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James Mill’s formulation of “Say’s Law” (1808)

The English Philosophic Radical James Mill (1773-1836) responded to criticism concerning the “unproductiveness” of trade with a spirited defence of commerce which also included one of the clearest statements of “Say’s Law”, that “the production of commodities creates a market for the commodities which have been produced”:

No proposition however in political œconomy seems to be more certain than this which I am going to announce, how paradoxical soever it may at first sight appear; and if it be true, none undoubtedly can be deemed of more importance. The production of commodities creates, and is the one and universal cause which creates a market for the commodities produced. Let us but consider what is meant by a market. Is any thing else understood by it than that something is ready to be exchanged for the commodity which we would dispose of? When goods are carried to market what is wanted is somebody to buy. But to buy, one must have wherewithal to pay. It is obviously therefore the collective means of payment which exist in the whole nation that constitute the entire market of the nation … (and) the more you increase the annual produce, the more by that very act you extend the national market, the power of purchasing and the actual purchases of the nation.

Mr. Spence will not surely say that a nation can consume more than it produces; and it is very odd that he and the other pupils of the same doctrine do not reflect that consumption is posterior to production, as it is impossible to consume what is not produced. Consumption in the necessary order of things is the effect of production, not production the effect of consumption. But as every country will infallibly consume to the full amount of its production, whatever is applied to augment the annual produce of the country by consequence augments its annual consumption. The greater therefore the departure from Mr. Spence’s rules, the more rapid in every country the increase of consumption will be.

… The Economistes and their disciples espress great apprehensions lest capital should increase too fast, lest the production of commodities should be too rapid. There is only, say they, a market for a given quantity of commodities, and if yon increase the supply beyond that quantity you will be unable to dispose of the surplus.

No proposition however in political œconomy seems to be more certain than this which I am going to announce, how paradoxical soever it may at first sight appear; and if it be true, none undoubtedly can be deemed of more importance. The production of commodities creates, and is the one and universal cause which creates a market for the commodities produced. Let us but consider what is meant by a market. Is any thing else Understood by it than that something is ready to be exchanged for the commodity which we would dispose of? When goods are carried to market what is wanted is somebody to buy. But to buy, one must have wherewithal to pay. It is obviously therefore the collective means of payment which exist in the whole nation that constitute the entire market of the nation. But wherein consist the collective means of payment of the whole nation? Do they not consist in its annual produce, in the annual revenue of the general mass of its inhabitants? But if a nation’s power of purchasing is exactly measured by its annual produce, as it undoubtedly is; the more you increase the annual produce, the more by that very act you extend the national market, the power of purchasing and the actual purchases of the nation. Whatever be the additional quantity of goods therefore which is at any time created in any country, an additional power of purchasing, exactly equivalent, is at the same instant created; so that a nation can never be naturally overstocked either with capital or with commodities; as the very operation of capital makes a vent for its produce. …

It may be necessary, however, to remark, that a nation may easily have more than enough of any one commodity, though she can never have more than enough of commodities in general. The quantity of any one commodity may easily be carried beyond its due proportion; but by that very circumstance is implied that some other commodity is not provided in sufficient proportion. What indeed is meant by a commodity’s exceeding the market? Is it not that there is a portion of it for which there is nothing that can be had in exchange. But of those other things then the proportion is too small. A part of the means of production which had been applied to the preparation of this superabundant commodity, should have been applied to the preparation of those other commodities till the balance between them had been established. Whenever this balance is properly preserved, there can be no superfluity of commodities, none for which a market will not be ready.* This balance too the natural order of things has so powerful a tendency to produce, that it will always be very exactly preserved where the injudicious tampering of government does not prevent, or those disorders in the intercourse of the world, produced by the wars into which the inoffending part of mankind are plunged, by the folly much more frequently than by the wisdom of their rulers.

About this Quotation:

The crude formulation of “Say’s Law” is that “supply creates its own demand” which is rather cryptic in meaning. It was first put forward in Jean-Baptiste Say’s Treatise of Political Economy in 1803 and famously rejected by John Maynard Keynes in his General Theory (1936). It has been largely ignored by mainstream economists ever since. The idea that production is logically prior to consumption, that producers come together in “markets” to exchange what they have produced for other things which other people have produced, and that these markets “clear” at voluntarily agreed upon prices, was also taken up by James Mill in 1808 in his “defence of commerce”. Mill was writing while the Napoleonic Wars were in full swing, with international commerce severely disruption by policies such as Napoleon’s “blockade” of Europe which was designed to impoverish Britain by keeping its products out of Europe, and domestic production in England reduced by heavy taxation, growing national debt, and price inflation of necessities. The latter disruptions to the market resulted in critics such as Spence and Cobbett arguing that “commerce” was merely an unproductive transfer of wealth from one place to another, and that the free market was prone to creating gluts and shortages. Mill’s reply was to show that commerce was productive in its own right, that gluts and shortages were not inherent in the market but were rather the result of “the injudicious tampering of government” in regulating markets and industry, or the result of the “disorders in the intercourse of the world, produced by the wars” which were raging around them. If left to itself, the free market “has so powerful a tendency to produce (a balance in supply and demand), that it will always be very exactly preserved.

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