A Treatise on Political Economy

Summary

A Treatise on Political Economy is Jean-Baptiste Say's systematic account of how wealth is produced, distributed and consumed. It first appeared in Paris in 1803, under the Consulate, and Say revised it through five French editions in his lifetime. The English translation by C. R. Prinsep (1821), made from the fourth edition, was republished in the United States with notes by Clement C. Biddle and became a standard American college text; the library uses the Biddle edition of 1855. Say set out to make Adam Smith's ideas clear and orderly. In a long Introduction he defines political economy as a science of general facts drawn from observation, distinguishes it from politics and from statistics, and reviews earlier schools, including the mercantilists and the French physiocrats, who held that only agriculture is productive. Book I, on production, argues that to produce is to create utility, so that manufacturing, commerce and services are as productive as farming. Say describes the roles of the scientist, the entrepreneur, whom the translation calls the master-agent or adventurer, and the labourer; the agency of capital and natural resources; money; and the effects of government regulation. Its fifteenth chapter states the law of markets: since products are ultimately paid for with other products, the creation of goods itself provides the demand for goods, and a general glut of all commodities cannot persist; what appear to be gluts are imbalances between particular products. Book II, on distribution, explains how value is shared as revenue among those who supply industry, capital and land, through wages, interest, profits and rent, and discusses population. Book III, on consumption, distinguishes productive from unproductive consumption, examines private and public spending, and ends with chapters on taxation and the national debt. Throughout Say favours free trade and limited government, warns against bounties and monopolies, and treats thrift as the source of capital. His law of markets was debated by Malthus and Sismondi in his own day, and was later challenged by John Maynard Keynes, while the attention he gave to entrepreneurship influenced later economists. Napoleon's displeasure at the book's free-market views cost Say his public post, a reminder that economic argument and political power were closely linked in Say's France.

Plot or Argument

• Introduction

  Political economy is a science of general facts, like the exact sciences, distinct from politics and statistics. Say reviews the mercantile system and the physiocrats and praises Adam Smith while criticizing his lack of order.

• Book I: Production

  Production is the creation of utility. Industry in agriculture, manufacture and commerce, aided by capital and natural agents, produces wealth; the operations of science, enterprise and labour are distinguished, and the effects of money and of government regulation examined.

• The law of markets

  In Book I, Chapter XV, Say argues that products are paid for with products, so that the creation of one product opens a market for others; general overproduction is impossible, and the encouragement of mere consumption does not help trade.

• Book II: Distribution

  Value produced is divided as revenue among those who furnish industry, capital and land. Say treats prices, the profits of the master-agent or adventurer, wages, interest, rent and the causes of population growth.

• Book III: Consumption

  Consumption destroys value, productively when it creates new value and unproductively otherwise. Say discusses private consumption, saving, luxury, public consumption, taxation and the national debt.

Lessons

• Supply creates its means of purchase

  Say's law of markets holds that people pay for what they buy with what they produce, so a growing economy creates its own markets. The idea, later disputed by Keynes, remains central to debates over recessions and stimulus.

  • Why does Say think a general glut of all goods is impossible?
  • What role does money play in his argument, and is it as neutral as he assumes?

• All useful work is productive

  Against the physiocrats, Say argues that manufacturers, merchants and providers of services create value just as farmers do, because production means creating utility.

  • How does Say define production?
  • Why does it matter whether services count as productive?

• The entrepreneur

  Say gives a distinct role to the person who combines knowledge, capital and labour and bears the risk of an enterprise, translated here as the master-agent or adventurer. Later theories of entrepreneurship build on this idea.

  • What qualities does Say think a successful adventurer in industry needs?
  • Why does he think the profits of enterprise are often high?

Context

Say wrote after the French Revolution, during Napoleon's Consulate, when France was rebuilding its institutions and debating tariffs, money and public finance. Smith's Wealth of Nations had been translated into French, but Say thought it disorganized; he wanted a clear, systematic science that could guide a free society, and he opposed the mercantilist policies Napoleon favoured.

Composition

The first edition appeared in Paris in 1803. Napoleon's government suppressed a second edition, and it appeared only after his fall, in 1814, followed by further editions in 1817, 1819 and 1826. C. R. Prinsep translated the fourth edition into English in 1821, and Clement C. Biddle of Philadelphia issued American editions with his own notes from 1821 onward; the library uses the 1855 printing.

Reception

The Treatise was widely read in Europe and became one of the most popular economics textbooks in American colleges before the Civil War. Ricardo, Malthus and Sismondi debated Say's law of markets in Say's lifetime; a century later Keynes made it a target of his General Theory (1936), and it remains a point of contention between economic schools.

Comparisons

• The Wealth of Nations

  Say set out to give Smith's ideas a clearer, more systematic form, while correcting him on productive labour and adding the entrepreneur.

• On the Principles of Political Economy and Taxation

  Ricardo accepted Say's law of markets but argued with him over value and rent; the two corresponded and met.

• Principles of Political Economy

  Mill defended Say's law in his chapter on excess of supply and absorbed Say's broader view of production.

• The Law

  Bastiat continued Say's French liberal tradition of free trade and limited government, arguing in a more popular and polemical style.

• Capital, Volume I

  Marx criticized Say's law, arguing that the separation of sale and purchase through money makes crises possible.

• Human Action: A Treatise on Economics

  Mises defended Say's law against Keynes and placed entrepreneurship at the centre of his account of the market process.

• Principles of Economics

  Say's emphasis on utility anticipated themes that Menger developed into a full subjective theory of value.

Quotes

For Students

A reading companion for classical Christian high school students. See the student guide.

Reading Guide

Watch for

• How the Introduction defines political economy as a science of general facts.
• Say's definition of production as the creation of utility.
• The argument of Book I, Chapter XV on the demand or market for products.
• The role Say gives to the master-agent or adventurer in industry.
• His treatment of public spending, taxation and debt in Book III.

Key terms and names

Utility

The capacity of a thing to satisfy human wants; for Say, to produce is to create utility.

Law of markets (Say's law)

The principle that products are paid for with products, so that production creates the means of demand and a general glut cannot persist.

Master-agent or adventurer

The translation's term for the entrepreneur, who combines knowledge, capital and labour and bears the risks of an enterprise.

Physiocrats

Eighteenth-century French economists who held that only agriculture produces a net surplus.

Productive consumption

Use of goods that leads to the creation of new value, as opposed to consumption that simply destroys value.

Glut

An excess of goods that cannot be sold at a price covering costs.

Seminar Questions

1. Comprehension How does Say define political economy, and how does he distinguish it from politics?
2. Comprehension Why does Say reject the physiocrats' claim that only agriculture is productive?
3. Comprehension What does Say mean when he says that a product, once created, affords a market for other products?
4. Interpretation Why does Say think that encouraging consumption does not help commerce?
5. Interpretation What is distinctive about the adventurer in industry compared with the capitalist and the labourer?
6. Interpretation How does Say's experience under Napoleon help explain his suspicion of government regulation?
7. Big Question Does a healthy economy depend more on people's ability to produce or on their willingness to spend?

Faith Connections

• Proverbs 14:23 (Scripture)

  In all labour there is profit: Say's view that every kind of useful work creates value fits the proverb's praise of labour over mere talk.

• Luke 16:10-12 (Scripture)

  The parable of the faithful steward links stewardship in small things to larger trust, a theme close to Say's emphasis on thrift and productive use of resources.

• John Maynard Keynes, The General Theory (1936) (Great Conversation)

  Keynes's argument that demand can fall short of supply is the most famous reply to Say and frames the modern debate.

Logic and Rhetoric

Central argument: Production is the creation of utility by industry, capital and natural agents. Because products are ultimately exchanged for other products, production itself supplies the demand for goods; therefore the way to prosperity is to encourage production through security of property, free trade and moderate taxes rather than to stimulate consumption or protect particular industries.

Rhetorical device: anticipating an objection. Say imagines a tradesman who says he wants money, not other products, for his woollens, and answers that his customers can pay him only out of what they themselves have produced.

Debate: Resolved: that a general overproduction of goods is impossible.

Memory Work

it is production which opens a demand for products.

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.

Writing Prompts

Essay: State Say's law of markets in your own words, explain how Say defends it, and assess it in light of an economic downturn you have read about.

Comparison with On the Principles of Political Economy and Taxation: Say and Ricardo were contemporaries who agreed about markets but disagreed about value. Compare Say's emphasis on utility with Ricardo's on labour, and argue which offers the better explanation of prices.

Creative Prompts

• Classroom

  Model a small barter economy of bakers, tailors and carpenters; then introduce money and a sudden urge to hoard it, and discuss whether Say's law still holds.

• Dialogue

  Write a debate in 1820 between Say and Thomas Malthus over whether a nation can produce more than it is able to buy.

• Essay

  Say lost his public office rather than rewrite his book to please Napoleon. Write an essay on the responsibilities of economists and other experts when their findings displease those in power.

Further Reading

• The Wealth of Nations, Adam Smith

• Letters to Mr. Malthus, Jean-Baptiste Say

  Say's replies to Malthus on gluts and the law of markets.

• The General Theory of Employment, Interest and Money, John Maynard Keynes

  The best-known twentieth-century challenge to Say's law.