Friday, February 28, 2014

Say's Paradoxe and the Paradox of Jean-Baptiste Say

Ces moyens, en quoi consistent-ils ? En d'autres valeurs, d'autres produits, fruits de leur industrie, de leurs capitaux, de leurs terres: d'où il résulte, quoique au premier aperçu cela semble un paradoxe, que c'est la production qui ouvre des débouchés aux produits.
One cannot escape the impression that the promulgators of what has come to be known as "Say's Law" may not have actually read Say's Treatise. If the translation is any reflection on the original French, Say wrote beautifully. He was also in possession of an intellect generous enough to have not been bothered by the hobgoblin of consistency. At one point in the Introduction, he writes, "In any investigation, to treat dissimilar cases as if they were analogous, is but a dangerous kind of empiricism, leading to conclusions never foreseen." Later on, he protests, as if there was "a perfect analogy between the finances of a nation and those of an individual":
...a statesman who should venture to affirm, that there is a perfect analogy between the finances of a nation and those of an individual, and that the same principles of economy should regulate the management of the affairs of both, would have to encounter the clamours of various classes of society, and to refute ten or a dozen different systems.
In objecting to Ricardo's reasoning "upon abstract principles to which he gives too great a generalization," Say observes:
The science of political economy, to be of practical utility, should not teach, what must necessarily take place, if even deduced by legitimate reasoning, and from undoubted premises; it must show, in what manner that which in reality does take place, is the consequence of other facts equally certain. It must discover the chain which binds them together, and always, from observation, establish the existence of the two links at their point of connexion.
It is fitting, then, that Say introduces the idea that production opens up the opportunity to sell products as un paradoxe rather than une loi générale;
A man who applies his labour to the investing of objects with value by the creation of utility of some sort, cannot expect such a value to be appreciated and paid for, unless where other men have the means of purchasing it. Now, of what do these means consist? Of other values of other products, likewise the fruits of industry, capital, and land. Which leads us to a conclusion that may at first sight appear paradoxical, namely, that it is production which opens a demand for products.
In Chapter Seven, Say rehearses another application of this paradox, pertaining to the effects on employment of the introduction of labor-saving machinery:
The multiplication of a product commonly reduces its price, that reduction extends its consumption; and so its production, though become more rapid, nevertheless gives employment to more hands than before.
As applied to labor, the paradox can be restated as "a cheap market will always be full of customers," as Dorning Rasbotham summed it up 23 years before publication of Say's Treatise. Sixty-two years later, W. S. Jevons was to refer to this argument as "a principle recognized in many parallel instances.":
The economy of labour effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened.
Jevons. of course, went on to apply Say's (or Rasbotham's) paradoxical principle to fuel: the "Jevons Paradox" (Polimeni, et al. discussed the connection between "Say's Paradox" and Jevons in The Jevons Paradox and the Myth of Resource Efficiency). As I wrote a little over three years ago, "the Jevons Paradox is a special case of Jean-Baptiste Say's Law of Markets..." I should have wrote, Say's alleged law.

Imagine a Möbius strip made from a piece of paper that had "law" written on one side and "fallacy" on the other (or "myth" and "reality"). When joined together, the two sides become one continuous side with a single edge: this is the paradox. Now imagine a second Möbius strip made from a piece of paper with "economy of fuel" written on one side and "economy of labor" on the other.

1 comment:

doc said...

I'm surprised that no one (that I have seen) has mentioned Schumpeter's assessment of Say's whatever we choose to call it. Somewhere in the History of Economic Analysis, Schumpeter says something to the effect that Say discovered a theoretical principle of considerable interest, but he failed to understand it, and misused it for the things he (Say) cared about. (I can't reproduce the language because when I retired I had to reduce my library and HET went.)

I always wondered whether, if Schumpeter was right (Say neither understood nor properly used this theorem of considerable importance), it was appropriate to say that Say discovered Say's Law. Clearly, I think, your answer is that he did not.