Say's Law

Say's Law is named for economist Jean-Baptiste Say (1767–1832) who stated, according to Wikipedia, that "products are paid for with products" and "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."

While this is perhaps a controversial point of view, Say's more profound insight may have been in observing the following: "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: pp.138–9)

In plainer English, what Say is suggesting here is that supply stimulates demand. This is a profound insight. Prior to Say, economists had the idea that people's demand was to be filled by supply. It was Say's insight that the businessperson could actually create demand with products, new or old. This insight is obviously illustrated in the 20th century by the invention of the plane and modern car. Prior to these inventions there was no demand for either vehicle. Today, of course, there is massive demand.

It was Say's perspective that products, not money-stuff itself, facilitates sales. In this perspective he rightly emphasized the predominance of product in a market economy. Gold and silver (money) can be plentiful, but if there are no products, then even honest money is virtually worthless.

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