Was J.B. Say an Austrian Economist?
In one of his most important works, An Austrian Perspective on the History of Economic Thought, Murray Rothbard evaluates the economic contributions of various schools of thought across the centuries. He devotes the first chapter of the second volume to nineteenth-century classical economist Jean-Baptiste Say.
When studying Say, it would seem as if he were an Austrian, but his methods and theories of course predate those of the school. Although he was unaffiliated, his texts are useful for better understanding Austrian methods. Say, along with A.R.J. Turgot and Frédéric Bastiat, made numerous proto-Austrian economic contributions.
A particularly outstanding feature of J.B. Say's treatise is that he was the first economist to think deeply about the proper methodology of his discipline, and to base his work, as far as he could, upon that methodology. From previous economists and from his own study, he arrived at the unique method of economic theory, what Ludwig von Mises was, over a century later, to call “praxeology.” Economics, Say realized, was not based on a mass of inchoate particular statistical facts. It was based, instead, on very general facts (jait generaux), facts so … deeply rooted in the nature of man … that everyone, upon learning or reading of them, would give his assent.
Say appeared to be using praxeology well before Ludwig von Mises was even born. Say identified the inapplicability of the scientific method to economics and utilized a method of logical deduction from axioms to develop theory.
In his A Treatise on Political Economy, Say explains that economics is not about framing and testing hypotheses, rather, economics is concerned with perceiving connections from “the nature of particular events” and “must conduct us from one line to another, so that every intelligent understanding may clearly comprehend in what manner the chain is united.” As Rothbard said, his methodology has many parallels with praxeology, which starts from the axiom that individual human beings act to achieve certain goals.
In this light, Say spoke out against empiricism. He insisted on a verbal rather than mathematical understanding of economics. Say noted that “the wants and the desires of mankind … are not susceptible of any rigorous appreciation, and cannot, therefore, furnish any data for absolute calculations.” Additionally, he insisted that the world cannot be described by “strict arithmetical computation.” The social order cannot be purely reduced to calculations and models, as Austrians also contend.
Say’s most notable contribution to economics, “Say’s law,” is often stated as “products are paid for with products.” This is the essence of exchange where one actor barters his products for another’s (often through a medium of exchange). There is no way for consumption to occur without first producing or acquiring a desired good. Therefore, production necessarily precedes consumption, or in other words, supply enables demand. Genuine demand only arises from the supply of products. All demand is backed by prior production.
Another key aspect of Say's law is its application toward general gluts and prices. A general glut occurs when aggregate supply exceeds aggregate demand. The price level in the economy is above equilibrium, and too many goods have been produced.
Many nineteenth century thinkers, e.g., Thomas Malthus and Karl Marx, posited similar overproduction doctrines. But if one realizes that the supply of goods constitutes demand for goods of non-competing industries, it follows that there can never be an overall surplus in an economy. Say elucidates, “[A] product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value. ... Thus the mere circumstance of creation of one product immediately opens a vent for other products.”
The chief error of overproductionism is an underlying assumption of fixed prices. At any price above equilibrium, goods will remain unsold and markets will not clear. Rothbard echoes Say:
[A] surplus of one or more commodities simply means that too little has been produced of other commodities for which they might exchange … since we know that an increased supply of any product lowers its price, then if any unsold surplus of one or more goods exists, this price should fall, thereby stimulating demand so that the full amount will be purchased. There can never be any problem of “overproduction” or “underconsumption” on the free market because prices can always fall until the markets are cleared.
Rothbard emphasizes the role of prices here. If prices are perfectly flexible, gluts cannot exist, even within specific industries. Prices will fall to eliminate surpluses. Even if one acknowledges the reality of sticky prices, prices still tend toward equilibrium. The temporary nature of gluts means government intervention is not required.
Say's theories and methods are more than compatible with those of the Austrians, despite neither directly influencing the other. These concepts remain relevant but controversial today.