Jean Baptiste Say (1767-1832) — "Say's Law"

What The Law Says, Say's Law Of Market and Economics

Jean Baptiste Say was a Frenchman and disciple of Adam Smith. He wrote: A Treatise on Political Economy (1803).

Unlike Smith, Say believed that exchange value (price) depended entirely upon a commodity's use-value or utility. Also, unlike Smith, Say claimed that there was no theoretical distinction between the incomes of the social classes -that all had coequal responsibility for the ultimate production of utility. As such, owners sacrificed, just like laborers, through frugality and forbearance to produce utility. Income, then, was directly linked to the importance of one's contributions and sacrifices utility's creation. Since capital and labor contributed equally, class conflict disappeared, and social harmony was left as a natural result.

Recall that while the labor theory of value saw the process of production as a series of human exertions, the utility theory of value, as described by Say, perceived the different producing participants (i.e. capitalists, landlords, and laborers) as equal contributors in producing goods.

Interestingly, as a result of this belief a co-equal contribution to the creation of value or utility by all three social classes, Say not only rejected the labor theory of value, but basically totally ignored it.

"Say's law" was another contribution Say made to economics. Again, like Ricardo yet unlike Malthus, Marx, and Keynes, Say believed that the free market would always adjust automatically to equilibrium to the point where all resources, including labor, would be fully utilized. Since production did not occur unless someone wants to make an exchange; therefore, supply created a demand of the same magnitude. In Say's words, "Produce opens a vent for produce" (Say, 1936. p. 3). Based on these assertions, gluts and shortages would simply be temporary occurrences and only happen for individual items. As such, all individual gluts would be canceled by other individual shortages resulting in continual overall equilibrium and state of complete balance on the aggregate level. For example, capitalists who became adversely affected by high inventories and resultant low prices for their products would ultimately leave the low-priced industry in search for higher profits. After entering a higher-priced industry, inventories and prices for the previous goods would be restored to their equilibrium points. In other words, throughout this entire process aggregate demand would always remain equal to aggregate supply, and demand and supply for each commodity would also be equal. As a result, temporary shortages and surpluses among the different industries would be automatically eliminated by the free and competitive market.