What puzzles the economists and policymakers is that there is clearly idle productive capacity, unsold goods are piling up, and yet there exists enormous unsatisfied wants and needs in the United States, to say nothing of the world. Keynes believed that to bring the two together, all the State had to do was print money and somehow get it into the hands of people who would spend it ("realize effective demand" is how Keynes put it). This would get rid of excess stocks of goods, and as demand increased, put people back to work creating more goods and services for sale, putting the economy back into equilibrium.
Strangely enough, however, while the Keynesian "print and spend" prescription has been economic orthodoxy for most of the past century, it doesn't seem to be working. Following Bush's lead, Obama has asked for even more money for "bailouts" and "stimulus," evidently on the assumption that, if it hasn't worked for the past seventy-five years, it's bound to work now.
If the powers-that-be could be brought to question their basic assumptions, they'd realize that the problem of the discontinuity between supply (production) and demand (income) is, in a sense, deliberate. Keynes rejected a little known "law" of economics, "Say's Law of Markets," which declares that "production = income." That being the case, Jean-Baptiste Say reasoned, demand generates its own supply, and supply its own demand. If so, there should never be any problem with unsatisfied demand or unsold goods and services. Is that, however, possible? According to Say, yes. As he put it in a response to the Reverend Thomas Malthus in 1821,
To a proprietor of a mine, the silver money is a produce with which he buys what he has occasion for. To all those through whose hands this silver afterwards passes, it is only the price of the produce which they themselves have raised by means of their property in land, their capitals, or their industry. In selling them they in the first place exchange them for money, and afterwards they exchange the money for articles of consumption. It is therefore really and absolutely with their produce that they make their purchases: therefore it is impossible for them to purchase any articles whatever, to a greater amount than those they have produced, either by themselves or through the means of their capital or their land.What if there is something (or a great many somethings) that prevent someone from engaging in production? Louis Kelso and Mortimer Adler answered that by proposing that barriers to full participation in the economy be eliminated by making capital credit — the chief means by which we acquire and possess private productive capital — democratically available. By this means, people who currently have no capital will become owners of capital, and (once they have paid for their new capital with the income generated by the capital itself) will use the income for consumption, thereby bringing supply (production) and demand (income) back into balance — and all without the State doing anything other than making it possible by passing a Capital Homestead Act.
From these premises I have drawn a conclusion which appears to me evident, but the consequences of which appear to have alarmed you. I had said — As no one can purchase the produce of another except with his own produce, as the amount for which we can buy is equal to that which we can produce, the more we can produce the more we can purchase. From whence proceeds this other conclusion, which you refuse to admit — That if certain commodities do not sell, it is because others are not produced, and that it is the raising produce alone which opens a market for the sale of produce.
