Say’s law is an influential idea still being controversial amongst contemporary economists, the law derived from his magnus opus A Treatise on Political Economy (Or the Production, Distribution and Consumption of Wealth). The volume is divided into 3 books, the first one concerns production. Say discussed the nature of production which is to generate goods and service for sale, thus creating demands. He then distinguished between, productive use of capital, industry and property vs unproductive usage. He shattered many early misconceptions such as economics is a zero-sum game, money is lost through trading and government as a means of production. Say’s law derived from the first volume where he stated:
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.
He also discussed the nature of currency in chapter 22, which further affirms the role of entrepreneurs as risk bearer, which he recollected from Richard Cantillon.
In book 2, he discussed how capital, industry and property can generate revenue. He talked about the problem with early gold standard which necessarily allowed for inflation and decreased trade by reducing gold content in the coins. He also shattered the Marxist myth that individual must retain their own reward: If individual must borrow from others for his product, then he does not own his product, the industry pays the individual in wages. Another particularly interesting note was that he advocated for the appropriation of land to increase supply of food, thus shattering Malthus’ theory on population.
Lastly, he talked about different kinds of consumption. The productive consumption allows for greater wealth for the nation such as receiving loan interest and increased productivity; unproductive consumption such as in taxation, public service and national debt ultimately hurt everyone.
As to the coinage of the term, it was Keynes who criticized the law and argued for a demand side perspective on economics. However, many assumptions were made by various physiocrats and Keynesians. Sowell has written to challenge the notion of the criticisms centring on a bartering economy rather a money economy as well as the physiocratic view point or the critics. Another critical idea was the fact that when production is not consumed, they are hoarded which could be reduced if interest rates are decreased, ultimately interest rates control the unemployment rate, this is the Austrian school doctrine. Further analysis by Sowell can be found in Says’s Law: A Historical Analysis.
Say set up the stage for Frédéric Bastiat who in turn inspired Henry Hazlitt, Thomas Sowell, Walter E. Williams, Ludwig von Mises and many others. We all owe our classical liberal views to him.