THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Wednesday, March 31, 2021

Say’s Law: Balancing the Economy

In the previous posting on this subject, we looked at the concept of “productiveness,” that is, the idea that both labor and capital contribute to production as interdependent factors of production.  Further, the concept of productiveness includes the assumption that the ratio between the two can be measured.  Not that it is measured, just that it can be measured.


Frankly, as far as we know, all economists and politicians today insist that production be measured in terms of hours of human labor required to produce it.  This leads to some interesting results.

For example, let’s assume that it takes one tenth of a second to push an elevator button with a “force” (the capacity to do work or effect change) that pretty much approaches zero; Force = mass x acceleration, as every physicist knows, and there merest brush of a fingertip is required to push a modern self-service elevator button.  We’ll be generous and say the force required to operate an elevator is .0000000001 Newtons.

Work — force times distance — is measured in “Newtons”, a “Newton” being the amount of force needed to accelerate 1 kilogram (kg) of mass at a rate of 1 meter per second squared (m/s2).  We’ll further assume that each elevator ride is 10 meters (about three stories), and carries two people weighing 50 kilos, or 110 lbs each trip, or 220 lbs (100 kilos) each trip, and takes one minute.

No, the OTHER Newton


Doing the math, it turns out that the productivity of a self-service elevator in terms of human labor hours required to do the work is pretty much infinite: .00001 N x 30 m = 1.199 x 1017 N of work per hour . . . which is, of course, ludicrous.

Today we go from one ludicrous assumption of modern political economy to another: the rejection of Say’s Law of Markets, or the idea that an economy not only can be in balance, it must be.  Unfortunately, due to the mistaken ideas that 1) only labor is really productive (hence the rather diverting analysis above), 2) the failure to recognize that land and technology are productive in the same way that human labor is productive, and 3) that only past savings can be used to finance new capital formation, Karl Marx and John Maynard Keynes both rejected Say’s Law, as did most (or maybe even all) of Academia and politics after the New Deal.

Marx asserted that due to capitalists stealing surplus value from workers and consumers, and Keynes that labor as the sole factor of production couldn’t generate sufficient demand from production to clear all that was produced, therefore Say’s Law didn’t work.  (Of course, Keynes never explained how if labor is the only thing that’s productive where the production comes from that is not attributable to labor. . . .)

Adam Smith


So is Say’s Law the Real McCoy or the Phonus Bolonus?  Let’s take a look.

Say’s Law is based on Adam Smith’s first principle of economics: “Consumption is the sole end and purpose of all production.”  If something isn’t meant for use by human beings, why are you wasting your time producing it?  Keynes thought he had the answer: to generate savings for reinvestment in more capital (when human labor is doing the producing) and to provide jobs so people can consume.

Say, however, accepted Smith’s principle and drew the obvious corollary: it is impossible to consume something that hasn’t been produced and therefore doesn’t exist.

Keynes, of course, ignored that tiny little problem and the implicit paradox of his assumption that only past savings can be used to finance future production: if savings (as Keynes insisted) equals ONLY past reductions in consumption, or (as he explained) the excess of production over consumption . . . where did the first production come from to start the process of saving?  Keynes ridiculed the idea that production could take place without first saving, but he never explained where the first production came from without saving..

Jean-Baptiste Say


Say concluded that, therefore, the only way to consume was to produce, and that it is impossible to do otherwise.  Further, if we want to consume, it necessarily follows that we must produce . . . unless we steal or redistribute.

The next step in Say’s logic was to realize that we must either produce everything we want to consume ourselves, or to trade to others for what they have produced that we want to consume . . . unless, of course, we steal it from them or they just give it to us.

That led Say to how we produce.  Being a logical economist — not an oxymoron in his case — Say assumed that when economists said that the factors of production are land, labor and capital, they meant precisely that.  Land, labor and capital are actually productive, not just labor alone.

Thus — as Say reasoned — if you can’t produce with one factor, you must add or switch to another factor.  Can’t produce enough with labor? Add land or capital.  Workers and other consumers can be productive as owners of land and capital as well as (or even instead of) labor, thereby empowering them with consumption power.  In that way, production equals income, and therefore supply generates its own demand, and demand its own supply.  The economy is in balance without Keynesian money manipulation or Marxist abolition of private property.

There is one problem with Say’s Law, however.  If labor isn’t sufficiently productive . . . how do people without land or capital become owners of land or capital?  Say just assumed it would be done, and didn’t say how it could be done.