Say’s Law – some basic distinctions

A few days ago I put a post onto the SHOE website on Say’s Law for which there was one reply from Daniel Besomi. My reply should make clear what he had written:

I appreciate Daniel Besomi’s comments, which I hope will help us clarify these issues. I might also mention that most of what I summarise here, as in the previous post, was discussed in my Say’s Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way (Elgar 1998).

The first point I am trying to make begins here. There are two fundamental economic questions:

1) what is the basis for demand?

2) what causes recessions, or perhaps more accurately in this case, what does not cause recessions?

What Say, and Robinet, were explaining was the origins of demand, which they argue is based on previous sales. Demand is constituted by supply. What they wrote is an answer to the first question, but it is not an answer to the second.

The second question may be rephrased in this way: can there be such a thing as a general glut? This is a completely different question from the first, and the answer, as a consequence of the general glut debate, was that no, there is no such thing as a general glut, demand deficiency does not cause recessions. James Mill’s answer to this question was, in part, premised on Say’s answer to the first but were not an answer to the first. They are separate but related issues. Mill used Say’s discussion on the basis for demand to explain why a general glut was impossible.

It is because James Mill was the first, so far as I know, to answer the second question that I see him to have been the first to frame the classical statement on what is now called Say’s Law. The General Theory is about whether demand deficiency, a general glut, is possible. And when one finally accepts the classical answer to question 2, as FH may have done, then, but only then, the economic issues revolve around 1, which is what kind of supply will actually create demand.

And then, in answering that question, we can ask ourselves whether the Keynesian notion that spending on anything at all will do the trick is a correct answer. To a classical economist, it need hardly be said, the idea that anyone would think non-value-adding production could create growth and employment is too ridiculous even to contemplate. Only a modern economist might think so, but to anyone from the classical tradition, the idea is still ridiculous.

Daniel also points out that Fred Taylor had used the phrase “Say’s Law” earlier than 1921. This is true, but 1921 nevertheless remains the significant date, which is why I chose my words very carefully. What I wrote was this:

The first thing that might be noted is that the term ‘Say’s Law’ is not classical in origin but was consciously invented by Fred Manville Taylor and introduced into general economic discourse with the publication of his Principles of Economics text in 1921.

If you go to my Say’s Law text (pp 148-149 and especially the footnote), you will find that I discuss Taylor’s invention of the term, including his first use in 1909 in an obscure article on how to teach economics. He then brings Say’s Law into his introductory text, but the first seven editions were student editions distributed only within the University of Michigan. It is only following the publication of the eighth edition as a general text with commercial distribution that the term enters general economic discourse. It is the publication of the book for sale outside the U of M campus that brings the term to a wider public, and it is only after 1921 that it enters into more general discourse.

But it is really neither here nor there whether Taylor invented the term in 1909 or 1921. What is important to understand is that the term was invented in the twentieth century and it was invented by Taylor. What is not in any way affected by the dating is the need recognise that Keynes must, as an absolute certainty, have been reading other things about the various issues that end up in The General Theory that he never mentioned to anyone else. The locked-himself-in-a-room-and-came-up-with-these-ideas-one-by-one version, as he tells the tale himself and is now repeated as gospel, is obviously untrue since Keynes had to have picked up the phrase from somewhere else. If not from Taylor than from someone who had read Taylor.

Then, on the third point raised, if it can be said, as Daniel says, that my stating that everyone accepted Say’s Law through until 1936 was only “approximately true in the English, French and Italian literature”, that’s more than good enough for me. I perfectly well understand that there were some very few and generally obscure dissenters, particularly in English. I even discuss this very weak opposition in my book, with the two (three, I guess) most important dissenters in English having been John Hobson on the one hand and Foster and Catchings on the other. Keynes can himself name only five in his “Brave Army of Heretics” (GT 371), and if you look at the list and choose only his contemporaries, aside from Hobson who is iffy, you are looking at a very dubious list of authorities, namely, Silvio Geselle and Major Douglas. During the period up until 1936, there may hardly have been a theory more universally accepted than Say’s Law.

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