Say's Theory of Markets

Say's Theory of Markets

It was the economic upheavals following the Napoleonic Wars which excited the interest of economists in business cycles. One must remember that economists of the 18th century had few intellectual tools with which to analyze the processes of business. Only after the Physiocrats and Adam Smith had systematized economic ideas were those interested in economic problems able to go beyond the superficial descriptions that marked the earlier authors. Jean Baptiste Say was the first of the professional economists to treat business cycles systematically. In most things he was merely a popularizer of the idea of Adam Smith. His in­terest in the recurring booms and crises which marked economic activity is his only original work. However, his contribution is mostly negative, for he adopts the familiar ostrich method of hid­ing his head in classical theory and maintaining that crises do not exist because in theory they could not exist. To prove that this was so he developed his idea of markets. Since goods were exchanged for goods, all goods produced represented a demand for other goods, therefore increased production merely increased demand and over-production generally could not exist. He ad­mitted that there might be a greater supply of one commodity than another, but—since goods were exchanged for goods—there never could be general over-production. In order to be free from the inconvenience of an over-supply of some goods in relation to others it was merely necessary to free the market from unneces­sary restrictions in exchange.