What Say Said

It’s not unusual for someone to take a few words out of context and get their  meaning totally wrong.   When two people do this, it’s all the more amusing.  But when a third person does it, it’s time to blog about it.  And that’s what happened this week.

Specifically, the notion that “supply creates its own demand” (aka Say’s Law) is in the mouths of half-wits.   I expect it was misinterpreted for them in a news article somewhere.   They are presenting the phrase to mean that any product that is made will be sold to someone – which is not only false, but is entirely backward from what Jean-Baptiste Say meant when he wrote that phrase (or its equivalent in French).

To re-contextualize that phrase: Jean-Baptiste Say wrote his Treatise on Political Economy in 1855, a time in which the French government was being exceedingly intrusive into the commercial affairs of its citizens, and in particular sought to regulate the establishment of new businesses because, in their eyes, there were many reckless “adventurers” (whom today we call “entrepreneurs”) who were wasting fortunes on hare-brained business ideas.  

So it was proposed that government ought to license businesses to prevent such waste. Jean-Baptiste Say opposed this proposition vehemently, making the case that it is impossible to know whether a daring adventure would be profitable before it was tried, and that such a measure would squelch innovation in a period of time (the Industrial Revolution) in which economies were undergoing such rapid evolution.   To prohibit trial-and-error is to prohibit success and progress.

He addressed the counter-argument that wild adventures were wasteful of public resources by insisting that no such waste was occurring.  Most of the adventurers were merely wasting their own fortune – and while some of them wasted the capital of investors and creditors, it was the responsibility of those who provider them with funds to consider whether their proposals were worth financing.

But his most remembered argument was that their undertakings did nothing to harm society, and were instead quite beneficial to everyone but themselves and their investors.  Even if the adventure was a horrendous failure, they paid their employees and their suppliers, so the capital was not “wasted” but merely redistributed to those who would make better use of it.   To dig a gold-mine in a place where there was no gold would require purchasing the land, paying the miners, buying tools and equipment, etc.  Every penny (or sou) expended in such a foolish adventure was given to someone else, and this stimulated economic activity for society in general.

It is in this context that Say penned the phrase that would evidently outshine everything what he actually meant – that supply creates its own demand.   But the meaning was not that any product made would sell simply because it was made, but that any foolish undertaking would create demand for goods and services in the greater economy and the only person harmed would be the fool who invested in such an adventure.

This makes it all the more ironic, and all the more grating, that Say’s Law is now being mouthed by those who champion foolish and wasteful ideas.  If they worked for a different firm than my own, I would likely remain mildly amused and even cheer them on in their folly.  But as they are sowing this idiocy in my own field, I feel the need to vent a bit – and fools being deaf, the Internet seems the right void to wail into.