1.15 Demand for Products
Demand for products is a confounding matter for producers: gathering the materials and fashioning a product is a familiar and simple matter compared to finding a buyer for the product once it is assembled.
Were it possible to know, with certainty, the demand for products, producers would know exactly what to produce, and in what quantities, to satisfy demand. Because they do not, they may waste resources producing the wrong product, or more than is needed, or be reluctant to produce at all.
A producer applies his labor to the creation of a product with the expectation the value he creates will be appreciated and paid for. However, the use of money disguises the fact that a man pays for the goods he receives with the product of his own labor. That is, every customer is also a producer, whose budget to purchase depends on demand for his own product.
This is obvious in direct barter: to exchange wheat for wool means that the owner of wheat wants the wool and vice-versa. In some instances, the farmer may want wool of the shepherd, but the shepherd has no interest in the wheat the farmer has to exchange. It is not a lack of demand for wool, but a lack of his own demand for wheat that leaves the shepherd unable to exchange his goods.
If the shepherd instead wants fish for his wool, he may expect the farmer to exchange his wheat for fish, then bring to the shepherd the fish to trade for his wool. The burden then falls to the farmer to find a fisherman who is in need of wheat.
The same is true if money is the medium of exchange: if the shepherd wants some quantity of coin for his wool, the farmer must sell his wheat to another party to obtain the coin to purchase it.
The point of this roundabout diversion is that money is merely a medium of exchange, and demand does not decrease for lack of it. People still want and need items, but have no money. And they have no money because other people do not wish to purchase their own products. Significant errors in economic theory arise from this misconception.
It can be more readily witnessed when there is great plentitude of money, and there remains no demand for certain products. In a closed market, a farmer who produces a superabundance of wheat will find that there is no demand for some portion of his product - buyers in the market can only eat so much bread, and regardless of the coin they possess have no desire for more.
It is therefore clear that it is not lack of money that dries up demand, but lack of need of a product. And to return to the notion of scarcity: people need no less food when coin is in short supply than they do when it is abundant. When a seller offers a useful product at a price buyers are willing to pay, he will find no shortage of demand.
In a market where money is accepted for goods, to the exclusion of barter, a buyer must first earn coin before he has it to spend. Which is to say he must sell his own product, even if it is merely his labor, to another party to generate funds to satisfy his own wants and needs.
On supply: a good harvest is favorable to the agriculturalist: he can sell as much of his crop as buyers can use at a reasonable price. A poor harvest requires the seller to increase his price, driving buyers to seek substitute goods.
A glut in the market may be caused by producers who collectively produce more goods than buyers can make use of. It may also be caused by a shortage of other products to exchange for it. In the latter instance, the result is a rise in the price of all goods except that which is available in abundance.
The author obliquely touches on the ability of customers to do without certain products rather easily. These may be luxury items, or items for which there is a handy substitute, or items that they can provide for themselves. The abundance or shortage of such products has little effect on the market.
From this, it can be concluded that the greater the amount of production in a market, the greater the amount of demand in that same market. Those who are able to earn more for their own product can afford to spend more for the product of others.
Another conclusion is that, in free markets, each person is interested in the general prosperity of all. By the same principle, each producer is able to sell more if each customer also earns more (by his own production).
It is for this reason that we find successful businesses tend to cluster: a merchant who seeks to open a shop will sell more products in a location where others are successful and have higher incomes than he would by choosing a less productive, hence low-income, location.
The same is true to some degree of population: merchants and laborers alike are drawn to populated areas because there is greater opportunity to sell their products or their labor, even if the level of income is the same as in a more sparsely populated area.
In regard to trade among nations, Say is in favor of completely open trade. By its nature, all exchanges are of equal value, hence regardless of the volume of trade, a nation that imports goods from another nation is paying equally from its own domestic production.
This also leads Say to dispute the notion that commerce is benefited by the encouragement of mere consumption. All consumers are also producers, and because they must sell their own product to purchase that of others. As such, production and consumption can only occur in equal measure. (EN: Say overlooks consumption on credit - which is to say that to promote consumption without production is to promote debt.)
In political terms, a government does the most good by promoting production, and consumption will follow as a natural consequence. Those nations that are most productive offer the best profit to the manufacturer, the best interest to the investor, the best wage to the laborer, and the best price to the customer.