The Essence of Say's Law of Markets Is: Unless We First Produce We Cannot Consume; Unless We First Supply We Cannot Demand

The more complex the network of exchange, the more difficult the direct barter of goods one for another. Rather than be frustrated and disappointed in not being able to directly find trading partners who want the goods they have for sale, people start using some commodity as a medium of exchange. They first trade what they have produced for a particular commodity and then use that commodity to buy the things they desire from others. When that commodity becomes widely accepted and generally used by most, if not all, transactors in the market, it becomes the money-good.

It should be clear that even though all transactions are carried out through the medium of money, it is still, ultimately, goods that trade for goods. The cobbler makes shoes and sells them for money to those who desire footwear. The cobbler then uses the money he has earned to buy the food he wants to eat. But he cannot buy that food unless he has first earned a certain sum of money by selling a particular quantity of shoes. In the end, his supply of shoes has been the means for him to demand a certain amount of food.

This, in essence, is the meaning of Say’s Law. The nineteenth-century French economist Jean-Baptiste Say called it “the law of markets”: that is, unless we first produce we cannot consume; unless we first supply we cannot demand. But how much of our supply others are willing to take is dependent on the price at which we offer it to them.

—Richard M. Ebeling, “The Myth of Global Gluts and the Reality of Market Change,” in Austrian Economics and Public Policy: Restoring Freedom and Prosperity (Fairfax, VA: The Future of Freedom Foundation, 2016), Kindle e-book.