalist Revolution. Like Cantillon before him and the Austrian School after him, Say also placed great emphasis on the risk-taking entrepreneur and even tried to include him as the "fourth" factor of production in his analysis. It was also in the Treatise that Say outlined his famous law of markets. Roughly stated, Say's Law claims that total demand in an economy cannot exceed or fall below total supply in that economy or as James Mill was to restate it, "supply creates its own demand." In Say's language, "products are paid for with products" (1803: p.153) or "a glut can take place only when there are too many means of production applied to one kind of product and not enough to another", (1803: p.178-9.). Or:
"It is worth while to remark, that a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it; for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus the mere circumstance of creation of one product immediately opens a vent for other products." (J.B. Say, 1803: p.138-9)
The radical laissez-faire notions expounded in the 1803 Treatise caught the attention of Napoleon Bonaparte himself. Summoning Say to a private meeting, Napoleon demanded that Say rewrite parts of the Treatise to conform with his attempt at creating a war economy, built on protectionism and regulation. Say refused. Napoleon proscribed the Treatise and had Say ousted from the Tribunate in 1804.
Although offered another post as compensation, Say was too disgusted by the imperial regime. He moved to Pas-de-Calais and set up a cotton factory at Auchy-les-Hesdins. He grew fabulously rich. In 1812, Say sold his shares and returned to Paris, living as a speculator.
After the fall of Napoleon in 1814, Say finally published the second edition of the Treatise. He then spent some time in England, met David Ricardo and Goodwin, and, upon his return in1815, published his 1815 reflections. The Bourbon restoration government showered Say with numerous dignities and honors. In 1816, he was invited him to deliver a course of lectures on economics at l'Athenee Royale, a private college. In 1819, he was appointed as Chair of Industrial Economy at the Conservatoire National des Arts et Metiers. His popular lectures were published in 1828. Say's law of markets came to divide economists in the General Glut Controversy around this time. Say joined in the fray, attacking the underconsumption thesis in his letters to Malthus (1820) and in his 1824 exchange with rival countryman Simonde de Sismondi in the Revue Encyclopedique.
In 1831, Say was granted a chair (the first in economics) at the prestigious Collegeede France. The French Liberal School which followed up on Say maintained an even more intimate connection with the establishment.
