We believe that the current Great Depression (mislabeled a "recession," possibly for political reasons) may be a continuation of the Great Depression of 1930-1940. The Great Depression of the 1930s seems to have itself been a continuation of the Great Depression of 1893-1898. The Great Depression of the 1890s coincided with the closing off of access to capital in the form of "free" land for ordinary people with the effective end of Abraham Lincoln's 1862 Homestead Act.
To counter the Keynesian New Deal program, in 1934 the Brookings Institution published America's Capacity to Produce. This was the first volume in a study, "the Distribution of Wealth and Income in Relation to Economic Progress." America's Capacity to Consume (1934), The Formation of Capital (1935), and Income and Economic Progress (1935) followed in short order.
Looking at the titles from a Just Third Way perspective, we make what for a mainstream economist, trapped in the principles of the Currency School of finance, would be an astonishing — and incomprehensible — discovery: the titles are all components of something called "Say's Law of Markets."
Say's Law is named for Jean-Baptiste Say, a French political economist who (while he did not develop it) best expressed the "law." Most simply put, Say's Law is that production equals income, therefore supply generates its own demand, and demand its own supply.
Putting it that way, however, is misleading, if not simplistic. This is because within the existing "Currency School" paradigm, the "experts" do not recognize the full definition of money that goes into understanding "demand," and frequently reject anything other than human labor as productive, thereby not properly defining "supply." Mis-defining or misunderstanding either supply or demand virtually ensures that Say's Law will either be rejected, or redefined to fit into preconceptions.
This is why the exposition of Say's Law in Say's Letters to Malthus (1821) should be read before we jump to conclusions about what it means, or accepting without question the rejection of Say's Law by Karl Marx and John Maynard Keynes. It is relatively brief and to the point:
"All those who, since Adam Smith, have turned their attention to Political Economy, agree that in reality we do not buy articles of consumption with money, the circulating medium with which we pay for them. We must in the first instance have bought this money itself by the sale of our produce.
"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.
"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." (Jean-Baptiste Say, Letters to Mr. Malthus on Several Subjects of Political Economy. London: Sherwood, Neely, and Jones, 1821, 2.)
In other words, if you can't produce anything to trade to others for what they produce, you won't be able to trade with them. You might be able to receive it as charity, or steal it, but neither of these can be called trade or exchange. Consequently, if you produce nothing, then no one can trade with you, and their marketable goods pile up, unsold.
This was the issue Moulton addressed in America's Capacity to Produce. Did the Brookings study reveal sufficient productive capacity — not necessarily production — to meet the needs, even reasonable wants, of everyone?
Yes. In fact, due to various factors, there was actually over-capacity in certain sectors of the economy. Had not vast amounts of money been created for speculation on the secondary market, triggering the Crash and upsetting the somewhat shaky equilibrium of the economy (caused by that same money creation for speculation), this over-capacity would likely have corrected itself within a year or so. The sudden plunge in share values in the Crash, and the loss of confidence in the credit system combined with the devaluation of collateral, however, resulted in a far more severe business downturn than would otherwise have been the case.
The first half of Say's Law was obviously covered. America had everything it needed to produce sufficient marketable goods and services to provide a decent living standard for everyone. The next issue to be addressed was whether America had the capacity to consume what it had the potential to produce, that is, was it possible to generate sufficient "effective demand" to purchase what the economy clearly had the capacity to produce?