Say's Other Law: "Misery is the inseparable companion of luxury"

It was a dark and stormy global night economy and a spectre task was haunting facing Europe...

A new supply-side agenda for the left

The task facing Europe is to meet the challenge of the global economy while maintaining social cohesion in the face of real and perceived uncertainty. Rising employment and expanding job opportunities are the best guarantee of a cohesive society. 

The past two decades of neo-liberal laissez-faire are over. In its place, however, there must not be a renaissance of 1970s-style reliance on deficit spending and heavy-handed state intervention. Such an approach now points in the wrong direction.  

Our national economies and global economic relationships have undergone profound change. New conditions and new realities call for a re-evaluation of old ideas and the development of new concepts. 

In much of Europe unemployment is far too high - and a high proportion of it is structural. To address this challenge, Europe's social democrats must together formulate and implement a new supply-side agenda for the left. 

-- Tony Blair and Gerhard Schroeder, The Third Way/Die Neue Mitte, 1998.

In a 1981 review of George Gilder's Wealth and Poverty, Anna Weniger and Hank Robinson succinctly described "the essence of supply-side economics" as "simply a campaign to redistribute income from poor to rich, dressed in the garb of economic theory." Gilder's economic theory was fundamentally an affirmation of Say's so-called Law. "The essential thesis of Say's Law," he insisted, "remains true: supply creates demand. There can be no such thing as a general glut of goods."

I'm not going to bother trying to debunk supply-side economics. What would it take to change the mind of someone who "can't see what's wrong" with a theory about a monetary economy that is based on the assumption it is a barter economy? What would it take to change the mind of someone whose belief in the theory is intimately tied to their identity?

So let's assume that anyone I could persuade with the following argument is already inclined to agree with Weniger and Robinson's assessment of supply-side economics as mere pretext. Theoretical flimsiness is no problem for conservatives because the argument is, after all, consistent with their values and objectives. Supply-side rhetoric is their sales pitch.

But what about "the left"? If we take Blair's and Schroeder's representation of their position on the left at face value, the question arises of what in Hell did they think they were selling? A social democratic redistribution of income from the poor to the rich? It appears they were selling the supply-side rhetoric to themselves and to corporate media and campaign donors as "realism."

The old ideas that were thinly veiled ends in themselves for conservatives were to be repackaged as new concepts that would enable electoral success in an environment that was inhospitable to the Labour Party's own "old ideas." Whether the "new concepts" could somehow deliver social cohesion and expanding job opportunities as well as redistribution of income from the poor to the rich was seen by Third Way acolytes as strictly a matter of cleverness. Third Way proselytizers were supremely confident of their cleverness.

You Don't, Say?

On the assumption that those who believe Say's Law -- or those who cling to the argument as a ready-made justification for their preferred policy outcomes -- will not change their minds, I would like to present what might be described as Say's other law:

Misery is the inseparable companion of luxury.

A position Say proclaims "as false in principle, as it would be cruel in practice" is that misery and want are indispensable as incentives to work:

The apologists of luxury have sometimes gone so far as to cry up the advantages of misery and indigence; on the ground, that, without the stimulus of want, the lower classes of mankind could never be impelled to labour, so that neither the upper classes, nor society at large, could have the benefit of their exertions.

Of course the Third Way manifesto didn't overtly "cry up the advantages of misery and indigence." The phrasing was more subtle and nuanced:

But providing people with the skills and abilities to enter the workforce is not enough. The tax and benefits systems need to make sure it is in people’s interests to work... Part-time work and low-paid work are better than no work because they ease the transition from unemployment to jobs. ... The labour market needs a low-wage sector in order to make low-skill jobs available.

In short, there needs to be more low-wage jobs to transition people away from benefits and benefits need to be restricted so that they are not an impediment to people accepting low-wage jobs. Or, in blunter words, "without the stimulus of want, the lower classes of mankind could never be impelled to labour."

Say's "other law" appears in the chapter "On Consumption" in his Treatise on Political Economy; or the Production, Distribution, and Consumption of Wealth. Here's more:

Misery is the inseparable companion of luxury. The man of wealth and ostentation squanders upon costly trinkets, sumptuous repasts, magnificent mansions, dogs, horses, and mistresses, a portion of value, which, vested in productive occupation, would enable a multitude of willing labourers, whom his extravagance now consigns to idleness and misery, to provide themselves with warm clothing nourishing food, and household conveniences. The gold buckles of the rich man leave the poor one without shoes to his feet; and the labourer will want a shirt to his back, while his rich neighbour glitters in velvet and embroidery. 

Those who are little in the habit of looking through the appearance to the reality of things, are apt to be seduced by the glitter and the bustle of ostentatious luxury. They take the display of consumption as conclusive evidence of national prosperity. If they could open their eyes, they would see, that a nation verging towards decline will for some time continue to preserve a show of opulence; like the establishment of a spendthrift on the high road to ruin. But this false glare can not last long; the effort dries up the sources of reproduction, and, therefore, must infallibly be followed by a state of apathy and exhaustion of the political frame, which is only to be remedied by slow degrees, and by the adoption of a regimen the very reverse of that, by which it has thus been reduced. 

Wherefore, those, who abuse great power, or talent, by exerting it in diffusing a taste for luxury, are the worst enemies of social happiness. If there is one habit, that deserves more encouragement than another, in monarchies as well as republics, in great as well as small, it is this of economy. Yet, after all, no encouragement is wanted; it is quite enough to withdraw favour and honour from habits of profusion; to afford inviolable security to all savings and acquirements; to give perfect freedom to their investment and occupation in every branch of industry, that is not absolutely criminal. 

It is alleged, that, to excite mankind to spend or consume, is to excite them to produce, inasmuch as they can only spend what they may acquire. This fallacy is grounded on the assumption, that production is equally within the ability of mankind as consumption; that it is as easy to augment as to expend one's revenue. But, supposing it were so, nay further, that the desire to spend, begets a liking for labour, although experience by no means warrants such a conclusion, yet there can be no enlargement of production, without an augmentation of capital, which is one of the necessary elements of production; but it is clear, that capital can only be accumulated by frugality; and how can that be expected from those, whose only stimulus to production is the desire of enjoyment. 

Moreover, when the desire of acquirement is stimulated by the love of display, how can the slow and limited progress of real production keep pace with the ardour of that motive? Will it not find a shorter road to its object, in the rapid and disreputable profits of jobbing and intrigue, classes of industry most fatal to national welfare, because they produce nothing themselves, but only aim at appropriating a share of the produce of other people? It is this motive, that sets in motion the despicable art and cunning of the knave, leads the pettifogger to speculate on the obscurity of the laws, and the man of authority to sell to folly and wickedness that patronage which it is his duty to dispense gratuitously to merit and to right. 

If it be pretended, that a system, which encourages profusion, operates only upon the wealthy, and thus tends to a beneficial end, inasmuch as it reduces the evil of the inequality of fortune, there can be little difficulty in showing, that profusion in the higher, begets a similar spirit in the middling and lower classes of society, which last must, of course, the soonest arrive at the limits of their income; so that, in fact, the universal profusion has the effect of increasing, instead of reducing, that inequality. Besides, the profusion of the wealthier class is always preceded, or followed, by that of the government, which must be fed and supplied by taxation, that is always sure to fall more heavily upon small incomes than on large ones. 

The apologists of luxury have sometimes gone so far as to cry up the advantages of misery and indigence; on the ground, that, without the stimulus of want, the lower classes of mankind could never be impelled to labour, so that neither the upper classes, nor society at large, could have the benefit of their exertions. 

Happily, this position is as false in principle as it would be cruel in practice. Were nakedness a sufficient motive of exertion, the savage would be the most diligent and laborious, for he is the nearest to nakedness, of his species. Yet his indolence is equally notorious and incurable. Savages will often fret themselves to death, if compelled to work. It is observable throughout Europe, that the laziest nations are those nearest approaching to the savage state; a mechanic in good circumstances, at London or Paris, would execute twice as much work in a given time, as the rude mechanic of a poor district. Wants multiply as fast as they are satisfied; a man who has a jacket is for having a coat; and, when he has his coat, he must have a greatcoat too. The artisan, that is lodged in an apartment by himself, extends his views to a second; if he has two shirts, he soon wants a dozen, for the comforts of more frequent change of linen; whereas, if he has none at all, he never feels the want of it. No man feels any disinclination to make a further acquisition, in consequence of having made one already. 

The comforts of the lower classes are, therefore, by no means incompatible with the existence of society, as too many have maintained. The shoemaker will make quite as good shoes in a warm room, with a good coat to his back, and wholesome food for himself and his family, as when perishing with cold in an open stall; he is not less skilful or inclined to work, because he has the reasonable conveniences of life. Linen is washed as well in England, where washing is carried on comfortably within doors, as where it is executed in the nearest stream in the neighbourhood. 

It is time for the rich to abandon the puerile apprehension of losing the objects of their sensuality, if the poor man's comforts be promoted. On the contrary, reason and experience concur in teaching, that the greatest variety, abundance, and refinement of enjoyment are to be found in those countries, where wealth abounds most, and is the most widely diffused.