Friday, October 24, 2008

Quote of the Day - Jean Baptiste Say

As if he were talking yesterday, instead of 187 years ago, the progenitor of Say's Law said:

"Thus, it is the aim of good government to stimulate production, of bad government to encourage consumption."

Discuss.

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21 Comments:

Blogger Luke H said...

Good government should refrain from doing either.

10/24/2008 07:58:00 am  
Anonymous hanso said...

Agreed. The first ought to be only incedental.

10/24/2008 08:17:00 am  
Blogger PC said...

To focus your mind a little, Luke, how about this as a supplementary question:

What would be the best way for a government to stimulate production?

10/24/2008 09:49:00 am  
Blogger Lyndon said...

Okay - it does depend on how he defines his terms, but I'd say that statement is basically inconsistent.

Is there a prize?

10/24/2008 11:03:00 am  
Anonymous Anonymous said...


What would be the best way for a government to stimulate production?


cancel all benefits!

10/24/2008 12:27:00 pm  
Blogger PC said...

If you can make a convincing argument for there being an inconsistency, Lyndon, there sure would be.

10/24/2008 01:07:00 pm  
Blogger Lyndon said...

I may be be confusing production and consumption with supply and demand, but I'd have said practically they go hand in hand.

Production without consumption is a butter mountain; consumption without production is... um... running out of stuff? Not really possible? In the economic market sense, supply always meets demand.


This is of course all distinct from the question of whether the best way to stimulate (or avoid) either is to leave well enough alone etc etc

10/24/2008 01:36:00 pm  
Blogger PC said...

Seems to me you're well on the way to Say's Law there, Lyndon.

Well done. That puts you several streets ahead of John Maynard Keynes.

Now if you can work out why Say thinks "the aim of good government to stimulate production" instead of consumption, you'll have it.

There's a clue in the last two paragraphs of my post on Keynes...

[Don't you just love this Socratic debating. :-) ]

10/24/2008 02:48:00 pm  
Anonymous JC said...

I would say Govt should be indifferent beyond the rule of law, sanctity of contract etc.

If it's citizens want to lie in the sun all day.. so be it. But it might pay to do enough work to afford an air force, army and navy.

JC

10/24/2008 03:19:00 pm  
Blogger Lyndon said...

Okay, so I was concentrating on the wrong bit; the good/bad distinction is about "the aim" rather than the outcome - a question of which side the levers are to increase the whole system. Yes?

I'll assume I understand; assessing the extent of my agreement would be too much work for a Friday.

At this point I'll add that I only looked at the post because I was confused by the man's interesting name. Each to his own path.

10/24/2008 03:30:00 pm  
Anonymous Anonymous said...


Production without consumption is a butter mountain; consumption without production is... um... running out of stuff? Not really possible? In the economic market sense, supply always meets demand.


NZ is an open economic system, not a closed world. What holds true for closed systems - or systems so large that they can be analysed as closed systems - does not hold for open systems.

In an open system:

"Production without consumption" is export income - the only kind of income that actually matters.

Enhancing NZ production while decreasing unproductive consumption must be the key aim of the government, along with national defense and protecting business assets. Even something as important as handling domestic crime (including crimes of violence, as long as they don't effect businesses) must come a very far second to this.

That's why removing the minimum wage, as many benefits as possible, chopping both the numbers of ivil servants and their salaries, getting rid of as much education & health as possible - are absolutely required as part of the correction the NZ economy must undergo. Similarly, it is imperative that NZ wage rates are slashed to reflect the actual international productivity of the country.

But "consumption without production" is debt, inflation, high interest rates, high taxes, and the collapse of the economy.

That is where NZ is today. The ten best years - probably since 1945, arguably since - well, 1840 - that NZ has ever had have been totally flushed away by Labour.

Now we get to pay.

10/24/2008 03:34:00 pm  
Blogger PC said...

""Production without consumption is export income..."

No, in the context you cite that would be mercantilism.

Adam Smith -- the real one, not the local impersonator -- thoroughly disposed of that 232 years ago.

What's the use of exporting goods if all you get in return are bits of unusable paper?

"Enhancing NZ production while decreasing unproductive consumption must be the key aim of the government..."

Half right, if by "enhancing NZ production" you mean getting the hell out of the way.

10/24/2008 03:46:00 pm  
Blogger Callum said...

I'll add my bit here:

Say realised that only through production, can consumption exist -that the laws of supply and demand are a result of the productive forces in the world, as without a product existing, there can be no demand for it. Although I might want one, I can't go into an electronics store and buy a time machine. For the demand to exist, there must be a product worth buying.

10/24/2008 04:11:00 pm  
Blogger Luke H said...

What would be the best way for a government to stimulate production?

The Greens would say, remove GST from organic food and offer tax breaks for NZ manufacturers.

A Labour spin-doctor might offer subsidies for productive businesses, with bonuses for union membership among workers.

A National spin-doctor might suggest tax breaks for the top twenty percent most productive businesses

ACT would have the same answer, but defined in such a way as to benefit their mates.

The correct answer is: get the hell out of the way!

10/24/2008 04:34:00 pm  
Blogger Luke H said...

Seems to me that the question starts from the wrong premises, anyway.

10/24/2008 04:35:00 pm  
Anonymous Anonymous said...


What's the use of exporting goods if all you get in return are bits of unusable paper?


because - most importantly - those unusable bits of paper can cancel out the other bits of paper - the absolutely massive debts Helen ran up on our behalf

plus they can be swapped for more capital assets --- or even saved, as you've advocated elsewhere, if we trust the owners of the paper not to inflate --- rather than swapping them on fucking big TVs, cars, oil, heating, food, etc all for bludgers.

(so, basically they are not at all "unusable".
But we absolutely cannot use them on domestic, personal consumption).

10/24/2008 05:51:00 pm  
Blogger PC said...

Really? Seems to me that you might be dropping context.

Why not check out why Mr. Say says what he say. You can read it online: page 58 of his Treatise of Political Econonomy. It' sreally very good.

10/24/2008 09:24:00 pm  
Anonymous Anonymous said...

Seems to me that you might be dropping context.

again, no because we are in an open system

page 58 of his Treatise of Political Econonomy. It' sreally very good.

hmm. This seems to describe NZ and also why everyone who is hardworking or taxpaying is leaving:

What could an active manufacturer, or an intelligent merchant,
do in a small deserted and semi-barbarous town in a remote
corner of Poland or Westphalia?


although he then technically advocates genocide (of the Creek) in the next sentence.

10/25/2008 02:35:00 am  
Blogger PC said...

Our anonymous idiot shows all too clearly that anonymous commenters are not to be relied upon.

In fact neither the next sentence nor any sentence advocates genocide -- although I'm coming round to the idea for anonymous commenters.

For the information of honest readers, here's what Mr. Say says in subsequent sentences:

"A merchant established in a rich and populous
town, sells to a much larger amount than one who sets up in a
poor district, with a population sunk in indolence and apathy.

"What could an active manufacturer, or an intelligent merchant,
do in a small deserted and semi-barbarous town in a remote
corner of Poland or Westphalia?

"Though in no fear of a competitor,
he could sell but little, because little was produced;
whilst at Paris, Amsterdam, or London, in spite of the competition
of a hundred dealers in his own line, he might do
business on the largest scale. The reason is obvious: he is
surrounded with people who produce largely in an infinity of
ways, and who make purchases, each with his respective products,
that is to say, with the money arising from the sale of
what he may have produced.

"This is the true source of the gains made by the towns’ people
out of the country people, and again by the latter out of the
former; both of them have wherewith to ouy more largely, the
more amply they themselves produce. A city, standing in the
centre of a rich surrounding country, feels no want of rich
and numerous customers’ and, on the other hand, the vicinity
of an opulent city gives additional value to the produce of the
country. The division of nations into agricultural, manufacturing,
and commercial, is idle enough. For the success of a
people in agriculture is a stimulus to its manufacturing and
commercial prosperity; and.the flourishing condition of its
manufacture and commerce reflects a benefit upon its agriculture
also.
"

So far from starting from the wrong premise, the premise is here in the process of being adumbrated - namely, that consumption has to be paid for out or production.

I'll leave it to honest readers to draw conclusions as to what that means for the proposals by the National/Labour "coalition" to finance the construction of "infrastructure" -- ie., consumption -- by deficit spending -- ie., by printing money.

And what then of of the Creek Indians, of whom our moron commenter says Mr. Say "advocates genocide"? Our moron could not be more wrong.

Let's allow Mr. Say to continue from where we left off:

"The position of a nation, in respect of its neighbours, is analogous
to the relation of one of its provinces to the others, or of
the country to the town; it has an interest in their prosperity,
being sure to profit by their opulence. The government of the
United States, therefore, acted most wisely, in their attempt,
about the year 1802, to civilize their savage neighbours, the
Creek Indians. The design was to introduce habits of industry
amongst them, and make them producers capable of carrying
on a barter trade with the States of the Union; for there
is nothing to be got by dealing with a people that have nothing
to pay. It is useful and honourable to mankind, that one
nation among so many should conduct itself uniformly upon
liberal principles. The brilliant results of this enlightened
policy will demonstrate, that the systems and theories really
destructive and fallacious, are the exclusive and jealous maxims
acted upon by the old European governments, and by
them most impudently styled practical truths, for no other
reason, as it would seem, than because they have the misfortune
to put them in practice. The United States will have the
honour of proving experimentally, that true policy goes hand-in-
hand with moderation and humanity.
"

10/25/2008 10:33:00 am  
Anonymous Anonymous said...

1. Labour will print money (that's why this mess is not the reserve bank's fault.

2. National will borrow from overseas. NZ is not a closed system: that does not involve printing NZ dollars. Unlike reserve currencies, NZ does not really have the luxury of deflating its currency to resolve foreign debts, because it is an open system.

3. I'm in fucking Tennessee today. I can see Jackson's courthouse and Polks grave. The Creeks "civilisation" wiped them out.

10/25/2008 08:12:00 pm  
Anonymous Anonymous said...

Production without consumption is a butter mountain
"Production without consumption" is export income

Both wrong. When we talk about reducing consumption, what we really mean of course is reducing consumption spending - people would buy more stuff if it were cheaper. So what about "production without consumption"? Cheaper goods! Total consumption spending falls, but more goods are available for the money. Higher quality of life. That's why Keynes is so wrong: the economy runs on savings, not consumption.

10/29/2008 11:00:00 pm  

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