Jean-Baptiste Say - Say's Law

Say's Law

He is well known for Say's Law (or Say's Law of Markets), often summarised as

• "Aggregate supply creates its own aggregate demand",
• "Supply creates its own demand",
• "Supply constitutes its own demand",
• "If you build it, they will come",
• "Inherent in supply is the wherewithal for its own consumption". (Direct translation from French Traité d'économie politique.)

The exact phrase "supply creates its own demand" was coined by John Maynard Keynes, who criticized it, but this characterization is disputed as a misrepresentation by some advocates of Say's law. Similar sentiments, though different wordings, appear in the work of J. S. Mill (1848) and his father, James Mill (1808). The Scottish classical economist James Mill restates Say's Law in 1808, writing that "production of commodities creates, and is the one and universal cause which creates a market for the commodities produced."

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). Explaining his point at length, he wrote that:

It is worthwhile 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)

He also wrote, that it is not the abundance of money but the abundance of other products in general that facilitates sales:

Money performs but a momentary function in this double exchange; and when the transaction is finally closed, it will always be found, that one kind of commodity has been exchanged for another.

Say's Law may also have been culled from Ecclesiastes 5:11 — "As goods increase, so do those who consume them. And what benefit are they to the owner except to feast his eyes on them?" (NIV) Say's Law has been considered by John Kenneth Galbraith as the most distinguished example of the stability of economic ideas, including when they are wrong.