Jean-Baptiste Say (1767-1832) was a French classical liberal economist and scholar. Say was born in Lyon and had a distinguished career. He served on a government finance committee under Napoleon. He taught political economy at the Athénée, the Conservatoire National des Arts et Metiers, and the College de France, where he was named chair of political economy.
Say’s the law of markets is a classical economic theory that says that production is the source of demand. According to Say’s direction, the ability to demand something is financed by supplying a different good.
KEY TAKEAWAYS
- Jean-Baptiste Say was a liberal political economist who greatly influenced neoclassical economic thought.
- He argued strongly in favor of competition, free trade, and lifting restraints on business.
- Say’s Law of Markets suggests that all markets will clear because there will always be demand for something if it is supplied, given the right price.
Understanding Jean-Baptiste Say
Jean-Baptiste Say is known for his formulation of Say’s Law of Markets, also referred to as his Theory of Markets, and for his book titled A Treatise On Political Economy, which was published in 1803.
In addition to his famous Treatise, his other published works were the two-volume Complete Course in Practical Political Economy (in 1852), and a collection of his correspondence with fellow economist Thomas Malthus titled Letters to Mr. Malthus, which discussed and debated his critics’ theories of economic growth.
Say was heavily influenced by Adam Smith and the economic theories that Smith laid out in his 1776 book Wealth of Nations. He was a big proponent of Smith’s free market theories, promoting his laissez-faire philosophies and helping to popularize them in France through his academic work and teaching.
Say also believed that a falling price level could be positive if it resulted from productivity gains rather than deflation.
He wrote about money and banking, shared his views of taxation as burdensome, and is credited by Robert L. Formaini in the Federal Reserve Bank of Dallas’s Economic Insights publication as among the first economists to discuss entrepreneurship and notions of utility, describing entrepreneurs as helpful in meeting “human wants.”
Say’s economist contemporaries included James Mill, Jeremy Bentham, and David Ricardo.
Say’s Law of Markets
Say’s Law of Markets states that to buy goods on the market, a buyer must first have produced something of value to sell to obtain purchasing power (in the form of money). This implies that the amount of effective demand for goods in an economy is a result of previous acts of production and that, as a result, there can never be a sustained general oversupply of goods in an economy because producing economic interests is what creates public demand for goods.
Say’s Law does not claim that there can never be imbalances in supply and demand for specific goods. However, Say believed that these will tend toward balances as prices adjust and that this price adjustment process is also critical to balancing the public demand and supply of all goods.
Say’s law lives on in modern neoclassical economic models, which argue that if prices are flexible enough for all markets to be transparent, the economy will tend toward stability.
While Say’s Law implies that the economy is self-regulating so that production is ultimately the source of demand, it has been misinterpreted and frequently taken to mean that “supply creates its demand.”
Contemporary economists John Maynard Keynes and Thomas Malthus criticized Say’s law. Later economists point to Keynes as partly or chiefly responsible for the confusion over Say’s Law, characterizing Keynes’s restatement of the Law as a strawman that misrepresents. Say’s Law to further Keynes’s arguments at the expense of classical economics.
Jean-Baptiste Say and U.S. Founding Fathers
Appearing in English translation, Say’s works found an admiring audience in American founding fathers Thomas Jefferson and James Madison, with whom he actively corresponded. Madison’s letter thanking Say for sending him a copy of his Treatise reads in part, “I pray you, Sir, to be assured of the great value I place on your esteem….”