Thursday, February 27, 2014

Say's Bye-Law

Il est bon de remarquer qu’un produit terminé offre, dès cet instant, un débouché à d’autres produits pour tout le montant de sa valeur. En effet, lorsque le dernier producteur a terminé un produit, son plus grand désir est de le vendre, pour que la valeur de ce produit ne chôme pas entre ses mains. Mais il n’est pas moins empressé de se défaire de l’argent que lui procure sa vente, pour que la valeur de l’argent ne chôme pas non plus. Or, on ne peut se défaire de son argent qu’en demandant à acheter un produit quelconque. On voit donc que le fait seul de la formation d’un produit ouvre, dès l’instant même, un débouché à d’autres produits.
Google translates un débouché as "an outlet." In the above paragraph, Jean-Baptiste Say said nothing about any "law." He did, however, use terms such as désir and empressé, which would seem to refer to subjective drives rather than to objective causes.

In his introductory textbook, Principles of Economics (1927), Raymond Bye wrote, "...every product is a demand for, and a means of purchasing, another product.... The total demand for goods is the total goods produced" (emphasis in original).

This is not to unduly credit Bye with originality. The injunction against the possibility of overproduction was already referred to as "Say's Law" by Karl Rodbertus in 1898 (Overproduction and Crises) and by John Badlam Howe in 1878 (The Political Economy of Great Britain, the United States, and France, in the Use of Money). Howe asserted that most writers  in the United States and Britain (presumably on economics) repeated "Say's abstract law." Both Rodbertus and Howe, however, were intent on refuting the alleged law they attributed to Say.

In fact, unoriginality is the mode here. Say didn't invoke a law. Those who subsequently repeated Say's Law don't appear to have given it that name. The appellation comes from critics. Perhaps the allusion to supposed law-like inevitability is meant to be ironic.

Are there economic laws?

5 comments: said...

The law of diminishing marginal returns is the only economic "law" that I am aware of for which I know of no counterexamples. It can fail to hold for certain products at low levels of production, but as one input is held constant, I know of no case where eventually additional output for increases in other inputs do not eventually begin to decline.

john c. halasz said...


Whaa? Theoretically or mathematically, maybe. But in actual fact/practice, diminishing returns take hold in the face of excess capacity? said...


I noted that there are exceptions in the short run initially. The clear exceptions mostly involve agriculture, particularly when sex is involved. So, if one starts with a fixed plot of land and starts talking about adding seeds for some crop, say wheat, along with other variable inputs to that land (the fixed input), at first there will be increasing marginal returns because as long as plants are sharply separated from each other, they fail to germinate, so as more plants are added, germination increases and marginal product increases. Once plants are sufficiently dense that there is no further increase in germination, returns go constant and after awhile goes negative, with in this case total product eventually reaching an absolute maximum.

So, maybe in a case of excess capacity, presumably measured relative to the capital stock, it might be possible to have rising marginal product for a while as one increases labor and other inputs relative to that capital stock, but as the excess is used up, certainly diminishing returns will set in.

In fact, frankly John, I doubt you will even see what you claim in the case of excess capacity outside of agriculture because what is not being used is the older less productive capital stock. Any increase in other inputs will bring this crappier capital stock back in and will add less product than the previously added units that were produced by newer more productive capital stock. So, sorry, I do not buy your case.

The law remains universal. Period.

Sandwichman said...


And what about network effects? Isn't sexual reproduction a special case of that?

Bill H aka run75441 said...

Not to be argumentative. Goldratt wrote a book called "The Goal" in the field of manufacturing throughput which I endeavor in today and over the last 40 years. I have dealt with suppliers whose only solution to not meeting demand is to lengthen lead time which does absolutely nothing to increasing throughput. You must increase capacity in order to improve throughput. This can come from adding more labor or bringing back on line that "older less productive capital stock" or both.

And such I have seen and pushed for it until more efficient capacity has been added. This can come in the form of adding manual turret lathes or the manual setup (think shifts) of automatics to supplement the output of 3,4, and 5 axis CNCs.

When faced with higher demand, you add the capacity you need even if less efficient as long as you break even. You would be better not to accept an order if you could not supply it within the normal lead time.