Law of Say

What really Say wrote

Actually, such an assertion is absent from work of Say. The exact quotations, extracted the Political Treaty of Saving in 1803 (delivers I, chapter XV, Of the outlets), are the following ones:

: " it is the production which opens outlets with the produits"

: " the purchase of a product can be made only with the value of another "

: " a finished product offers, as of this moment, an outlet with other products for all the amount of its valeur."

In other terms: the producer of a new product has now something to offer to the others, it becomes solvent , and a new outlet for their own products offers to them because it opens new prospects for exchanges.

The difference is subtle but real: Say does not affirm that a good always finds an outlet or in other words that to produce is the sufficient condition to find an outlet, it states that to produce necessary is a condition to the creation of an outlet (but an outlet for the other economic sectors ).

The Law of Say such as it is known results especially from work from the contemporary economists and successors: David Ricardo, John Stuart Mill, and even John Maynard Keynes.

" démonstrations" " law of Say"

The more there are produced goods, plus these goods can open a request for other goods. Conversely, a new request without preliminary production offers actually any prospect for exchange, therefore no new outlet; it cannot stimulate the production and under these conditions, the growth passes by the stimulation of the production and not of consumption.

A central consequence of the " law of Say" is that the recession does not come from a problem of request or lack for currency. A monetary, creative creation of request, would involve only inflation: without corresponding production, there are not a request real, solvent, but only reduction of the value of the currency.

The preceding reasoning supposes that the currency is completely neutral, i.e. that it is a good without intrinsic value.

According to Say, nobody may find it beneficial to preserve currency. One sells a product, not to recover currency but to buy some another (from where quotation of Say celebrates it: " the products are exchanged against produits" ). The currency would be only one veil which masks the real character of the economy (one speaks about dichotomy between real sector and money sector). All would occur as if the economy were only one series of Troc.

A producer who sells a product uses his receipt to buy other products and thus creates a request for an equivalent amount. Conclusion: any supply creates its own; a crisis generalized of overproduction is thus impossible. It can only exist crises sectorielles' , because the producers can badly estimate their request (= production of the other sectors) and the production of their competitors: it results from them (almost inevitably) an imbalance between two groups from goods, those produced in too great quantity and those produced in insufficient quantity, the first then not finding more their counterpart because of the lack of the seconds, until the means of productions move towards the missing goods.

Modern interpretations and controversies

The " law of Say" was disputed in particular by John Maynard Keynes and his " réfutation" is one of the bases of its theories. Keynes affirms that agents can have interest to preserve currency, in particular for reasons of precaution, speculation and transaction, assertion which becomes all its extensive in a context that Keynes qualifies " radically incertain" (i.e. the future is dubious and non-probabilisable). Under these conditions, Keynes affirms that monetary creation can have, and has indeed, a stimulating effect on the production.

It will be noted that at the base, the reasoning is exactly that of Say, the only difference being in the value allotted to the currency (null for Say, nonnull for Keynes). As soon as it is admitted that the currency has an eigenvalue, monetary creation becomes a production like another, a product that agents can wish to acquire by offering new goods produced for this purpose, and the law of Say applies directly: the emission of currency becomes a production which opens new outlets.

Keynes, in its turn, was disputed by the monetarists, which estimate that the currency and its value have less importance than anticipations on their variation, and than consequently to play on the currency to stimulate the economy especially returned to to play with the currency, play dangerous causing more long-term nuisances than short-term advantages.

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