When Say visited England a little before 1789, he found machine production already in full swing there. In France at the same date manufactures were only just beginning. They increased rapidly under the Empire, and the progress after 1815 became enormous. Chaptal in his work De l’Industrie française reckons that in 1819 there were 220 factories in existence, with 922,200 spindles consuming 13 million kilograms of raw cotton. This, however, only represented a fifth of the English production, which twenty years later was quadrupled. Other industries were developing in a similar way. Everybody was convinced that the future must be along those lines—an indefinite future it is true, but it was to be one of wealth, work, and well-being. The rising generation was intoxicated at the prospect. The most eloquent exposition of this debauchery will be found in Saint-Simonism.
Say did not escape the infection. While Smith gives agriculture the premier place, Say accords the laurels to manufactures. For many years industrial problems had been predominant in political economy, and the first official course of lectures given by Say himself at the Conservatoire des Arts et Métiers was entitled “A Course of Lectures on Industrial Economy.”
In that hierarchy of activities which Smith had drawn up according to the varying degree of utility each possessed for the nation, Smith had placed agriculture first. Say preserved the order, but placed alongside of agriculture “all capital employed in utilising any of the productive forces of nature. An ingenious machine may produce more than the equivalent of the interest on the capital it has cost to produce, and society enjoys the benefit in lower prices.”[268] This sentence is not found in the edition of 1803, and appears only in the second edition. Say in the meantime had been managing his factory at Auchy-les-Hesdins, and he had profited by his experience. This question of machinery, which was merely touched on by Smith in a short passage, finds a larger place in every successive edition of Say’s work. The general adoption of machinery by manufacturers both in England and France frequently incited the workers to riot. Say does not fail to demonstrate its advantages. At first he admits that the Government might mitigate the resulting evils by confining the employment of machinery at the outset to certain districts where labour is scarce or is employed in other branches of production.[269] But by the beginning of the fifth edition he changed his advice and declared that such intervention involved interference with the inventor’s property,[270] admitting only that the Government might set up works of public utility in order to employ those men who are thrown out of employment on account of the introduction of machinery.
The influence of these same circumstances must be accounted responsible for the stress which is laid by Say upon the rôle of an individual whom Smith had not even defined, but one who is henceforth to remain an important personage in the economic world, namely, the entrepreneur. At the beginning of the nineteenth century the principal agent of economic progress was the industrious, active, well-informed individual, either an ingenious inventor, a progressive agriculturist, or an experienced business man. This type became quite common in every country where mechanical production and increasing markets became the rule. It is he rather than the capitalist properly so called, the landed proprietor, or the workman, who is “almost always passive,” who directs production and superintends the distribution of wealth. “The power of industrial entrepreneurs exercises a most notable influence upon the distribution of wealth,” says Say. “In the same kind of industry one entrepreneur who is judicious, active, methodical, and willing makes his fortune, while another who is devoid of these qualities or who meets with very different circumstances would be ruined.”[271] Is it not the master spinner of Auchy-les-Hesdins who is speaking here? We are easily convinced of this if we compare the edition of 1803 with that of 1814, and we can trace the gradual growth and development of this conception with every successive edition of the work.
Say’s classic exposition of the mechanism of distribution is based upon this very admirable conception, which is altogether superior to that of Smith or the Physiocrats. The entrepreneur serves as the pivot of the whole system. The following may be regarded as an outline of his treatment.
Men, capital, and labour furnish what Say refers to as productive services. These services, when brought to market, are given in exchange for wages, interest, or rent. It is the entrepreneur, whether merchant, manufacturer, or agriculturist, who requires them, and it is he who combines them with a view to satisfying the demand of consumers. “The entrepreneurs, accordingly, are mere intermediaries who set up a claim for those productive services which are necessary to satisfy the demand for certain products.” Accordingly there arises a demand for productive services, and the demand is “one of the factors determining the value of those services.” “On the other hand, the agents of production, both men and things, whether land, capital, or industrial employees, offer their services in greater or less quantities according to various motives, and thus constitute another factor which determines the value of these same services.”[272] In this fashion the law of demand and supply determines the price of services, the average rate of interest, and rent. Thanks to the entrepreneur, the value produced is again distributed among these “various productive services,” and the various services allotted according to need among the industries. This theory of distribution is in complete accordance with the theory of exchange and production.
Say’s very simple scheme of distribution constitutes a real progress. In the first place, it is much more exact than the Physiocrats’, who conceived of exchange as taking place between classes only, and not between individuals. It also enables us to distinguish the remuneration of the capitalist from the earnings of the entrepreneur, which were confounded by Adam Smith. The Scotch economist assumed that the entrepreneur was very frequently a capitalist, and confused the two functions, designating his total remuneration by the single word “profit,” without ever distinguishing between net interest of capital and profit properly so called. This regrettable confusion was followed by other English authors, and remained in English economic theory for a long time. Finally, Say’s theory has another advantage. It gave to his French successors a clear scheme of distribution which was wanting in Smith’s work, just at the time when Ricardo was attempting to overcome the omission by outlining a new theory of distribution. According to Ricardo, rent, by its very nature and the laws which give rise to it, is opposed to other revenues, and the rate of wages and of profits must be regarded as direct opposites, so that the one can only increase if the other diminishes—an attractive but erroneous theory, and one which led to endless discussion among English economists, with the result that they abandoned it altogether. Say, by showing this dependence, which becomes quite clear if we regard wages and profits from the point of view of demand for commodities, and by his demonstration that rent is determined by the same general causes—viz. demand and supply—as determine the exchange value of other productive services, saved political economy in France from a similar disaster. It was he, also, who furnished Walras with the first outlines of his attractive conception of prices and economic equilibrium. This explains why he never attached to the theory of rent the supreme importance given to it by English economists. In this respect he has been followed by the majority of French economists. On the other hand, and for a similar reason, he never went to the opposite extreme of denying the existence of rent altogether by regarding it merely as the revenue yielded by capital sunk in land. In this way he avoided the error which Carey and Bastiat attempted to defend at a later period.[273]
(4) So far it is Say’s brilliant power of logical reasoning that we have admired. But has he contributed anything which is entirely new to the science?
His theory of markets was for a long time considered first-class work. “Products are given in exchange for products.” It is a happy phrase, but it is not in truth very profound. It simply gives expression to an idea that was quite familiar to the Physiocrats and to Smith, namely, that money is but an intermediary which is acquired only to be passed on and exchanged for another product. “Once the exchange has been effected it is immediately discovered that products pay for products.”[274] Thus goods constitute a demand for other goods, and the interest of a country