Say’s Law of Markets is based on the obvious fact that
because nothing can be consumed until and unless it is first produced, we must
first produce before we can consume. If
we wish to consume what others produce, we can only do so (absent gift or alms)
by offering something we have produced for what others have produced.
Thus, recalling our discussion of contracts and that they
consist of offer, acceptance, and consideration, “money” serves as the medium by means of which we
exchange what we produce for what others produce, that is, enter into and
fulfill contractual obligations, the basis of a functional civil order. As Say explained when refuting the
scarcity-based economics of the Reverend Thomas Malthus,
“All those who, since Adam Smith, have turned their
attention to Political Economy, agree that in reality we do not buy articles of
consumption with money, the circulating medium with which we pay for them. We
must in the first instance have bought this money itself by the sale of our
produce.
“To a proprietor of a mine, the silver money is a produce
with which he buys what he has occasion for. To all those through whose hands
this silver afterwards passes, it is only the price of the produce which they
themselves have raised by means of their property in land, their capitals, or
their industry. In selling them they in the first place exchange them for
money, and afterwards they exchange the money for articles of consumption. It
is therefore really and absolutely with their produce that they make their
purchases: therefore it is impossible for them to purchase any articles whatever,
to a greater amount than those they have produced, either by themselves or
through the means of their capital or their land.
“From these premises I have drawn a conclusion which appears
to me evident, but the consequences of which appear to have alarmed you. I had
said — As no one can purchase the produce of another except with his own
produce, as the amount for which we can buy is equal to that which we can
produce, the more we can produce the more we can purchase. From whence proceeds
this other conclusion, which you refuse to admit — That if certain commodities
do not sell, it is because others are not produced, and that it is the raising
produce alone which opens a market for the sale of produce.
“I know that this proposition has a paradoxical complexion,
which creates a prejudice against it. I know that one has much greater reason
to expect to be supported by vulgar prejudices, when one asserts that the cause
of too much produce is because all the world is employed in raising it. — That
instead of continually producing, one ought to multiply barren consumptions,
and expend the old capital instead of accumulating new. This doctrine has,
indeed, probability on its side; it can be supported by arguments, facts may be
interpreted in its favor. But, Sir, when Copernicus and Galileo taught, for the
first time, that the sun, although we see it rise every morning in the east,
magnificently pass over our heads at noon, and precipitate itself towards the
west in the evening, still does not move from its place, they had also
universal prejudice against them, the opinions of the Ancients, and the
evidence of the senses. Ought they on that account to relinquish those
demonstrations which were produced by a sound judgment? I should do you an
injustice to doubt your answer.
“Besides, when I assert that produce opens a vent for
produce; that the means of industry, whatever they may be, left to themselves,
always incline themselves to those articles which are the most necessary to
nations, and that these necessary articles create at the same time fresh
populations, and fresh enjoyments for those populations, all probability is not
against me.” (Jean-Baptiste Say, Letters
to Malthus. London: Sherwood, Neely,
and Jones, 1821, 2-3.)