?Supply Creates its Own Demand? Born in Lyon, France Jean Baptiste Say was French. In itself this is not an important fact, but it does help to explain why Say was responsible for introducing much of the work of Adam Smith to continental Europe. Say was highly influenced by the work of Adam Smith and was also friends with David Ricardo and Thomas Malthus. Say can take credit for the way in which we tend to divide the factors of production into three different types: 1. Land, 2. Labour, 3. Capital. Say can also take some credit for introducing the concept of an entrepreneur into economics. However, he is best known for his ?law of markets? or Say?s Law.
To begin, Says law says that: ?Supply creates its own demand.? This provides a justification for the classical view that the economy will tend to full employment. This is because, according to Say?s law, any increase in output of goods and services (supply) will lead to an increase in expenditure to buy those goods and services (demand).
Build a field and the players will come. Manufacture 10 cars and the buyers will materialize. There will not be any shortage of demand and there will always be full employment. That is how markets work. Just leave them alone, let them be free, and demand will automatically meet supply at a robust level. The people who make the 10 cars, or the ones that supply the metal and parts for the cars, earn from their efforts the income to then buy the cars.
Another way in which Say contributed to the ever-growing economy was by reintroducing the entrepreneur into economic thought. With pen and ink, Adam Smith made the entrepreneur invisible. Jean Baptiste brings him back to life and to the center of the stage. What do these entrepreneurs do? They use their ?industry? to organize and direct the factors of production so as to achieve the satisfaction of human wants. But they are not merely managers. They are forecasters, project appraisers, and risk-takers as well. Out of their own financial capital, or that borrowed from someone else, they advance funds to the owners of labor, natural resources, and machinery. These payments, or ?rents,? are recouped only if the entrepreneurs succeed in selling the product to consumers. Entrepreneurial success is not only sought after by the individual but also is essential to society as a whole.
Lastly, Jean Baptiste Say had very strong views on money and the banking of that money in an economy. Say?s discussion of money opens with what is now a standard argument about the ?double coincidence of wants? problem and how a medium of exchange solves it. His explanation of how one highly demanded commodity spontaneously evolves into an accepted exchange medium is reminiscent of Carl Menger?s more famous treatment of the same issue, although it predates Menger by almost seventy years. Historically, money appears due to self-interest, not government decree, and its form should be left to the interaction of consumers? preferences. Custom, therefore, and not the mandate of authority, designates the specific product that shall pass exclusively as money. Jean Baptiste also reviewed the list of properties a medium of exchange should posses, they were: durability, portability, divisibility, high purchasing power per unit, and uniformity. Say then drew the conclusion that the metals (gold and silver) are excellent choices as monetary substances. In other words, if individuals are left free to choose, it is highly likely that they will choose a commodity money. While it is true that Say was a strong proponent of gold and silver as money, but Say in his theories does allow for the possibility that they could be replaced with something else. In short Say is not devoted to the proposition that ?money? means gold or silver contained in the coin. With regard to banking money, Say distinguishes between ?banks of deposit? and ?banks of circulation,? but treats them both as legitimate institutions.
In conclusion it is clear to see that a man born in Lyons, France, to middle-class Huguenot parents, and spent most of his early years in Geneva and London, has affected our lives by setting standards in our present day economy. Through his views on: money and banking, Say?s law of markets, entrepreneurs, capital and interest, value and utility, Jean Baptiste Say has set standards for economies that are still followed today by many countries such as the United States and Canada. Although many modifications have been made to Say?s theories they still hold strong in the structure of today?s economy, for instance gold and silver are still used as monetary substances.