A Treatise on Political Economy; or the Production, Distribution, and Consumption of Wealth

Abstract

One of the most widely read treatises on economics in the nineteenth century, A Treatise on Political Economy is a translation of Traite d'economie politique published in five French editions from 1803 to 1829. Say presents his treatise as a shorter and more systematic version of Adam Smith's Wealth of Nations (1776). First translated into English in 1821, it was the best-known exposition of Smith's economics and was widely used as a textbook in the U.S. and Europe. Say studies political economy, which comprises agriculture, commerce, and the arts insofar as they increase or decrease wealth; he studies commerce where gain is balanced by loss and commerce is profitable to all. Say examines the concept of wealth, and establishes the laws upon which its production, distribution, and consumption depend. For Say there are three great agents of production: industry, capital, and natural agents. Productive capital includes (beyond money) tools, products, raw materials, and improvements upon land. Although Say concurs with Smith in his theory of the operation of the economic system, he departs from Smith at a number of points. Say rejects the labor theory of value held by Smith and Ricardo that the basis of the value of a good is the labor (or productive agency) devoted to it. Value is the combined product of labor, capital, and nature. He proposes the utility theory of value: it is the creation of utility that creates value; the price of a good reflects its utility to the buyer. While Smith had made the entrepreneur invisible, Say makes the entrepreneur central to economic activity. Effort, knowledge, and application are found in any process of production. Entrepreneurs use their industry to organize and direct the factors of production to achieve satisfaction of human wants and market demands. Central is the application of knowledge to a specific end. For Say, entrepreneurship is more a matter of coordination than innovation. Smith's division of labor emphasized time saved and improving the dexterity of the workman; for Say, application of tools and machinery was crucial. Unlike Smith, Say emphasized the difference between enterprise and capital, and the profits arising from them, in the process. Say claimed his system more perfect because it dealt with the production of immaterial goods. The treatise is the source of Says' Law, or the Law of Markets, which states that supply creates it own demand; more precisely, that aggregate production or supply of commodities leads to aggregate consumption of, or demand for, commodities in general. Increased supply increases demand. There may be momentary gluts in production, but they will be corrected by the market in time. Say realized the interest rate is the price of credit, not money; like commodity prices, it should not be regulated by the state. Taxation injures production because it prevents the accumulation of capital. In opposition to mercantilism, which emphasized accumulation of gold, Say argued that money is a means to facilitate production and exchange. He rejected the idea that excessive saving would reduce domestic demand. He held that the main obstacle to prosperity is an unwillingness or inability to produce (not a failure of demand); growth is caused by the supply of better and more means of production (that is, a continuous development of science and technology). He observed that savings goes quickly into investment in production; and investment (productive consumption) does more to stimulate growth and expand production than demand for luxuries or military goods (unproductive consumption). (TNM)

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