Wednesday, January 23, 2008

O Say, Can We See?

Today's issue of The Wall Street Journal also included an interesting piece on the fiscal stimulus package proposed by New York Senator and Presidential candidate Hillary Clinton. The piece was interesting to me not because it was about one of the campaigners, but because it referenced 18th-century French economist Jean-Baptiste Say.

The author of the editorial, George Melloan, quotes Say as saying "products are paid for with products." There may be a few would see this as a confirmation that a manufacturing economy is the only real source of wealth. I suspect that Jean-Baptiste could not begin to imagine, much less fathom the modern service sector and all it brings to improve our standard of living. However, the idea is essentially correct. And that is, we can't consume what is not produced. Or to reverse it, we must produce before we consume. Say's Law is also frequently stated as "supply creates its own demand." I feel that version is perhaps a bit suspect. Despite what some popular culture would like to portray, it is not necessarily true that "if you build it, they will come". Ask the owner of any poorly located restaurant, boutique or small business. But the idea of linking production and consumption is a vital part of economic and financial literacy. Too often, people presume that a job is something you get, and a raise is something you deserve, just because you exist. That's not the case. With a job, you are expected to produce. And it is that production that enables you to consume. You may not consume what you produce, but you are enabled nonetheless. Production and consumption are connected, at the personal and the national level.

What are your thoughts?


Meds said...

Speaking of poorly located restaurants, check out Baghdad's only Chinese restaurant that opened last week. Will this spur demand? Baghdad has been without Chinese food since a suicide bombing splattered all sorts of human bits on the roof in 2006. In this case the store is there but isn't exactly stacked with all the great meals we would expect from our local take-out establishments, due to unsafe supply lines. But I think the proprietors' optimism and heart may be enough to keep it there for at least a little while, until business picks up. But will it need the new materials it currently lacks to stay in business?

Mike Fladlien said...

i spent much time trying to figure out what say's law said...i think it says, the act of producing a good generates a factor payment equal to production...say's law doesn't say the market will clear only that profits plus wages will be enough to buy the product...i also aver, that in the circular flow of income, that spending by te households equals income to businesses and that's exactly what say said...thanks for an excellent blog...