Say's law, also known as the law of markets, is an economic concept that states that products are used as a means to acquire more products. That is, people sell products or services to earn money to buy other products or services. Though the concept had been stated by others before him, Jean-Baptiste Say, a French businessman and economist, is given credit for the law. The law specifically applies to market economies, or economies which are driven by free and open supply and demand. Economies that are controlled by government or by other external forces may not follow Say's law, as products are not necessarily bought and sold with the aim of purchasing more products.
Observing simple economic systems shows that, at a basic level, Say's law holds true and is generally correct. People work to provide goods and services in order to receive money, which serves as a medium for the acquisition of other products and services. Goods and services, then, are sold so that people can receive more goods and services; throughout the economic system, people produce in order to consume. It is important to note that this law does apply to both products and services; there is a supply and a demand of both, and both are important parts of the economy.
Say's law has many important implications to any market economy that its apparent relative simplicity may not immediately reveal. The idea that the production of goods leads to the consumption of goods and vise versa means that, if the law holds true, there should never be any major gluts or shortages on the market. Small fluctuations could still occur, but they would quickly be corrected as production shifts to match demand. Many argue that the law and its positive consequences can only hold true in a perfect free-market economy—any government control or influence from external forces may render the law inapplicable. Interestingly enough, however, Jean-Baptiste Say himself argued for public works and for government aid to keep people employed.
Economies across the world have experienced various long-term crises that should not occur if Say's law holds true. Some, therefore, conclude that Say's law is inaccurate; others, however, simply believe that the conditions necessary for the law do not exist. For example, the law requires a perfect barter system of trade; money and credit tend to disrupt this and cause disturbances in the system. Additionally, government interaction is apparent in almost every economic system that has ever existed. Such government interaction disrupts the natural supply and demand relationship that is a necessary prerequisite for the accuracy of Say's law.
