Say, Say, Say. Spartacus on Spec.

The latest from the Spectator Australia:

In 1936, in the preface to the German version of his General Theory of Employment, Interest and Money, John Maynard Keynes suggested that his theories were best suited for a closed totalitarian system.  It is also this theory that postulated that it is economically productive for the government to fund one group of workers to dig a whole and another group to fill it.  Yet it is this theoretical framework that guides much of Australia’s economic policy. 

And with a hat tip to Steve Kates, a reference to Say’s law.  You’d think that a Bachelors and Masters degree in economics from a G8 university would have introduced TAFKAS to Jean-Baptiste Say.  But you’d be wrong.

Supply side economics is best articulated through (Jean-Baptiste) Say’s law that say supply creates its own demand.  Or more simply, we work so that we can consume, rather than the Keynesian construct that we consume so that we can have jobs.  It is this (Keynesian) nonsense that perpetuated the myth of consumption driven economic growth. 

Say actually wrote, “as each of us can only purchase the productions of others with his own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase.”

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32 Responses to Say, Say, Say. Spartacus on Spec.

  1. Rafe Champion

    Just remind me about Say’s law again.
    Did you get an introduction to Carl Menger and his principles of economics?

  2. NoFixedAddress

    We don’ need no stinkin’ producers.

    It’s Belt and Road all the way baby.

    Bye the bye, given that Obsequious Dan has a Minister in the Victorian Politburo with ties to the Chinese Controlled Plaything law firm advising said Politburo on all things legal, and particularly Victoria’s mining rights, has private property been completely eradicated yet.

  3. NoFixedAddress

    a Bachelors and Masters degree in economics from a G8 university

    And I laughed and laughed and laughed.

    you poor bastard.

    we all have our cross’s to bear.

  4. I’ve been reading Catallaxy for quite a few years now and I have never read a really simple explanation of Says Law. I also studied undergraduate economics on the way to a BCom (finance) and never came across it. Are you saying (no pun intended) that any individual’s ability to consume is dictated by what they can produce and exchange in the market for money, to acquire products of other people’s efforts, and so accordingly to bring about more demand in aggregate you need individuals to produce more. So if you simply try to created demand by giving people cash to spend that is not earned by productive means, that simply displaces spending of productive individuals who have earned their cash in the market by selling their product? Presumably creating inflation or other signalling distortions?

  5. Tel

    Dig a ‘whole’?

    I can dig that.

  6. Pyrmonter

    It might depend on the G8 university Spartacus attended. Pyrmonter did a 4-year degree in Econ at Cambridge-on-Torrens and encountered Say (albeit in the form to which Kates objects) both in his first year econ text (either Jackson and McConnell, or Samuelson, Hancock and Wallace – the local adaptations of two then major US texts) and in Heilbroner’s Worldly Philosophers, which was regarded as mandatory reading for those interested in economics. He can recall student discussion of Say’s law, albeit undertaken at a fairly superficial level, and in line with Keynesian orthodoxy.

    I suppose if you just do an applied maths course (ANU) you might never see these things …

  7. Pyrmonter

    @ MMamster

    In the early undergraduate form which the likes of Kates and most Austrians would, I think, caricature (Kates hasn’t been entirely clear here what his objection is), it is, and crudely, ‘supply creates its own demand’, which is to say that production expands until all resources capable of employment within a given matrix of prices and wages are in use. It follows that there can never been a ‘shortfall of demand’, because the act of producing simultaneously produces income allowing consumption of the goods produced.

    If that idea held (and for me, that is an open question), then 90% of what is written in the mainstream financial press and by the economic bloggers, from Wren-Lewis and Krugman to Mankiw to Sumner, Cochrane and Beckwith, about ‘the economy’ and its ‘management’ by ‘pulling levers’ (to borrow Keating’s metaphor, itself borrowed form mid 20C Keynesians) is nonsense.

    However, you can arrive at the view that 85% of it is nonsense without concluding that Say’s Law holds, simply by asking the question ‘how much’ and ‘why’ of those who claim to know the secret formulae for ‘demand management’ – independently of Say, the knowledge problem (Hayek, Mises) points out that they can’t know exactly what they’re doing, and that they are pretending to science when they’re not doing it.

  8. NoFixedAddress

    mmamster
    #3528512, posted on July 30, 2020 at 7:34 am

    I’ve been reading Catallaxy for quite a few years now and I have never read a really simple explanation of Says Law. I also studied undergraduate economics on the way to a BCom (finance) and never came across it. Are you saying (no pun intended) that any individual’s ability to consume is dictated by what they can produce and exchange in the market for money, to acquire products of other people’s efforts, and so accordingly to bring about more demand in aggregate you need individuals to produce more. So if you simply try to created demand by giving people cash to spend that is not earned by productive means, that simply displaces spending of productive individuals who have earned their cash in the market by selling their product? Presumably creating inflation or other signalling distortions?

    A good summary.

    May I copy and reproduce this please?

  9. Eyrie

    Pyrmonter, I’m not sure what you just wrote.

  10. NoFixedAddress

    though I will put some paragraph break type things

  11. Pyrmonter

    @ Eyrie

    It might be easier if I state the conclusions: in the form I learned it, Say was supposed to have said there could be no ‘involuntary unemployment’: if you saw unemployment, whether of labour, land or capital, it was either the result of a pricing rigidity (say, wages being set above the market clearing wage level; or prices being maintained by some administrative rule that said they could not fall) or ‘production’ that wasn’t useful, that is, speculations as to what consumers wanted that were, when the products were released to the market, wrong. This, at least in the caricatured form, was supposed to follow from the idea that people responded to incentives and took advantage of the information available to them, which was better than the information any central authority, whether a central planner, a central banker or a treasury boffin, could, let alone did, have.

    There are more sophisticated forms (I think) – Spartacus might want to elaborate on what he means – but what I’ve set out above is, I think, a fair account of the understanding typical of thoughtful undergraduates of the early 1990s. I dimly remember that part of Keynes’ attack on the orthodoxies of his time, which quickly became the mainstream thinking, was to claim that all his mainstream predecessors had insisted on Says’ Law holding. While I’m wading into territory with which I’m less familiar, that is, at least, painting with a broad brush; Keynes contended that people who’d been dismissed as cranks – Major Douglas, of Social Credit, for example – had been on to something, and that the orthodoxy was really a special case, where equiliabrium had been achieved. On one view (at least the received view) the central idea of Keynes’ work was that the economy wasn’t self-correcting and optimal, and that agents like central bankers and governments _could_ improve well-being by aggregated demand management in a sustained and coherent way. I think there are Keynesians who say that’s a misinterpretation of Keynes; as well as non-Keynesians who work independently of those ideas; and anti-Keynesians who think it’s variously a cover for socialism (a well known one being Rothbard, but there are others) or bound to fail (which would have been more conventional position when I was a student).

  12. bollux

    I’ve always enjoyed your articles but am gobsmacked to learn you were unaware of Says’ Law. To an electrical person such as myself, this is akin to an ignorance of Faraday,Watt,Volta etc. What did they actually teach?

  13. nb

    Donald Winch – Classical Economics and the Case for Colonization, Economica, New Series, Vol. 30, No. 120. (Nov., 1963), pp. 387-399
    Referring to, among others, Ricardo, Say, Bentham, Wakefield, James and JS Mill.
    Wakefiild’s ideas were hugely influential. Just two applications were Ripon’s Rules and the foundation of South Australia.

  14. Roger W

    Say actually wrote, “as each of us can only purchase the productions of others with his own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase.”

    I must say that (sorry, Steve) this is not only much more clearly expressed than Steve has ever expressed it, but also so eminently sensible, to a non-economist like myself at least, that I am bemused that it is not universally accepted!

  15. John of Sunbury

    “Or more simply, we work so that we can consume, rather than the Keynesian construct that we consume so that we can have jobs.”

    I finally get it!

  16. notafan

    Keynes makes no sense.

    It’s pretty obvious lots of people are happy to consume, without having jobs.

  17. NoFixedAddress
    #3528545, posted on July 30, 2020 at 8:23 am
    mmamster
    #3528512, posted on July 30, 2020 at 7:34 am

    I’ve been reading Catallaxy for quite a few years now and I have never read a really simple explanation of Says Law. I also studied undergraduate economics on the way to a BCom (finance) and never came across it. Are you saying (no pun intended) that any individual’s ability to consume is dictated by what they can produce and exchange in the market for money, to acquire products of other people’s efforts, and so accordingly to bring about more demand in aggregate you need individuals to produce more. So if you simply try to created demand by giving people cash to spend that is not earned by productive means, that simply displaces spending of productive individuals who have earned their cash in the market by selling their product? Presumably creating inflation or other signalling distortions?

    A good summary.

    May I copy and reproduce this please?

    Go ahead, if its right!

  18. Bruce

    Call me old-fashioned, but I sort of always understood that the iron rule was this:

    If there is a demand, a supply WILL arise.

    Think: the “businesses” of tobacco, alcohol, tea, coffee, and especially, “freelance” pharmaceuticals.

    Unless people “wanted” any of these, nobody in their right mind would supply them, let alone make any money from such an enterprise. Yes, folks could grow / roll / brew / distill, etc. their own, but even the densest bean counter understands (I hope) the concept of economies of scale and effort.

    Yes, there are feedback loops. The “demand to feel better” is a good start in the “demand” field. Defining better in the long and short term is a human problem, not an arcane academic one. I have ZERO tertiary qualifications, but that did not stop me earning a quid for almost every day of my adult life. However when you couple galloping credentialism with a series of policies deliberately designed to destroy incomes and jobs and trade in general, all bets are off. Being unemployed and now unemployable has created its own demands, supply of suitable “arrangements” is still not in sight. There’s the real world at “work” or not, as the case many be.

  19. Pyrmonter

    @ nb

    I’m intrigued – do you have an ungated link?

  20. John A

    bollux #3528566, posted on July 30, 2020, at 8:51 am

    I’ve always enjoyed your articles but am gobsmacked to learn you were unaware of Says’ Law. To an electrical person such as myself, this is akin to ignorance of Faraday, Watt, Volta etc. What did they actually teach?

    Your handle actually answers your question.

    Or as Professor Kirke would have put it:

    “It’s all there in Plato. My, my, what do they teach in our schools these days?”

    CS Lewis “The Lion, the Witch and the Wardrobe”

  21. Hugh

    When I first read Say’s law as “supply creates its own demand”, I immediately thought of it as echoing the saying “If you build it, they will come.” And puzzled about it as rather counterintuitive. As I have come to understand it, Say’s Law has nothing to do that notion. (Though there is some truth in the latter idea, correctly applied in other contexts.) I found it much better to understand in a barter situation. If you want to lay in some oysters, you’d better supply to the market something, say bananas, that you know people will want to swap for the oysters. If no-one wants bananas, even an infinite supply of them won’t create a smidgen of demand. But as long as they do demand them, one way or another, the world’s your oyster. I hope I’ve got this right.

  22. Art Vandelay

    And with a hat tip to Steve Kates, a reference to Say’s law. You’d think that a Bachelors and Masters degree in economics from a G8 university would have introduced TAFKAS to Jean-Baptiste Say. But you’d be wrong.

    We weren’t taught about Say in my degree either. The macroeconomics lecturers were all wedded to Keynesian thought, so I dare say they didn’t want to teach anything that undermined their beliefs. There were a few of us in the honours program who found Keynesian macro unconvincing but the rest lapped it up.

    Many years later, I came across Frédéric Bastiat. His arguments destroy much of the faulty thinking behind Keynesianism (and before Keynes was born too!). His parable of the broken window is a classic that should be force-fed to politicians and bureaucrats in particular.

  23. Pyrmonter

    This might interest some participants on this thread. (A reminder that the think tank world can produce more stimulating material than the culture war material most commonly seen in all quarters here)

    https://iea.org.uk/blog/debts-deficits-and-slow-growth

  24. Pyrmonter

    @ Art and Spart

    At the risk of being impertinent, can I ask where and roughly when you studied? Say came up in my courses as a foil for Keynes; but he was mentioned. I wonder whether the increasing mathematization of economics sees ideas like his omitted; or maybe just that Adelaide was unusual in expecting people to know names from the history of ideas etc.

  25. Art Vandelay

    Pyrmonter, I studied at the same uni as you in the 90s. My honours degree was a joint program with Flinders Uni and all the macro lecturers were from there (and were as left-wing as you’d expect).

    I suppose I should be glad that Economic Theory in third year covered a few thinkers like Popper.

  26. faceache

    Producing stuff. My ex was working in the Criminal Justice system. She was tasked to produce voluminous reports on offenders so that judges and magistrates could sentence with relevant knowledge. She thought maybe 5% of reports were actually read. By anyone.

    Is this the kind of producing you have in mind. Is any other Government employee any better.

  27. Roger W

    Bruce, not sure about alcohol etc but it is certain that no-one initiated a demand for tobacco, tea or coffee. It was certainly unknown in Europe until it was brought there – ie supplied. Then people realized they liked these things and wanted more.
    Similarly, when the telephone was first invented, very intelligent people thought maybe a dozen phones in the whole of New York, for example, would be more than adequate. People supply all sorts of things all the time. Some are things or services that it turns out people want, but it does not start with people out of nowhere saying “I want X” and then someone else making it as a result. That, at least, is how the free market works.

  28. Pyrmonter

    @ Art

    Cheers. I remember discussing Say in Economics 1 – both in the texts cited and in discussion, and in ‘Economic Institutions and Policies’.

    So you didn’t have the South African Post Keynesian? (he was at Adelaide when I was there, though he might have moved to Flinders).

  29. “” It is also this theory that postulated that it is economically productive for the government to fund one group of workers to dig a whole and another group to fill it. “”
    Dig a whole?…..DIG A WHOLE?
    What a W(h)ally

  30. Bruce

    @ Roger W:

    Demand, like “supply’ does not come from a vacuum. That’s why I mentioned “feedback loops”.

    Tobacco was unknown outside North America and, oddly enough, obscure hill village in what is no Vietnam.

    However, the human body is susceptible to all manner of “desires”, and responds to “stress” in different ways. People have been latching onto behaviours and substances that make then “feel good” forever. This is also found in Nature, especially in mammals.

    The human body itself, produces endorphins specifically to relieve pain or stress, These internal “drugs” work just like opioids. Thus, humans have a built-in set of receptors for “relief’ if not outright pleasure. The “rewards” derived from “horizontal folk dancing” are not simply the raw and subconscious satisfaction at the though of producing a new generation.

    So, the body and brain are innately set up to respond to “intoxicants” of several varieties. Adrenaline “rush” is another very human pursuit. Why else would people willingly throw themselves out of perfectly good aircraft in their spare time?There is your basic demand. Some folks take their pursuit of the “rush” to fatal extremes, most are vaguely aware of their “limits”.

    Most of the “big” intoxicants are technically depressants; alcohol is probably the major one. It’s effects are widely studied and vast tracts have been published on the subject. The question is akin to the old “chicken and egg” caper, though that is itself a straightforward genetics issue.

    Why does baking bread smell “good”? That “smell” is partly attributable to the ethanol produced by the yeast fermentation being cooked off. Bread and beer have a bit in common. People who have never consumed alcohol also seem to like the smell of baking bread; why?

    People are NOT the famous “tabula rasa” upon which all manner of evil is inflicted and accepted without question. Much of what we do is “learned behaviour” or “received wisdom” for the simple reason that without it, nobody would live very long at all, certainly not long enough to learn it all from scratch.

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