1.3.8 The Say's Law

Say's Law is the only concept that survived in modern textbook from the theory of Jean-Baptiste Say. If we take a closer look at the original text, see below, we realise that the paragraph is more complex and contains a lot of other affirmations more important than the nowadays called Say's Law.

What we find in modern textbooks is simple. Following modern textbooks, the Say's Law shows that unemployment due to a lack of demand is not possible. If everyone produces only a basket of commodities whose value is high enough to buy the basket he wants to buy, in other words if the basket produced has the same value as the basket he wants to purchase, a lack of demand is impossible. To put it simply, if someone wants to buy a basket whose value is 2,000 dollars, he has to produce a basket with the same value.

Actually, with Say's Law, we can't prove that, at least if we take a closer look at the original version. The original version only says that people produce something in order to buy something and the more they produce, the more they can buy. That's what all the paragraph is about, and that's even true. Economic exchange happens most of all between rich countries. They produce a lot and can, therefore, buy a lot. It may be possible that developing countries have much more need of almost everything, but they have nothing that could be given in exchange.

The main problem of classic theory is not addressed nor resolved by Say's Law.

[We put aside for the moment that the whole classical concept of saving is wrong, see interest rates. We discuss the classical theory taken its basic assumptions for right, although they are wrong.]

In classical theory, we have consumption and saving. There is no doubt, that consumption leads to demand. Concerning consumption, there is, therefore, no mechanism needed that balances supply and demand. Concerning saving things are different. If people produce something and create a value, they can as well save this value. In this case, we have a problem. Supply exceeds demand. Someone produced something but has no intention to consume something with the same value.

In classical theory, people save money in order to invest it or to give it to someone else who will invest it. They hope, following the classical logic, that by investing or borrowing the money, they can consume more in the future because they get an interest rate. Concerning saving there is, therefore, a mechanism needed that balances savings and investments and this mechanism is, in classical theory, the interest rate.

The higher the interest rates, the more people will save, and the less people will invest. The lower the interest rates, the less people will save, and the more people will invest. There is, therefore, an interest rate, in the classic theory, where all the savings are absorbed by investments. In other words: The lower the interest rates, the more people will consume and the higher the interest rates, the less people will consume.

If consumption leads to a demand directly and if it is granted that all savings are absorbed by investments the supply is absorbed by demand, consumer goods or capital goods.

This is the classical logic. The problem with saving is not addressed by the Say's Law as we will see later on, see below when we take a closer look at Say's Law.

However, that's one reason the Say's Law became so famous, Keynes himself addressed it. The reason Keynes addressed it, is, that even if we focus on consumption only, it is not sure that all the supply will be absorbed by demand. The argumentation of Keynes is more sophisticated, but there is an easier way to see that the Say's Law doesn't work.

A big part of the total income of people, capital yields, yields or income achieved from business activity or disposal of property, windfall profits, speculation etc. is not planned; it depend on luck and chance. People will not change their consumption behaviour depending on their monthly income. They will not consume more if they earn more and very often they don't consume less because they earn less, what would be a logical consequence of the first statement.

The income not consumed depends therefore on chance. In this perspective the interest rates doesn't balance savings and investments, saving and investments are not a function of the interest rate, but the interest rate is a function of savings. We can get to a situation where the interest rates are very low and the risk very high and in a situation like this people will put their money "under the pillow". We have a lack of demand. People neither invest nor consume.

Besides that, it is very questionable that Say wanted to formulate a "law". If we take a closer look at the paragraph, we will see that Say just wanted to demonstrate that a lack of money is not the cause of a lack of demand. A lack of demand is due to the fact, that people doesn't produce enough, because only if they produce something they can buy something. Products are paid with products.

As a tendency this is correct. Call it "law" goes beyond the intention of Jean-Baptiste Say.

Another possible reason Keynes mentioned the "Say's Law" is that Say is the only classical authors that at least address the problem that a lack of demand can lead to unemployment although the answer given is wrong. David Ricardo didnot even see the problem. If the demand is irrelevant and production depends only on the capital owned by the capitalists, a lack of demand can't lead to unemployment.

In modern textbooks, Say's Law is used and an argument for the thesis that a market economy will always lead to full employment. This is actually not very conclusive because even it were true, what is not even the case, the fact that all the supply is absorbed by demand doesn't guarantee full employment. Not at all. An equilibrium of supply and demand can be reached at a level where many people are unemployed. We can have a society of 10,000 people, 2,000 working and producing a basket whose value is high enough to allow them to buy what they want and the other 8,000 unemployed.

However, the whole paragraph you find it on the bottom of the page contains more statements, and some of them are really interesting.

Neoclassical theory is always considered as a marginal revolution. We have already seen, that the concept of the natural price/market price and the concept of the rent contains already the idea of marginality.

This sentence from the, taken from the paragraph below, is a very clear description of the concept of marginality and even more precise than what we found in modern textbooks.

Beside that the necessities will be less urgent and, therefore, the consumers will be less willing to make a sacrifice in order to satisfy them. Therefore, it will be more and harder to offer them at a price high enough to cover the costs of production.

This is what is called in modern textbooks the law of diminishing marginal utility. There is a big dispute if this "law" was found first by Heinrich Gossen, Léon Walras or Carl Menger. It is to presume that is was a current notion long before these three were born and that Jean-Baptiste Say was the first who formulated it.

It is obvious that someone would pay whatever he can afford for a commodity he urgently needs, water for instance, but that his willingness to pay decreases with consumption. That's the reason why we get discounts. For one chocolate bar, we pay more for each unit than for five and in order to induce us to buy five of them, a discount is required.

In the measure that the willingness to pay decreases a product can only be sold if the cost of production decreases.

If we want to be precise, we have to add that any commodity competes with other commodities. If the price of commodity is always the same whatever the amount we buy, we will stop buying it and buy something else if this alternative yield a greater utility.

However, with the concept of marginality, we don't get a full picture of the situation. Because sometimes only one unit is needed. We don't need two, three, four or five bicycles, cars, smartphone etc. but only one. What we actually by depends on the money we must pay for it and the amount of utility units we get for it. If a computer and smartphone donate both 200 utility units, and the computer costs 500 dollars and the smartphone 600, we buy the computer. If the smartphone costs 450 dollars, we buy the smartphone.

From that, we can draw the conclusion that the demand curve we find in any textbook, the lower the price, the higher the demand, cannot be deduced from marginality as it is always done in modern textbooks. The marginal utility is only one factor explaining the decreasing shape of the curve. The other factor is the fact, that commodities always competes with other commodities.

The paragraph is much more complex, and the nowadays called Say's Law is not even the central argument of the paragraph. The paragraph can be considered as well as a refutation of mercantilism. Mercantilism, the dominant theory before the contemporary classic theory, assumed that the wealth of nations depends on his gold reserves. The more gold nations possess, the richer it is. That leads to politic that imposed heavy customers duties on imports, besides raw materials and a promotion of exports. A country that always exports more than it imports will get more and more gold, the means of payment at that time. Goods are paid with money.

Jean-Baptiste Say affirms the opposite. Goods are paid with goods and money is only a means of payment. It has a similar function as carriages that serve to transport the goods. Any kind of impediments in the form of customs duties or non-tariff barriers are harmful. If products are paid with products exports increases with imports.

At first glance, it seems a simple statement, however in public debate, newly-industrialised countries like China, Korea, Taiwan are often considered as a menace for the national labour market. The truth is very straightforward. Only if we produce something, they will sell us something, and if we can't sell them something, they don't present a risk to the national labour market. Only if the imports, where jobs are lost, is balanced by exports, where new jobs are created is balanced it works in the long run. If China exports eternally more than it imports, it will get for its exports money, but this money is worth nothing.

The difference between Adam Smith and Jean-Baptiste Say on the one hand, and David Ricardo on the other is the fact that David Ricardo has a rigid, inflexible theory. That narrows the perspective. Ricardian thinking is very typical of economic thinking in general presently. Modelling has a tendency to narrow the perspective and to consciously or unconsciously disregard all facts which don't fit into the model. In this sense, we can say that David Ricardo is the beginning of the tragedy, see also mathematical modeling.

Everything that cannot be modelled, everything spontaneous, accidental, impermissible like technological advance, change of preferences, the production of know-how, the impact of research and development is excluded from the model or at most considered by a static parameter.

That way of thinking is incompatible with market economies. The basic idea of a market economy and their strength is that it reacts quickly to any kind of changes. Market economies are the best system to cope with insecurity. A model that excludes insecurity and describes the economy as something steered by economic laws attributing to these laws the same stability as natural laws deny the basic problem of an economy and, therefore, the need for a market economy.

People tend to believe that the neoclassical theory in the simplified version we find in textbooks about microeconomics nowadays, which has little to do with the original version of Alfred Marshall, where modeling is considered as the highest goal of "scientific" statements is the opposite of Marxism. That's not true. Actually, it is the same thing. The fact that they start from different assumptions and get therefore to different results is irrelevant. The crucial point is that both use the same methods, and the methodological approach is, in this case, more important than the statements.

The methodological approach is to make prognostics about the future. That's not what market economies are about. The main problem of an economy is not prognostic. The crucial question is how to deal with insecurities.

It seems that people learned at school that scientific means to get to precise results allowing to predict the impact of certain measures. That is, of course, true for physics, chemistry, biology, informatics, etc.. We expect from a computer program that it delivers predictable results. That's the reason why people strive to use the same methods in economics. Besides that, it is necessary for an ideological confrontation that the truth is proved objectively, mathematically.

The scope of a market economy is different. The strength of market economies is not that they allow to predict the future. The strength is, that whatever happens in the future, they are the best system to deal with changes in the economic structures.

To put it more clearly, any attempt to explain economy as an automatically working machine with a predictable output denies the need and strength of a market economy. If the economic processes are predictable, they can be planned. If they can be planned, it is better to plan them. In this sense, any kind of modeling is kind of a Marxism.

The method of Jean-Baptiste Say and Adam Smith is more "heuristic", is more based on personal experiences and direct observation of reality and less in a general theory. That's why we found many examples aiming to illustrate an issue, excursions into history and personal statements. Something we almost never find in the writings of David Ricardo or modern textbooks. That's why their books are so thick in comparison to Principle of Economics of David Ricardo.

With this method, the more "heuristic" one, there is a better chance to have different scenarios in mind. To give an example: The aggregate demand curve is deduced in textbooks about microeconomics from the individual aggregate curve based on the marginal diminishing of utility. The more people consume of a product, for instant apples, the less they are willing to pay because with any apple consumed the utility decreases. Actually, the sloping downward demand curve can't be explained this way, at least not in general, because from most products we consume only ONE unit and the sloping downward demand curve have to be explained by the competition between the different alternative use of income. The cheaper a product, the higher the chance that the relationship utility/price of one product beats the one of another product and is therefore preferred. The theory of the marginal diminishing of utility narrows the perspective. To illustrate is with a simple although irrelevant example.

It is obvious, we see that very clearly in Wealth of Nations of Adam Smith, that this method can lead to many contradictions, see for instance natural price/market price. However, a contradictional theory that explains reality at least in part is better than a coherent description of a parallel world. David Ricardo is a logically coherent system, but this is not helpful if the basic assumptions are wrong and, therefore, the whole theory.

We see the difference in the methodological approach as well in the issues addressed. David Ricardo only addresses the issues related to his basic theory. Jean-Baptiste Say addresses a large range of issues, for instance, the importance of research and development and the role of the entrepreneur. Modeling leads to a narrowing of the perspective.

David Ricardo is the first example of what is called nowadays an autistic economics. The autistic fixes its attention on irrelevant things and is not able to get a full picture of a situation. They very often are very strong in useless things, for instance, learning by heart the telephone book. He is not able, something that requires very often, a more "intuitive" understanding of the world, to separate relevant issues from irrelevant ones.

There are many errors in the basic assumptions of David Ricardo. It is, for instance, unclear how the "capitalists" can set a price allowing them to get the added value of labour. In a situation of competition, the prices will fall until there is no added value left. Even if the "capitalists" only pays a wage at subsistence level, he will get no added value.

The next point is that David Ricardo assumes that a further accumulation of capital is impossible if due to an increase in the prices of food the wages are so high, that there is no profit left. This would be me more or less true, more less than more if the only source of capital were labour. If the source of capital can be, know how, entrepreneurship, windfall profits, etc. with the same amount of workmen any amount of capital can be generated. Jean-Baptiste Say saw it in a different way. What is perhaps limited by the amount of food available are the CONSUMERS, but that doesn't restrict the possibilities to accumulate capital. (To see the entire paragraph, go to the end of this page.)

It is true that the number of consumers is limited by the food, but their other necessities can be infinitely extended and therefore as well the products that can satisfy this necessities and that can be exchanged.

Below is the entire chapter of the first volume of Le Traité d'économie politique. In this chapter is included, among many other things, what is nowadays called the Say's law. In the original work, it is just an irrelevant annotation between a lot of other statements actually much more relevant. Taking into consideration that Say's law is mentioned on a daily basis in newspapers never discussed scientific discussion papers and in any textbook about macroeconomics and that nobody had actually read it, it is a good idea to read it.

The paragraph mixes erroneous and correct concepts. Money is indeed a "vehicle" for transporting values if we want to use the expression of Say. This is one function of money. Today, we would call this the transaction function. This is not wrong, but it is only half of the picture. Money is kept as well for speculative reasons because money is the most liquid form of capital. For more details see the little book downloadable from the start of this website.

Curious are sentences like this one: "If there are any real value, there will be as well money enough to make them circulating and exchange them for other values." This is correct, no doubt. The amount of money circulating depends on the demand for money, not on the supply of money. This sentences is true as well, although equally curious: "The intermediate product that simplifies the exchange (money) will in this case easily increased by the mechanisms known to all traders." This is correct as well, but the problem is the same we already had in the chapter about Adam Smith, see balance of trade.

In the logic of Jean-Baptiste Say, the amount of money follows the amount of goods. For an unknown reason, it doesn't work the other way round. The amount of goods follows the amount of money. Actually, in reality, it works this way. If a company wants to increase its production the take a loan and this loan, we simplify a bit in order to get the message passed easily, is printed by a central bank. With this loan the company buys new machines and employs more workmen and increases production. The products sold, they pay back the loan. The increase in production follows the increase of money.

His general concept that savings, not consumed income of the past, impedes him to see the reality. He admits that traders can increase the amount of money, for instance by issuing bills of exchange, but he doesn't see that this contradicts his concept of saving. Saving, not consuming part of the income, can happen in the future as well.

The idea that production is not the problem is not completely correct. If people are afraid of the future, they won't take loans. Nor for consumption and nor for investments and if they have money, they will not consume it, they will save it. This is perhaps an irrational behaviour from a macroeconomic point of view, because if everybody does it, they will create the problem they tried to avoid, but that's what people will do. In a situation like that, only the government can create the needed demand.

Besides these little problems, the paragraph contains a lot of interesting statements, although nowadays called Say's Law is a pure annotation. It is mixed with a general description of the function of money.

Sometimes he forgot to draw the logic conclusion of his statements, albeit he insinuates it. If products are bought with products customer duties doesn't make any sense, because, in this case, the foreign countries wouldn't have the possibility to buy something. The best thing a government aiming to protect the national industry can do is, therefore, doing nothing at all.

If we look at the whole chapter, we realise that most of all it is about the function of money. For Jean-Baptiste Say, as for all the classical and neoclassical authors, the only function of money is to allow the transaction. That is obviously wrong, albeit we find this idea very often still today. For a more detailed discussion see the booklet downloadable from the start of this website.

If Jean-Baptiste Say is really opposed to Keynes can be doubted. It is true that Keynes refuted Say's Law completely, but from the original text, we can draw an entirely different conclusion. Jean-Baptiste Say focuses on demand.

It is true that Jean-Baptiste Say assumes that supply will always equal demand, from that perspective Keynes, is right, that's not the case if we have a look out of the window, but a lack of demand is due to a lack of income. There is no supply without demand. That's the opposite of what is assumed by David Ricardo and actually not so far away from Keynes.

The paragraph in total is optimistic. Free trade promotes the wealth of all nations.

The obvious errors in this chapters are due to the already mentioned very often to the misleading ideas about saving: "A fifth consequence of the same principle is that pure consumption, whose only aim is to generate new products, contributes nothing to the wealth of a nation. It destroys on one side what is created on the other." This is true, but irrelevant. In case of full-employment, the only way to increase the productive potential is by producing more capital goods. In case of full employment, we have actually a trade off. Consumption goods can only be produced at the expense of consumer goods. In case of unemployment, if there are idle productive factors, this trade-off doesn't exist. The consumption of consumer goods are not at the expense of the production of capital goods. Not making use of the idle resources would be simply stupid. By reading what follows to the statement above, we see that Jean-Baptiste Say wanted to say something different.

For Adam Smith and David Ricardo, see productive / unproductive labour, any kind of saving leads to investment. We could be induced to believe that Jean-Baptiste Say shares this opinion. If we read through the whole chapter, we see clearly that this is not the case. There is a clear focus on the importance of demand; he proposes even that the taste of the population be cultivated in order to induce them to more consumption. That's perhaps not what someone would suggest nowadays, but it makes clear that Jean-Baptiste Say saw a real problem on the demand side.

The classical/neoclassical definition of saving as not consumed income of the past is misleading. It suggests that saving alone leads to an increase in the production of capital goods. That's wrong for many reasons. The correct definition is, therefore, as already stated, this one: Saving is the production of capital goods instead of consumer goods.

We see as well that Jean-Baptiste Say uses already the term utility, and if we take a closer lock, we see as well that he assumes that the diminishing marginal utility leads to a situation, where the costs of production exceeds the marginal utility. It is said, that this is a central message of the "marginal revolution" of the neoclassic theory. We can learn, that this "marginal revolution" never happened. We find that already in the Traité économique de Jean-Baptiste Say.

J.-B. Say, Traité d’économie politique : Livre I, Chapitre XV,
Des débouchés

Les entrepreneurs des diverses branches d'industrie ont coutume de dire que la difficulté n'est pas de produire, mais de vendre; qu'on produirait toujours assez de marchandises, si l'on pouvait facilement en trouver le débit. Lorsque le placement de leurs produits est lent, pénible, peu avantageux, ils disent que l'argent est rare ; l'objet de leurs désirs est une consommation active qui multiplie les ventes et soutienne les prix. Mais si on leur demande quelles circonstances, quelles causes sont favorables au placement de leurs produits, on s'aperçoit que le plus grand nombre n'a que des idées confuses sur ces matières, observe mal les faits et les explique plus mal encore, tient pour constant ce qui est douteux, souhaite ce qui est directement contraire à ses intérêts, et cherche à obtenir de l'autorité une protection féconde en mauvais résultats. Pour nous former des idées plus sûres, et d'une haute application relativement à ce qui ouvre des débouchés aux produits de l'industrie, poursuivons l'analyse des faits les plus connus, les plus constants ; rapprochons-les de ce que nous avons déjà appris par la même voie; et peut-être découvrirons-nous des vérités neuves, importantes, propres à éclairer les désirs des hommes industrieux, et de nature à assurer la marche des gouvernements jaloux de les protéger. L'homme dont l'industrie s'applique à donner de la valeur aux choses en leur créant un usage quelconque ne peut espérer que cette valeur sera appréciée et payée que là où d'autres hommes auront les moyens d'en faire l'acquisition. Ces moyens, en quoi consistent-ils ? En d'autres valeurs, d'autres produits, fruits de leur industrie, de leurs capitaux, de leurs terres :

d'où il résulte, quoique au premier aperçu cela semble un paradoxe, que c'est la production qui ouvre des débouchés aux produits.

Que si un marchand d'étoffes s'avisait de dire : Ce ne sont pas d'autres produits que je demande en échange des miens, c'est de l'argent, on lui prouverait aisément que son acheteur n'est mis en état de le payer en argent que par des marchandises qu'il vend de son côté. « Tel fermier, peut-on lui répondre, achètera vos étoffes si ses récoltes sont bonnes ; il achètera d'autant plus qu'il aura produit davantage. Il ne pourra rien acheter, s'il ne produit rien. « Vous-mêmes, vous n'êtes mis à même de lui acheter son froment et ses laines, qu'autant que vous produisez des étoffes.

Vous prétendez que c'est de l'argent qu'il vous faut : je vous dis, moi, que ce sont d'autres produits. En effet, pourquoi désirez vous cet argent ? N'est-ce pas dans le but d'acheter des matières premières pour votre industrie, ou des comestibles pour votre bouche?

Vous voyez bien que ce sont des produits qu'il vous faut, et non de l'argent. La monnaie d'argent qui aura servi dans la vente de vos produits, et dans l'achat que vous aurez fait des produits d'un autre, ira, un moment après, servir au même usage entre deux autres contractants ; elle servira ensuite à d'autres ; et à d'autres encore, sans fin : de même qu'une voiture qui, après avoir transporté le produit que vous aurez vendu, en transportera un autre, puis un autre. Lorsque vous ne vendez pas facilement vos produits, dites-vous que c'est parce que les acquéreurs manquent de voitures pour les emporter ? Eh bien ! l'argent n'est que la voiture de la valeur des produits.

Tout son usage a été de voiturer chez vous la valeur des produits que l'acheteur avait vendus pour acheter les vôtres ; de même, il transportera, chez celui auquel vous ferez un achat, la valeur des produits que vous aurez vendus à d'autres. « C'est donc avec la valeur de vos produits, transformée momentanément en une somme d'argent, que vous achetez, que tout le monde achète les choses dont chacun a besoin. Autrement comment ferait-on pour acheter maintenant en France, dans une année, six ou huit fois plus de choses qu'on n'en achetait sous le règne misérable de Charles VI ?
Il est évident que c'est parce qu'on y produit six ou huit fois plus de choses, et qu'on achète ces choses les unes avec les autres. »

Lors donc qu'on dit : La vente ne va pas, parce que l'argent est rare, on prend le moyen pour la cause; on commet une erreur qui provient de ce que presque tous les produits se résolvent en argent avant de s'échanger contre d'autres marchandises, et de ce qu'une marchandise qui se montre si souvent parait au vulgaire être la marchandise par excellence, le terme de toutes les transactions dont elle n'est que l'intermédiaire. On ne devrait pas dire : La vente ne va pas, parce que l'argent est rare, mais parce que les autres produits le sont. Il y a toujours assez d'argent pour servir à la circulation et à l'échange réciproque des autres valeurs, lorsque ces valeurs existent réellement.

Quand l'argent vient à manquer à la masse des affaires, on y supplée aisément, et la nécessité d'y suppléer est l'indication d'une circonstance bien favorable : elle est une preuve qu'il y a une grande quantité de valeurs produites, avec lesquelles on désire se procurer une grande quantité d'autres valeurs. La marchandise intermédiaire, qui facilite tous les échanges (la monnaie), se remplace aisément dans ce cas-là par des moyens connus des négociants, et bientôt la monnaie afflue, par la raison que la monnaie est une marchandise, et que toute espèce de marchandise se rend aux lieux où l'on en a besoin.

C'est un bon signe quand l'argent manque aux transactions, de même que c'est un bon signe quand les magasins manquent aux marchandises. Lorsqu'une marchandise surabondante ne trouve point d'acheteurs, c'est si peu le défaut d'argent qui en arrête la vente, que les vendeurs de cette marchandise s'estimeraient heureux d'en recevoir la valeur en ces denrées qui servent à leur consommation, évaluées au cours du jour ; ils ne chercheraient point de numéraire, et n'en auraient nul besoin, puisqu'ils ne le souhaitaient que pour le transformer en denrées de leur consommation. Le producteur qui croirait que ses consommateurs se composent, outre ceux qui produisent de leur côté, de beaucoup d'autres classes qui ne produisent pas matériellement, comme des fonctionnaires publics, des médecins, des gens de loi, des prêtres, etc., et qui de là tirerait cette induction, qu'il y a des débouchés autres que ceux que présentent les personnes qui produisent elles-mêmes ; le producteur, dis-je, qui raisonnerait ainsi, prouverait qu'il s'attache aux apparences, et ne pénètre pas le fond des choses. En effet, un prêtre va chez un marchand pour y acheter une étole ou un surplis. La valeur qu'il y porte est sous la forme d'une somme d'argent : de qui la tient-il ? d'un percepteur qui l'avait levée sur un contribuable. De qui le contribuable la tenait-il ? elle avait été produite par lui. C'est cette valeur produite, échangée d'abord contre des écus, puis donnée à un prêtre, qui a permis à celui-ci d'aller faire son achat. Le prêtre a été substitué au producteur ; et le producteur, sans cela, aurait pu acheter pour lui-même, avec la valeur de son produit, non pas une étole ou un surplis, mais tout autre produit plus utile. La consommation qui a été faite du produit appelé surplis a eu lieu aux dépens d'une autre consommation. De toute manière, l'achat d'un produit ne peut être fait qu'avec la valeur d'un autre. La première conséquence qu'on peut tirer de cette importante vérité, c'est que, dans tout État, plus les producteurs sont nombreux et les productions multipliées, et plus les débouchés sont faciles, variés et vastes. Dans les lieux qui produisent beaucoup, se crée la substance avec laquelle seule on achète : je veux dire la valeur. L'argent ne remplit qu'un office passager dans ce double échange ; et, les échanges terminés, il se trouve toujours qu'on a payé des produits avec des produits. Il est bon de remarquer qu'un produit terminé offre, dès cet instant, un débouché à d'autres produits pour tout le montant de sa valeur. En effet, lorsque le dernier producteur a terminé un produit, son plus grand désir est de le vendre, pour que la valeur de ce produit ne chôme pas entre ses mains. Mais il n'est pas moins empressé de se défaire de l'argent que lui procure sa vente, pour que la valeur de l'argent ne chôme pas non plus. Or, on ne peut se défaire de son argent qu'en demandant à acheter un produit quelconque.

On voit donc que le fait seul de la formation d'un produit ouvre, dès l'instant même, un débouché à d'autres produits.

C'est pour cela qu'une bonne récolte n'est pas seulement favorable aux cultivateurs, et qu'elle l'est en même temps aux marchands de tous les autres produits. On achète davantage toutes les fois qu'on recueille davantage. Une mauvaise récolte, au contraire, nuit à toutes les ventes. Il en est de même des récoltes faites par les arts et le commerce. Une branche de commerce qui prospère fournit de quoi acheter, et procure conséquemment des ventes à tous les autres commerces ; et d'un autre côté, quand une partie des manufactures ou des genres de commerce devient languissante, la plupart des autres en souffrent.

Cela étant ainsi, d'où vient, demandera-t-on, cette quantité de Marchandises qui, à certaines époques, encombrent la circulation, sans pouvoir trouver d'acheteurs ? pourquoi ces marchandises ne s'achètent-elles pas les unes les autres ? Je répondrai que des marchandises qui ne se vendent pas, ou qui se vendent à perte, excèdent la somme des besoins qu'on a de ces marchandises, soit parce qu'on en a produit des quantités trop considérables, soit plutôt parce que d'autres productions ont souffert. Certains produits surabondent, parce que d'autres sont venus à manquer. En termes plus vulgaires, beaucoup de gens ont moins acheté, parce qu'ils ont moins gagné; et ils ont moins gagné, parce qu'ils ont trouvé des difficultés dans l'emploi de leurs moyens de production, ou bien parce que ces moyens leur ont manqué. Aussi l'on peut remarquer que les temps où certaines denrées ne se vendent pas bien sont précisément ceux où d'autres denrées montent à des prix excessifs; et comme ces prix élevés seraient des motifs pour en favoriser la production, il faut que des causes majeures ou des moyens violents, comme des désastres naturels ou politiques, l'avidité ou l'impéritie des gouvernements, maintiennent forcément d'un côté cette pénurie, qui cause un engorgement de l'autre.

Cette cause de maladie politique vient-elle à cesser, les moyens de production se portent vers les routes où la production est demeurée en arrière ; en avançant dans ces voies-là, elle favorise l'avancement de la production dans toutes les autres. Un genre de production devancerait rarement les autres, et ses produits seraient rarement avilis, si tous étaient toujours laissés à leur entière liberté. Une seconde conséquence du même principe, c'est que chacun est intéressé à la prospérité de tous, et que la prospérité d'un genre d'industrie est favorable à la prospérité de tous les autres. En effet, quels que soient l'industrie qu'on cultive, le talent qu'on exerce, on en trouve d'autant mieux l'emploi, et l'on en tire un profit d'autant meilleur, qu'on est plus entouré de gens qui gagnent eux-mêmes. Un homme à talent, que vous voyez tristement végéter dans un pays qui décline, trouverait mille emplois de ses facultés dans un pays productif, où l'on pourrait employer et payer sa capacité. Un marchand, placé dans une ville industrieuse et riche, vend pour des sommes bien plus considérables que celui qui habite un canton pauvre où dominent l'insouciance et la paresse. Que feraient un actif manufacturier, un habile négociant dans une ville mal peuplée et mal civilisée de certaines portions de l'Espagne
ou de la Pologne ?

Quoiqu'il n'y rencontrât aucun concurrent, il y vendrait peu, parce qu'on y produit peu ; tandis qu'à Paris, à Amsterdam, à Londres, malgré la concurrence de cent marchands comme lui, il pourra faire d'immenses affaires. La raison en est simple : il est entouré de gens qui produisent beaucoup dans une multitude de genres, et qui font des achats avec ce qu'ils ont produit, c'est-à-dire avec l'argent provenant de la vente de ce qu'ils ont produit. Telle est la source des profits que les gens des villes font sur les gens des campagnes, et que ceux-ci font sur les premiers : les uns et les autres ont d'autant plus de quoi acheter qu'ils produisent davantage. Une ville entourée de riches campagnes y trouve de nombreux et riches acheteurs, et dans le voisinage d'une ville opulente, les produits de la campagne ont bien plus de valeur.

C'est par une distinction futile qu'on classe les nations en nations agricoles, manufacturières et commerçantes. Si une nation réussit dans l'agriculture, c'est une raison pour que ses manufactures et son commerce prospèrent ; si ses manufactures et son commerce sont florissants, son agriculture s'en trouvera mieux. Une nation, par rapport à la nation voisine, est dans le même cas qu'une province par rapport à une autre province, qu'une ville par rapport aux campagnes : elle est intéressée à la voir prospérer, et assurée de profiter de son opulence. C'est donc avec raison que les États-Unis ont toujours cherché à donner de l'industrie aux tribus sauvages dont ils sont entourés : ils ont voulu qu'elles eussent quelque chose à donner en échange, car on ne gagne rien avec des peuples qui n'ont rien à vous donner. Il est précieux pour l'humanité qu'une nation, entre les autres, se conduise, en chaque circonstance, d'après les principes libéraux. Il sera démontré, par les brillants résultats qu'elle en obtiendra, que les vains systèmes, les funestes théories, sont les maximes exclusives et jalouses des vieux États de l'Europe qu'ils décorent effrontément du nom de vérités pratiques, parce qu'ils les mettent malheureusement en pratique.

L'union américaine aura la gloire de prouver, par l'expérience, que la plus haute politique est d'accord avec la modération et avec l'humanité. Une troisième conséquence de ce principe fécond, c'est que l'importation des produits étrangers est favorable à la vente des produits indigènes ; car nous ne pouvons acheter les marchandises étrangères qu'avec des produits de notre industrie, de nos terres et de nos capitaux, auxquels ce commerce par conséquent procure un débouché. - C'est en argent, dira-t-on, que nous payons les marchandises étrangères. - Quand cela serait, notre sol ne produisant point d'argent, il faut acheter cet argent avec des produits de notre industrie ; ainsi donc, soit que les achats qu'on fait à l'étranger soient acquittés en marchandises ou en argent, ils procurent à l'industrie nationale des débouchés pareils. Par une quatrième conséquence du même principe, la consommation pure et simple, celle qui n'a d'autre objet que de provoquer de nouveaux produits, ne contribue point à la richesse du pays. Elle détruit d'un côté ce qu'elle fait produire d'un autre côté.

Pour que la consommation soit favorable, il faut qu'elle remplisse son objet essentiel, qui est de satisfaire à des besoins. Lorsque Napoléon exigeait qu'on parût à sa cour avec des habits brodés, il causait à ses courtisans une perte égale, tout au moins, aux gains qu'il procurait à ses brodeurs. C'était pis encore lorsqu'il autorisait par des licences un commerce clandestin avec l'Angleterre, à la charge d'exporter en marchandises françaises une valeur égale à celle qu'on voulait importer. Les négociants qui faisaient usage de ces licences chargeaient sur leurs navires des marchandises qui, ne pouvant être admises de l'autre côté du détroit, étaient jetées à la mer en sortant du port.

Le gouvernement, tout à fait ignorant en économie politique, s'applaudissait de cette manoeuvre comme étant favorable à nos manufactures. Mais quel en était l'effet réel ? Le négociant, obligé de perdre la valeur entière des marchandises françaises qu'il exportait, vendait en conséquence le sucre et le café qu'il rapportait d'Angleterre, le consommateur français payait le montant des produits dont il n'avait pas joui. C'était comme si, pour encourager les fabriques, on avait acheté, aux dépens des contribuables, les produits manufacturés pour les jeter à la mer.

Pour encourager l'industrie, il ne suffit pas de la consommation pure et simple ; il faut favoriser le développement des goûts et des besoins qui font naître parmi les populations l'envie de consommer ; de même que, pour favoriser la vente, il faut aider les consommateurs à faire des gains qui les mettent en état d'acheter. Ce sont les besoins généraux et constants d'une nation qui l'excitent à produire, afin de se mettre en pouvoir d'acheter, et qui par là donnent lieu à des consommations constamment renouvelées et favorables au bien-être des familles.

Après avoir compris que la demande des produits en général est d'autant plus vive que la production est plus active, vérité constante malgré sa tournure paradoxale, on doit peu se mettre en peine de savoir vers quelle branche d'industrie il est à désirer que la production se dirige. Les produits créés font naître des demandes diverses, déterminées par les moeurs, les besoins, l'état des capitaux, de l'industrie, des agents naturels du pays ;

les marchandises les plus demandées sont celles qui présentent, par la concurrence des demandeurs, de plus forts intérêts pour les capitaux qui y sont consacrés, de plus gros profits pour les entrepreneurs, de meilleurs salaires pour les ouvriers ; et ce sont celles-là qui sont produites de préférence. On voudra savoir peut-être quel serait le terme d'une production croissante et où des produits, chaque jour plus considérables, s'échangeraient constamment les uns contre les autres ; car enfin ce n'est que dans les quantités abstraites qu'il y a des progressions infinies, et dans la pratique la nature des choses met des bornes à tous les excès. Or, c'est l'économie politique pratique que nous étudions ici. L'expérience ne nous a jamais offert encore l'exemple d'une nation complètement pourvue de tous les produits qu'elle est en état de créer et de consommer ; mais nous pouvons étendre par la pensée à tous les produits, successivement, ce que nous avons observé sur quelques-uns. Au-delà d'un certain point, les difficultés qui accompagnent la production, et qui sont en général surmontées par les services productifs, s'accroissent dans une proportion plus rapide, et ne tardent pas à surpasser la satisfaction qui peut résulter de l'usage qu'on fait du produit.

Alors on peut bien créer une chose utile, mais son utilité ne vaut pas ce qu'elle coûte, et elle ne remplit pas la condition essentielle d'un produit, qui est d'égaler tout au moins en valeur ses frais de production. Quand on a obtenu d'un territoire toutes les denrées alimentaires qu'on en peut obtenir, si l'on fait venir de plus loin de nouvelles denrées alimentaires, leur production peut se trouver tellement dispendieuse que la chose procurée ne vaille pas ce qu'elle coûte. Si le travail de trente journées d'hommes ne pouvait les nourrir que pendant vingt jours, il ne serait pas possible de se livrer à une semblable production ; elle ne favoriserait pas le développement de nouveaux individus, qui par conséquent ne formeraient pas la demande de nouveaux vêtements, de nouvelles habitations, etc.

A la vérité, le nombre des consommateurs étant borné par les denrées alimentaires, leurs autres besoins peuvent se multiplier indéfiniment, et les produits capables de les satisfaire peuvent se multiplier de même et s'échanger entre eux. Ils peuvent se multiplier également pour former des accumulations et des capitaux. Toutefois, les besoins devenant de moins en moins pressants, on conçoit que les consommateurs feraient graduellement moins de sacrifices pour les satisfaire ; c'est-à-dire qu'il serait de plus en plus difficile de trouver dans le prix des produits une juste indemnité de leurs frais de production. Toujours est-il vrai que les produits se vendent d'autant mieux que les nations ont plus de besoins, et qu'elles peuvent offrir plus d'objets en échange ; c'est-à-dire qu'elles sont plus généralement civilisées.

The entrepreneur of the different branches of the industry are saying that the problem is not in the production, but selling the products. It is said that it is no problem to produce more goods if it were easier to sell them. In case that if the sale is down, difficult and not very profitable, it is said that there isn't enough money. What they want is a more active consumption, that promotes sales and maintains the prices. But if they are asked which circumstances would be favourable for the sale of their products, one realises that the majority of them have strange ideas related to these things, they have little understanding about these issues and they explain them even worse. They take for granted things that are unclear; they wish things that contradict their interests and they want the authorities to get protection, something that would worsen the situation. In order to get a more precise idea and in order to identify the circumstances that lead to higher sales, we stick to the best known and constant facts. We will add that to what we have already found the same way. Perhaps, we will find correct answers allowing us to analyse better the wishes of the entrepreneurs and the measure of governments who pretend to protect them. People who are engaged in giving a value to the things adding a utility can't expect that this value is appreciated and paid if other people don't have the resources to buy them. What kind are these resources? They consist of other values, other products, in the result of their work, capital and land.

===> Say's Law <===

From that it can be deduced, albeit it seems a paradox, that it is the production that offers a market for the products.

If a trader of clothes says that he doesn't want other products in exchange for his products but money, it is easy to prove that his customer is only able to buy his commodities because he has sold something before. "This farmer", one could answer "is only able to pay your cloth, if the harvest was good. The more he has sold, the more he can buy. He can't buy anything if he produces nothing. You also won't be able to buy his wheat and his wool, if you don't produce clothes.

You affirm that you need money? I tell you that you need other products. Talking seriously, what do you need this money for? You don't need to buy raw materials for your business and food for your mouth?

You see, therefore, that what you actually need is not money, but products. The money that served for selling your products and for the acquisition of the products from others by you will serve at the next moment, other sellers and buyers. Afterwards, others and once again others, like a carriage that served for the transport of products, you sold to someone else and afterwards to another one. If you can't sell your products, would you say that the cause is the lack of carriages? Money is nothing else than the carriage transporting the value of the products.

It was only used to transport the values of the products that the buyer sold to buy yours. The same way it will transport the values you bought from him and the values you sold him. "With the value of your products, for a short time converted into money, you as well as everybody buy the things needed. How can it explained otherwise that today every year six o eight times are bought than under the miserable reign of Charles VI? This is obviously due to the fact that today, six or eight times more, things are produced and these things were paid with other things.

If it is said that sales are difficult because the money is scarce, the effect is confused with the cause. The error is due to the fact that all products become money before they are exchanged in other products and that the people take the commodity that so often appears to be the commodity itself as the real commodity, albeit actually it is only an intermediate state. One should not say that sales are low because of a lack of money, but because a lack of products. If there are real values there will be money as well to get them circulating and exchanged by other values.

If more money is needed due to the amount of transactions, it can be produced easily and the need to produce is a good signal. It proves that there is a large amount of produced values which can be obtained by an equally large amount other values. The intermediate commodity which simplifies the exchange (money) will be easily increased through the mechanisms well known by the traders and in a short time the money needed will be available and the commodities will flow to any place there are needed.

If there is a lack of money for transactions it is, similar to a lack of products in the shops, a positive sign. If a commodity that is available in abundance doesn't find its buyers it is not because a lack of money which limits the sale. The sellers of these commodities would be happy if they could get the value corresponding in food on a certain day. They will not ask for money and they won't need it because they only need it to buy food for their own needs. Some producers might be induced to believe that there are different types of consumers that don't produce anything like the employees of public administration, the doctors, the lawyers, the priests etc. and will draw from that the conclusion that besides the consumers who produce something there will be others. I would say that the producer who argues like that is blinded by the appearence and doesn't go into things thoroughly. If a priest goes to a trader to buy a stolen or an investment, he will bring the value in money. But from where did he get it? He got it from a collector who took it from a taxpayer. And the taxpayer, where did he get it from? He has produced it himself. It is the same value, initially changed in euros, afterwards given to the collector and then to the priest that allows the last one to buy it. The priest was substituted by the collector. The producer could have bought for his value something else than a stolen investment, something more useful. The generated consumption by the vestment was at charge of another consumer good, but in any case the purchase of the product was only possible through the value of another corresponding product. The generated consumption by the vestment was at charge of another consumer good, but in any case the purchase of the product was only possible through the value of another corresponding product. The first conclusion that can be drawn of that important truth is this one. The more producers and products are in a nation the easier, differentiated, and bigger is the consumer market. Where a lot of things are produced, the basis is created to buy things. It is crucial to underline that product supplies, once finished, a consumer market for other products. If the last producer has finished his product, his biggest desire is to sell it in order to avoid that his value remains useless in his hands. But at the same degree, he is interested in using the money earned through the sale in order to get a benefit from it by buying something, because the value of money doesn't sleep neither. The only way to get rid of ones money is buy buying another product.

===> Say's Law <===

It is obvious, therefore, that already, the production of a product creates a market for other products.

Therefore, a good harvest is not only good for the farmer, but also for the traders of all the other products. The better the last harvest, the more people buy and a bad harvest diminishes sales. The more is produced, the more is bought. A bad harvest on the contrary, is harmful for sale. Similar for the harvest of industry and comerce. A flourishing branch of commerce delivers something to pay with and enables to sell something all the other branches. At the other side, if a part of the industry or branches of commerce got in trouble, all the others will suffer.

Some will ask how it is possible that there are such a lot of commodities that block the circulation of commodities and who don't find a buyer? Why are these products not bought with products? To this question, I answer that some products are not sold or only sold with loss because too much of them were produced or to less from others. There is too much of something because there is too little from something else. Simplifying it, a lot of people bought less because they earned less and they earned less because they had difficulties employing their means of production or because these means were not available to them. It can be observed as well that in times where some kind of food can't be sold others increases excessively in prices. These prices would be an incentive for the production if not deeper reasons like natural catastrophes or political unrest, the greed or despotism of government would maintain this scarcity that leads to extinction of others.

If this disease caused by politics finishes, production will continue its way where it was interrupted and by doing this will promote the progress of others. The production of a certain branches rarely has an advance over the others and its product will rarely be disdained if all the others are given full liberty. A second consequence of the same principle is that anybody is interested in the prosperity of all and that the prosperity of one branche of the industry is favourable to the prosperity of all the others. Whatever the branche someone is engaged, whatever the talent, the more people someone is surrounded by people earning money the easier it is to find a joba and to the more profit. A talented person that is vegetating in a declining country, can find thousand of jobs that suits his talents in a productive country. A trader situated in an industrious and rich village sells much more than a trader situated in a poor region where dominated by carelessness and lazyness. What a diligent craftsman, an able trader can do in a village with few people and poorly civilised in Spain or Polen?

Even if there were no competitors at all, he wouldn't sell a lot, while in Paris, Amsterdam or London he could do good business, despite the competition of one hundred traders like him. The reason for this is simple: He is surrounded by people a lot of a lot of things and who buy something with what they had produced, in other words, with money deriving from the sale what they have produced. This is the source of the profits that the people of the town make with the people of the land and the last ones with the first ones. Both of them have more if they produce more. A village surrounded by rich lands found numerous and rich buyers and in the neighbourhood of a rich city, the value of the products of the land has a higher value.

The classification of agrarian countries, industrialised countries and trading countries is useless. If a country reaches a high level in agriculture, it will reach a high level in manufacturing and trade as well. If the industry and the trade flourishes, its agriculture will be better off as well. A nation is in the same situation in relation to a neighbour nation than a province in relation to a neighbour province, than a city in relation to the surrounding land. All of them are interested in seeing the neighbour flourishing and they are sure that they benefit from their wealth. The United States had, therefore, a good reason for trying to familiarise the surrounding savage tribes with some kind of industry. The goal was enabling them to have something that could be changed, because it is impossible to make any profitable trade with people who have nothing to change. It is precious for humanity that one nation, between others, follows, in a different degree, the liberal principles. It will be shown by the brilliant results it will obtain that the vain systems, obscure theories, jealous and exclusive maxims only exists in the frail nations of Europe where they can be declared shamelessly true, because they are unfortunately put in practise.

The United States will obtain the glory to prove by experience that the most reasonable policy is compatible with moderation and humanity. A third consequence of this fruitful principle is that the importation of foreign products promotes the sales of national products, because we can only pay foreign products with products of our industry, our land and our capital and this trade will offer in consequence a market for these products. Some say that it is with money that we buy foreign products. If this is the case and given the fact that our land doesn't produce money, we have to buy this money with the products of our industry.
In both cases, if the commodities we buy in foreign countries are paid with commodities or with money, new markets are opened for the national industries. A fifth consequence of the same principle is that pure consumption, whose only aim is to generate new products, contributes nothing to the wealth of a nation. It destroys at one side what is created at the other.

Consumption can only have the intended beneficial effect if it fulfils its primary goal that consists in satisfying a necessity. When Napoleon pretended that everybody wear embroidered clothes on his court, he caused losses at the courtiers which in the best case corresponded to the profits of the manufacturers. The authorisation by licences of a clandestine trade with England under the condition they export French commodities of the same value as the ones imported was even worse. The traders who made use of these licences loaded their ships with commodities which they throw to the sea after having left the harbour because they couldn’t sell it at the other side of the canal.

The government who had no clue of economic issues thought that this would help our manufacturers and was proud of these measures. But what was the real effect? The trader who was obliged to destroy the whole value of the French wine sold the sugar and the coffee for a price that compensated him for the commodities that he lost. This is like buying at the expense of the taxpayer the products of the industry to throw them afterwards to the sea.

To promote the industry, the only thing needed is consumption. The taste and the necessities that promotes the consumption of the population must be developed. In order to promote the consumption it is necessary as well to help the consumers to make money in order to enable them to buy something. Constant and common necessities of a nation induce a nation to produce allowing them therefore to buy something and to give them the possibility to satisfy new necessities that promote the well-being of the families.

Once understood that the demand for products in general increases if production increases, an ever valid truth although it may seem paradox, there is no need to ask to which branche of the industrie production is directed. The production of products leads to different kinds of demand which are determined by the habits, the needs, the state of capitals, the industry and the natural conditions of the nation.

The most wanted commodities are those where there is a strong competition between the buyers and that is where the capital invested the highest profit, the entrepreneur earns most money and where the workmen get the highest wages. Therefore, these products will be produced first. Some want to know where the limits are of production, of an increase on daily basis of the amount of products constantly changed. An increase of the demand exists only at an abstract level; in practise the nature of things put a limit to any kind of excess. Here, we study practical economics. From experience, we know no country that possess all the products can produce and consume, but we can generalise what we have learned from some products. Beyond a certain point the difficulties of production, in general overcome by the efficiency of production, become more and more important and will finally exceed the satisfaction that can be drawn from the satisfaction that yield the product. .

It is possible to produce something useful; however the utility exceeds the costs and, therefore, doesn't comply with the minimal requirement of a product: The value cannot exceed the cost of production. If all the food that can be obtained from territory was extracted and if more food has been brought from far away, their production can be so expensive that the thing produced is not worth the costs. If the labour of thirty days only nourishes the workers for 20 days, a sustainable production is not possible. That wouldn't promote the development of new individuals who would induce a new demand for new clothes, new houses etc.

The number of consumers is actually limited by the food available, but the other necessities can be increased infinitely and the products that can satisfy this necessities can be increased and interchanged as well infinitely. They can as well be increased to multiply and accumulate the capital. However, the necessities will be more and more less urgent and, therefore, the consumers will be less and less willing to make sacrifices in order to satisfy them. It will be therefore more and more difficult to offer them at a price that covers the costs. However, it is correct that the products sell better the more necessities a nation have and the more products can be offered in exchange. In other words: The more developed they are.

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The law of Say: Products are bought with products

The famous Say's law, products are bought with products is not the central message of the chapter. The whole chapter is about the function of money and free trade.

It can even argued that Say is the only classic, if the chapter is read carefully, that a lack of demand can be a problem, although Says argues that the demand in general will never be satisfied.

The "the marginal revolution" never happened, because chapter 16 of the first book already contains the idea of marginality. The more units of a product are consumed, the less people are willing to pay for any further unit and the more difficult it becomes to produce it.


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