Simple Say's Law

To prove the sophistry of capitalism, we must trace the roots of its core ideas. Among its core ideas is the production motive, or the sophistical belief that what is good for the producers or sellers, or those who live by profits, is good for the nation.

This is in contrast to the consumption motive espoused by Adam Smith.

The production motive is best seen in Say’s Law which says that production is the cause of demand. On the surface, Say’s logic seems correct, until you realize that he is actually talking about producer’s demand and not consumer demand. He is talking about wholesale trade or the trade between dealers and dealers, and not retail trade or the trade between dealers and consumers.

In The Wealth of Nations, Smith already implied that retail trade is more significant than wholesale trade:

Say’s derision of consumers is easily defeated when one thinks that society can exist without businesses (as in a native tribe), but businesses cannot exist without society.

In this chapter, Say sounds like a lobbyist for manufacturers. If Mercantilism is economics for merchants, Say’s proto-capitalism and proto-neoliberalism here can be viewed as economics for producers, prioritizing business interests over societal interests. Under our Socratic Social Cycles classification, Say would be an oligarch-mind.

The lines in red below indicate his sophistry.

Book 1, Chapter 15: The Demand or Market for Products

¹ Businessmen frequently assert that:

• their difficulty is in the sale of their commodities, not in their production.
• products would always be abundant if there were a ready demand for them
• when the demand is slow and difficult, money is scarce

Their great desire is a consumption brisk enough to quicken sales and keep up prices. But they do not know the causes of the demand for their products and thus often hurt their own interests.

¹² To know this demand, we must carefully analyse the best facts.

¹³ A man who produces anything can only expect it to be of value if others can buy it. How can they buy it? It seems paradoxical that it is production which opens a demand for products.

⁴ If a businessman says “I want money for my woollens, not other products,” it would be easy to convince him that his customers must first sell their own products for money, to buy his woollens.

He will be told “That farmer will buy your woollens if he can sell his crops. You say you only want money. I say you want other commodities, not money. Why do you you want the money? Is it not to buy things for your trade?

The money that you will get will buy the commodities of other people and so on, just as a public vehicle transports objects one after another. If you cannot sell your products, do you say that it is merely because of the lack of a vehicle to transport it?

Our comment: Yes. Without money in circulation, products cannot be circulated if people do not know how to do barter

⁵ To say that sales are dull because of the scarcity of money, is to mistake the means for the cause.

There is always enough money to circulate other values when those values really exist.

Money itself soon pours in, for this reason, that all produce naturally gravitates to where it is most in demand. It is a good sign when the business is too great for the money; just as it is a good sign when the goods are too plentiful for the warehouses.

Our comment: Say show his sophistry here. It is true that without money, other goods can be used to circulate value. But he does not mention that it takes a lot of trial and error to establish another tool of trade.

⁶ When a superabundant product cannot be sold, the scarcity of money has so little to do with the obstruction of its sale, that the sellers would gladly receive its value in kind.

Our comment: No, it is not so easy, but yes, it is possible.

⁷ This is applicable to all cases.

Goods and services will universally find the most extensive demand where they are most valued. Money just facilitates this double exchange.

⁸ As soon as a product is created, it creates a market for other products to the full extent of its own value. A producer is anxious to sell his products and spend his money right away lest they lose their value. But the only way to get rid of money is to buy some product. Thus, the creation of one product immediately allows other products to be sold.

⁹ This is why a good harvest* is favourable to all businessmen generally. The greater the crop, the larger are the purchases of the growers. The success of one business supplies more ways to purchase the products of all the other branches. The stagnation of one business is felt in all the rest.

*Our comment: Here, Say exposes the fact that he was referring to sales of food and essential commodities and not all kinds of commodities

¹⁰ Why is there so great a glut of commodities in the market sometimes, and so much difficulty in selling them? Why can’t these superabundant commodities be exchanged for another?

This glut arises from surpassing its total demand because:

• it has been produced excessively
• the production of other commodities* has fallen short

*Our comment: Here, the other commodities are the non-essential ones that are exchanged for the overabundant essentials

¹¹ Some commodities are superabundant because the production of some commodities has declined. People have bought less because they have made less profit. They have made less profit because:

• they have found difficulties in producing
• the product themselves are deficient

¹² At the same time one commodity makes a loss, another commodity is making excessive profit. Since such profits must operate as a powerful stimulus to the cultivation of that product, there must be something extraordinary to perpetuate this scarcity and glut. Production should be left entirely free.

¹² A producer is shallow if he imagines that the demand of non-productive consumers such as public functionaries, physicians, lawyers, churchmen, etc, is different from the demand of the actual producers. A priest goes to a shop to buy a gown with money from a tax-payer from his produce. The taxpayer’s produce enabled the priest to buy the gown. A product can only be bought with the product of another*.

*April 2021 Our comment: Here, Say oversimplifies the difference between goods and services. The pandemic proves that the demand for goods and services can be very different. Our effort theory of value solves this.

14 We make the following conclusions from this important truth:

¹⁵ The more the producers and the more various their productions:

• the more prompt, numerous, and extensive are the demand for those productions
• the more profitable are they to the producers for price rises with the demand

But this advantage is from real production alone and not from a forced circulation of products like when governments tax goods to provide for non-producers. This is a great injury to production.

¹⁶ Each individual is interested in the general prosperity of all. The success of one business promotes all others. In fact, whatever profession or business a man may devote himself to, he is the better paid and the more readily finds employment, in proportion as he sees others thriving equally around him.

A talented man would find 1,000 ways to get employed in a thriving community and reward his ability. A merchant in a rich and populous town, sells to a much larger amount than one who sets up in a poor district. The former merchant is surrounded with people who:

• produce largely in an infinity of ways
• make purchases with their respective products

Our comment: Here, the merchant Say piggybacks on the ideas from Adam Smith, an anti-merchant, to support the lobbying of merchants

¹⁷ High production is the true source of the gains made by townseople over the country people. The division of nations into agricultural, manufacturing, and commercial, is idle enough. The success of people in agriculture is a stimulus to its manufacturing and commercial prosperity. Its flourishing manufactures and commerce gives a benefit on its agriculture also.

¹⁸ The position of a nation with its neighbours, is analogous to the relation of one of its provinces to the others. It has an interest in their prosperity, being sure to profit by their opulence. The US government acted most wisely in 1802 to civilize the Creek Indians. They introduced the habits of industry amongst them and make them producers capable of barter. It is useful and honourable to mankind, that one nation should have liberal principles.

¹⁹ It does not hurt the national industry to import commodities from abroad.

²⁰ The encouragement of mere consumption is no benefit to commerce because the difficulty is in supplying the means, not in stimulating the desire of consumption. Production alone furnishes those means. Thus, good governments stimulate production, bad governments encourage consumption.

Our comment: Say’s position shows how undeveloped the world was during his time. Nowadays, there has been so much capital expenditure that the promotion of consumption is the focus, as seen in advertising and online marketing. Thus, we can say that his advocacies cannot be a universal principle.

²¹ Since the creation of a new product is the opening of a new market for other products, to consume or destroy a product is to stop selling those other products. This is not bad if it was consumed to satisfy some human want. A rich nation’s gross national re-production exceeds the gross consumption. This consumption, however, has opened no new market, but has closed the current market.

²² The general demand for products is proportionally brisk to production. The products create various degrees of demand, according to the wants, manners, capital, industry, and natural resources of each country. The most demanded products yields the best interest of money to the capitalist, the largest profits to the adventurer, and the best wages to the labourer.

²³ A nation that produces abundantly yields handsome profits because:

• the demand is great
• there are always many products in the market, ready to bid for new productive services

Wherever production is stationary or lags behind consumption the demand gradually declines. This causes:

• the market price of the product to become less than its cost of production,
• production is not properly rewarded so its profits and wages decrease,
• the employment of capital becomes less advantageous and more hazardous. It is consumed piecemeal through necessity
• the labourers experience a lack of work
• families become more cramped and confined and those before in difficulties are left altogether destitute
• depopulation, misery, and returning barbarism, occupy the place of abundance and happiness.

²⁴ Such are the concomitants of declining production, which are only to be remedied by frugality, intelligence, activity, and freedom.

Our comment: Here, Say strangely says that recessions are caused by the producers producing less because of wastefulness, stupidity, laziness, or limitation by governments. All of these then causes demand to fall. Of these, only the last one is realistic, as seen in the Soviet Union, Cuba, Venezuela and North Korea.