The entrepreneur and Say’s Law

SKMBT_C45211070110270- filature-château vers 1825

I have just on Friday night at 11:27 sent off to the publisher the corrected proofs of the 2nd ed of my Free Market Economics. And while I think of the book as a modern version of John Stuart Mill’s Principles of Political Economy, I received an email that has made me think that there is possibly a different and deeper source for the book I wrote. There is about to be The First International Congress on Jean-Baptiste Say to be held in a village in Normandy called Auchy-lès-Hesdin. And why there? Because that’s where J.-B. Say lived and built his business.

The core issue of this conference is not, however, about Say’s Law but about the entrepreneur. That, too, is what my text is about: the entrepreneur, Say’s Law (i.e. the law of markets) and the market economy. This is from the Elgar posting on the first edition of which the second is the same only much more:

The book does more than recast macroeconomics in its classical form. The microeconomic sections of the book also provide a different perspective on the nature of the market, the role of the entrepreneur and the unparalleled importance of uncertainty whose significance in economic analysis cannot be exaggerated.

That is exactly what this conference is about. These are the abstracts of the first set of papers listed in the 48-page conference program which is part of the opening round table on “J.-B. Say and the liberation of productive forces”:

It should be remembered, first of all, that under his training as a young merchant, Jean-Baptiste Say spent two years with his younger brother Horace, near London in Croydon. In 1786, he moved to Britain to learn the practice of English commercial business. This happened in the midst of the development of manufacturing in the UK when the introduction of mechanical looms gave a great boost to the whole industrial activity. It is clear that this first experiment in an expanding industrial environment, which lasted two years, deeply influenced the young J.-B Say who was gifted with an inquisitive mind and a talent of observation. Another element that makes J.-B. Say a competent expert to analyze the economic situation in England and identify the strengths and lessons for France lies in his experience as an entrepreneur in the creation of the spinning company in Auchy (France) in 1805.

In the Traité d’Economie Politique and in the Cours Complet d’Economie Politique, Jean-Baptiste Say develops a criticism of corporations and other industrial regulations. According to him, these regulations are barriers to the entrepreneurial freedom and to the progress of arts. They are almost always tools of individual and collective oppression and at the origin of various economic, social and political ills. In this paper, we detail Say’s argumentation against corporations and show that it is part of more general framework based on the influence of institutions on the economy and of machines on commerce. His critical analysis leads us to present his conception of a necessary liberation of the forces of production, which requires the creation of a general framework favorable to the freedom to undertake and a blossoming of the forces of production (machines). These elements also constitute the foundations of his political economy.

In Jean-Baptiste Say’s economic thought, a productive fund of industrial capabilities generates the emergence of entrepreneurs, workers and scholars. However, success only ensues from the exercise of entrepreneurial capabilities. This article analyzes several classifications of capabilities formulated by J-B. Say. Our first result highlights the fact that these capabilities go beyond the scope of the enterprise and concern the development of nations. Within the enterprise, there is a clear distinction between management and administration in J.-B. Say’s analysis ? the former is connected to the capacity of reasoning, whereas the latter demands qualities connected to control and supervision. Therefore, the entrepreneurial functions relative to uncertainty, innovation or inefficiency are linked to success but are not necessary conditions for the productive activity. We conclude that J-B. Say does not share the idea of an economic convergence between nations in a spontaneous way. A policy of economic development based on industrial education and the reinforcement of entrepreneurial capabilities is a necessary condition.

In his writings devoted to monetary questions, Say studies in details monetary, financial and bank innovations which he designates by the expression “representative signs of money”. Say’s analysis on money and its representation signs is very important since it takes place in a context of major change in the monetary field. The aim of this paper is to show how, in Says’ analysis, these representative signs of money are innovations of major importance. The paper begins with an analysis of the position of the representative signs of money compared to money itself. Then it studies promissory notes, bills of exchange and banknotes. Finally, the consequences of their circulation in the economy are presented, especially on the activity of producers.

Since Schumpeter, there has been a tradition in the history of the economic thought that has placed Say’s entrepreneur in a filiation Cantillon-Turgot. The aim of this article is to show that this filiation does not exist, even if certain themes such as risk, knowledge or organization of production appear in the works of these three authors. More precisely, it is possible to find a double break between Say and his predecessors. The first one lies in the analysis of the production and the division of labor, which shows that the entrepreneur in Say’s writings has not the same role as in Turgot’s ones. The second one concerns their conceptions of uncertainty and profit, which shows that the place of the entrepreneur in the distribution of income in the writings of Say is not the same that in Cantillon or Turgot’s ones. The implications of this double break are specified in the conclusion.

Jean-Baptiste Say and Joseph Aloïs Schumpeter are two key-economists in the theory of the entrepreneur. Both assigned to the entrepreneur the role of an economic engine, moved by innovation. Moreover, both lived in periods characterized by a flow of economic and political new ideas (Say: the French Revolution, the Empire of Napoléon, the Bourbon Restoration, the first industrial revolution; Schumpeter: the two World Wars, the Bolshevik Revolution, the 1929 crisis, the second industrial revolution). Their theories, embedded in troubled times; define an individual who constantly avoids being locked in (economic, social, political and technical) routines. Nevertheless, an important point distinguishes their approaches: Say describes a real entrepreneur, while Schumpeter reduces him to an ideal type.

You can see from this that the world is turning away from Keynes and towards Say. The conference papers, if the abstracts are anything to go by, are all of this depth and quality. That a serious revival of Say should happen in France is not as obvious as all that although where else? But you could learn more about the nature of an economy and good policy from Say’s Treatise, I’m afraid, than from most of the textbooks found across the world today. But there is the second edition of my own which will be available in about a month.

UPDATE: Overnight I have received an extremely kind and fascinating note which included the above picture. I hope M. Tilliette will not mind my reproducing his note:

Dear Professor Kates,

Please permit me to send you this mail.

I was born in 1930 at Auchy-lès-Hesdin in the north of France where Jean-Baptiste SAY founded a cotton mill about two hundred years ago, and 200 meters from the place where he lived with his family during 8 years (1804/1805 – 1812/1813 ).

Very probably my grand–grand father met him for building matters !

Mrs. Michelle Lapierre informed me that you will meet her son Florian very soon. It is a sympathetic information for us because here we are very much interested in the revival of the memory of Jean-Baptiste SAY.

We hope other opportunities to contact you. To-day, please find here attached :

– the translation in french of your positive review about the recent book of Professor Evert Schoorl. Pr. Schoorl was happy to send me your review and I translated it for people here.

– a view of the cotton mill of Auchy around 1820 / 1825, practically as J-B SAY knew it; before it was a benedictine abbey with a water mill.

– a view of this cotton mill about fifty years later, rebuilt after a big fire in 1834. This factory was operated during almost two centuries, till 1990.

It would be a pleasure for us to send you other details about the J-B SAY time at Auchy-lès-Hesdin.

Dear Professor, I thank for your attention.

Yours truly,

Z. Tilliette

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11 Responses to The entrepreneur and Say’s Law

  1. Yohan

    Steve I am currently reading a long out of print compilation put together by Henry Hazlitt, called ‘The Critics of Keynesian Economics’ which is one long defence of Say’s law. It starts of with Say’s own work and then John S Mill’s ‘On the influence of consumption and production’.

    What do you think of this book? Its the best collection I have ever read that refutes Keynes and elaborates on Says law.

    I also hear that apparently James Mill, Johns S. Mills father, did an even better elaboration of Say’s Law in 1808’s Commerce Defended and in his private letters to David Ricardo, and that Hazlitt was going to include this in a later edition that did not eventuate.

  2. Tel

    I’ve been trying to argue the point with Keynesians about the long term effect of artificially low interest rates (i.e. the central bank holding rates near zero for an extended period of time) and especially how this policy impacts business investment and entrepreneurship.

    The Keynesian says that low interest rates make it cheap for business to borrow, thus will stimulate more entrepreneurship.

    The commonly cited Austrian position on this is that much of the cheap borrowing will lead to mal-investment, because without price signals the entrepreneur cannot appropriately judge risk and plan for the future.

    It seems to me that Say’s Law implies that by discouraging people from saving, you automatically throttle the available production that can be channelled into investment and infrastructure. High interest rates represent a promise that if you produce more than you consume today, you will be rewarded for your extra effort in good time. Low interest on saving gives the opposite signal: consume everything you produce, because there is no reward coming up in the future.

    The combination of low interest rates, income tax, and price inflation, swings the equation very much towards both working less and consuming less.

    The lack of surplus production must necessarily cut capital growth. Production must always come first: you can’t build a brick house until you have bricks.

  3. Steve Kates

    If I may reply to Yohan and Tel.

    Firstly, I might just mention that I am 95% way through finishing off my own two-volume Keynesian Economics and its Critics which is a more comprehensive version of what Hazlitt did, but that is in no way to criticise Hazlitt. He did yeoman service in trying to stop the Keynesian juggernaut when it was at its height. No one could have changed the direction of the tide at that moment, but he did leave his volume on Keynes for others to come upon and learn from. I recommend his book to everyone and especially because merely by quoting Say himself, if you give these passages a sympathetic reading you begin to understand why modern economics is so misguided. But I will only allow you to argue that Hazlitt has done the best refutation of Keynes on Say’s Law if you have also read my Say’s Law and the Keynesian Revolution and preferred his. But personally, I don’t much care where you develop your scepticism from, once you understand Say’s Law properly, you can see what a threadbare theoretical model modern macro now asks us to accept.
    And as for Tel’s point about Austrian interest rate theory, it is basic pre-Keynesian theory that I picked up from Wicksell (1898) and was standard within economic theory from at least the time of John Stuart Mill. The last two chapters of my Free Market Economics are almost entirely about the difference between the money rate of interest and the natural (real) rate of interest, the most important point of which was to show the devastating consequences of artificially low money rates of interest. Low rates slow growth, cause your capital structure to deteriorate, create inflation, cause bubbles and raise unemployment. That was standard across all branches of mainstream theory up until 1936 and the publication of The General Theory. Economists have no idea how much they have lost and forgotten because they have no means even to know that such theories had ever existed.

  4. JakartaJaap

    Delightful note from M. Tilliette. My family only recently became aware of our Huguenot background, which we can now trace back to the early 18th Century. I find it amazing the way people were able to survive and thrive in those days, despite the Roman Terror. I wish I could attend the forthcoming conference. Our ancestral lands lie there.

  5. BilB

    Says law would have been a reasonable observation in the early 1800’s, but it has little relevance in today’s economies other than as a starting point for discussion. Production value and demand are completely decoupled in this global economy.

  6. Bertie_Wooster

    Tel – I take back my comment from the other evening. Great precis.

  7. ChrisPer


    It seems to me that Say’s Law implies that by discouraging people from saving, you automatically throttle the available production that can be channelled into investment and infrastructure. High interest rates represent a promise that if you produce more than you consume today, you will be rewarded for your extra effort in good time. Low interest on saving gives the opposite signal: consume everything you produce, because there is no reward coming up in the future.

    In addition, because Governments/central banks can set interest rates, and in deficit times are also the largest single borrowers and payers of interest, they have a huge incentive to set interest rates to zero or near it, and their vile profligacy also snuffles up the little available capital in the cash market and destroys it as consumption.

    Mr Creosote is a personification of Government borrowing.

  8. ChrisPer


    Production value and demand are completely decoupled in this global economy.

    I spent nine months unemployed as a reult of that assertion being desperately, shamefully wrong. My profession is at its worst employment rate in 25 years, because this pathetic, silly claim is ungrounded in reality.

  9. BilB

    You’ll need to be specific, ChrisPer. Are you a Kodak film production person, auto industry worker, type setter, an air frame mechanic or are you some other kind of skilled person?

  10. Tel

    Mr Creosote is a personification of Government borrowing.

    Yes, I probably should have mentioned that refutation to the Keynesian claim that low interest rates stimulates investment. It never operates on a true level playing field. The official RBA cash rate is 2.5% but you won’t find a growing small business able to borrow at that rate. Low rates are for government borrowing, not for normal business owners.

    In theory we pretend that there’s one money market, and one interest rate. In practice it’s rigged heavily in favour of Creosote and a few of his buddies.

  11. George Brandis thanks for NOTHING

    Great post Steve, thankyou.

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