Lesson 5. Jean Baptiste Say. Say's Law of Markets.

(1767-1832)

For hundreds of years, the science of astronomy was frozen by the widely believed theories of the second-century Greek astronomer, Ptolemy. According to Ptolemaic theory, the Earth was the center of the universe. It was not until the 16th century that Europeans, accepting the work of Galileo and Copernicus, were persuaded that the Earth, and all the other planets, rotated around the sun. In much the same way, the doctrine known as Say's Law, stifled advances in the study of economics for well over 100 years.

An admirer of Adam Smith, John Baptiste Say's Treatise on Political Economy (1803) helped to introduce The Wealth of Nations to his native France. In the course of explaining Smith's theories and the role of markets in satis­fying human wants, the author developed what came to be known as Say's Law. According to Say's law, "produc­tion creates its own demand." In other words, people produce and sell goods and services in order to buy the things they want. If buyers no longer want certain products, sellers will stop producing them, and shift into something that is in demand. Now, if only those goods and services actually in demand are produced, and the income received from the sale of those products is ultimately used by managers and workers to buy the tilings they want and need, it follows that supply created its own demand. In other words: there could be no such thing as overproduction, or long-term unemploy­ment. Temporary overproduction and unemployment, yes. Long term, never.

The onset of the Great Depression of the 1930's, with its widespread unemployment and overproduction that dragged on for years, finally put Say's law to rest. Although some economists continued to agree with Say that "in the long run," the market would bring supply, demand, and employment into balance, most agreed with the British economist J.M. Keynes who pointed out that "in the long run we are all dead." By that he meant pressing problems require immediate attention. We can't wait for long-term solutions.

We will learn more about Keynes and his view of the economy in a later chapter.

Exercises

1. Questions for Understanding:

1. Whose doctrine stifled advances in the study of

economics of well over 100 years?

2. Whose admirer was Jean Baptiste Say?

3. Who introduced “The Wealth of Nations” to France?

4. What is the motto of his theory?

5. What put Say’s law to rest?

6. Did any economists continue to agree with Say that “in the long run” the market would bring supply, demand and employment into balance?

7. What did J.M. Keynes point out?

8. What did he mean by this?

9. Can people wait for long-term solutions?

II. Match each item in Column A with its definition in Column B:

	Column A		Column B
	science		to change position or direction
	to accept		to look at with pleasure
	to persuade smb. to do smth.		to give smb. what he wants
	to rotate		to grow larger
	to stifle		finally
	to admire		to give or have the feeling that breathing is difficult
	to satisfy		to move round a central point
	to develop		to agree
	to shift		to cause by reasoning
	ultimately		knowledge arranged in an orderly manner
	unemployed		not working

III. Complete the phrases with prepositions (where it is necessary) and say in what situations they are used in the text. Use them in sentences of your own.

1. according…

2. to stifle…

3. an admirer…

4. …other words

5. …order to buy

6. to produce…

7. to create…

8. to drag…

9. to point…

IV. Give Russian equivalents for the following words or word combinations from the text:

1. according to Ptolemaic theory

2. the center of the universe

3. to rotate round the sun

4. to stifle advances

5. production created its own demand

6. overproduction

7. long-term unemployment

8. to drag on for years

9. pressing problems

10. long–term solution

V. Speak on Say’s Law of Markets using words and word combinations given above.

VI. Complete the table. Work out your point of view on Say’s Law of Market.

Appraisal Ideas and Beliefs	Still Relevant	Needs Modification	Should Be Rejected
1.See the model on p. 2….

Give your reasons.