If We Want to Increase Demand in the Market, We Must First Increase Production
Following the ideas of John Maynard Keynes and Milton Friedman, many commentators associate economic growth with increases in the demand for goods and services.
Both Keynes and Friedman held that the Great Depression of the 1930s was due to an insufficiency of aggregate demand and that thus the way to fix the problem was to boost aggregate demand.
For Keynes, this could be achieved by having the federal government borrow more money and spend it when the private sector would not. Friedman advocated that the Federal Reserve pump more money to revive demand.
But there is never such a thing as insufficient demand. An individual’s demand is constrained by his ability to produce goods. The more goods that an individual can produce, the more goods he can demand, i.e., acquire.
Note that the production of one individual enables him to pay for the production of the other individual. (The more goods an individual produces, the more of other goods he can secure for himself. An individual’s demand therefore is constrained by his production of goods.)
In this sense, producers and not consumers are the engine of economic growth. Obviously, if he wants to succeed, a producer must produce goods and services in line with what other producers require.
Article from Mises Wire