"L'offre crée même la demande. Supply even creates demand." -- J. B. Say
Earlier this month, François Hollande, the president of France who calls himself a "socialist," endorsed Say's law, the idea that production is more important than consumption if you want to grow the economy. This supply-side formula originally was propounded by the great French economist, Jean-Baptiste Say, in the early 19th century, and is commonly phrased "Supply creates its own demand."
On January 14, 2014, President Hollande used Say's maxim as a guide for the French economy of the future:
"Le temps est venu de régler le principal problème de la France: sa production. Oui, je dis bien sa production. Il nous faut produire plus, il nous faut produire mieux. C'est donc sur l'offre qu'il faut agir. Sur l'offre ! Ce n'est pas contradictoire avec la demande. L'offre crée même la demande."
Translated, President Hollande stated: “The time has come to resolve the main problem of France: its production. Yes, I mean its production. We need to produce more, we must produce better: Supply even creates demand.”
This is quite an admission for a “socialist.” For more than 150 years, the French have ignored J. B. Say (1767-1832), considered the “French Adam Smith” who led the laissez-faire school of economics. He was the man who popularized the word entrepreneur, and invented his famous Say’s law of markets. Alex de Tocqueville, author of “Democracy in America,” learned his economics from Say’s textbook.
Unfortunately, Keynes demonized Say’s law in his General Theory and only recently through the work of Australian economist Steve Kates and my own work has respect for Say been resurrected. Now he's being quoted by the French president!
According to Say, the key to economic growth is on the supply side: encouraging new technology, productive savings and capital formation -- not artificially pumping up consumer spending.
Here's a delightful four-minute video that explains the significance of Say's law and why supply-side production, not consumption, drives the economy. It is called “Deck the Halls with Macro Follies.” I showed this video to my students at Chapman University and they loved it.