Imagine two economists walking into a grocery store whose shelves are completely empty. One says: “The problem is production — not enough goods are being created.” The other one replies: “No, the problem is demand — people aren’t spending, they’re saving. The state must stimulate consumption.” This dispute still shapes how governments respond to crises, how they spend money, and how modern macroeconomic policy is justified.
The quarrel is not new. It began a century ago, when John Maynard Keynes, the most influential economist of the twentieth century, announced that he had liberated economics from a supposed dogma of the French liberal thinker Jean-Baptiste Say. The only problem is that Keynes defeated a straw man, not Say’s actual ideas.
In the preface to the 1939 French edition of The General Theory, Keynes declared that his goal was “a final break-away from the doctrines of J. B. Say.” According to Keynes, the classical view rested on a mistaken assumption: supply creates its own demand. If that were true, economies would always operate at full capacity, and recessions could only be temporary misallocations. Criticising this supposed dogma allowed Keynes to justify an expanded role for the state, deficit spending, welfare programmes, and what later became the foundations of modern macroeconomic management.
But this was not Say’s view — it was a caricature. In fact, Keynes never once cited Say’s Treatise on Political Economy. Not in The General Theory, and not anywhere else. Unsurprisingly, Say had never written the sentence Keynes claimed to be refuting. The famous formula appears for the first time — surprise, surprise — in Keynes’s own lecture notes from 1933. Keynes invented the phrase and then triumphantly “disproved” it.
So what did Say actually argue? He analysed a simple causal chain: to consume, something must first be produced. Let us quote him directly:
“It is worthwhile to remark that 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. When the producer has put the finishing hand to his product, he is most anxious to sell it immediately, lest its value should diminish in his hands. Nor is he less anxious to dispose of the money he may get for it, for the value of money is also perishable. But the only way of getting rid of money is in the purchase of some product or other. Thus, the mere circumstance of the creation of one product immediately opens a vent for other products.”
Production, therefore, provides the means by which demand can be expressed. It does not imply that supply and demand automatically balance, nor that crises are impossible. Say’s argument was richer and far more nuanced than Keynes allowed.
Although the popular interpretation of “Say’s Law” was merely a caricature, this did not stop Keynes from constructing his own theory in opposition to it. In fact, without that caricature, his theory could not have been formulated at all. Once Say’s idea is reduced to the simplistic claim that as soon as a good is produced, there will automatically be enough buyers for it, it becomes very easy to propose the opposite: demand creates supply. And from here, the policy conclusion follows naturally — demand must be propped up by the state through deficit spending, monetary expansion, and government-driven consumption. The Keynesian revolution was made possible by inverting a cliché that Keynes himself had created.
Understanding Say’s real position matters not only for intellectual history. It also restores the moral foundation of productive activity. Before one can consume, one must create. Before buying something one desires, one must produce something that others desire. In other words, every consumer must first be a producer.
This insight inoculates us against the illusion captured in the 80s Dire Straits song Money for Nothing. A warehouse worker, hauling fridges and heavy boxes, sees a rock star on MTV and thinks: they’re getting “money for nothing.” He may even tell himself: all I’d need is to learn drums or guitar, and I’d be rich too. But reality mirrors Say’s point: before enjoying the rewards, the musician must first master the craft, create something others genuinely want to listen to, and only then can he afford to consume more.
Without creators, consumption is impossible.
This article was originally published in the IQ magazine.