Say's Law, Back on the Books
Jude Wanniski
February 25, 1998


Letters Editor
The New York Times
229 W. 43 Street
New York NY 10036

Dear Editor:

Louis Uchitelle does a commendable job in describing the economic renaissance of John Baptiste Say and "Say's Law," that supply creates its own demand. He might have noted that this revival was the foundation for "supply-side economics," a phrase I coined in 1975. In my book, The Way the World Works, published in 1978, I described Professor Arthur Laffer as the modern incarnation of Say, whose insight as a Napoleonic economist provided the intellectual f underpinning of the Reagan tax cuts of 1981 as well as the Kennedy tax cuts of 1964. Both Presidents argued that if tax rates are too high, they discourage production (supply) and produce lower revenues than lower rates that would foster higher output.

Keynesian economics, which has lost much of its luster since John Maynard Keynes in 1936 pronounced Say's Law dead, is based on the idea that demand  (another word for consumption) creates its own supply. Keynes was helpful in arguing that if individuals will not invest, the government has to step in and do it for them. If capitalism fails, socialism must do its job. Such was the case in the 1930s.

It was not until 1977 that I discovered the stock market crash of 1929 was caused by a "supply shock," the Smoot-Hawley Tariff Act, which erected a wall between America's supply of goods and the goods being produced by the rest of the world. It never occurred to Keynes, who lived in London, or anyone else at the time, that a tariff wall that would be erected in 1930 could cause a crash of the financial IS   markets in 1929. It was my discovery — made possible by Arthur Laffer's teaching — that enabled me to see that investors would not wait for the 1930 tariff wall to be built when the government was deciding in the last week of October of 1929 to build it.

Because there are still so very few schools that do justice to Say and "supply-side economics," I offer without any charge lessons in it at "Supply-Side University" on my website. ( I devoted an entire lesson to Say's Law in the fall semester, which can still be located in my website's archive. Again, my hat is off to the Times and its Mr. Uchitelle.


Jude Wanniski