Why Supply-Side Economics Is Right And Keynesian Economics Is Wrong
Work and value-adding production make an economy prosper, and eliminating disincentives to doing so, such as high taxation and regulatory burdens, stimulates growth.
Unfortunately, so focused was Keynes on Malthus and the notion of demand failure that he hardly bothered to study classical theory beyond Malthus’s work. In fact, as I’ve noted before, so superficially familiar was Keynes with the classical school that he leveled the unbelievable claim that it had no explanation for recessions: “Classical theory … is best regarded as a theory of distribution in conditions of full employment. So long as the classical postulates hold good, unemployment, which in the above sense involuntary, cannot occur….”
Equally preposterously, he charged his predecessors with believing the grossly oversimplified notion that “supply creates its own demand”—that is, merely producing a good guarantees its sale. Had Keynes read Ricardo or virtually any other classical economist, he would have known that production creates demand only if consumers desire what is produced.
As Robert Torrens put it, production creates demand assuming there are “proper proportions”—that is, assuming the structure of supply must match the structure of demand: “In every conceivable case, effectual demand is created by and is commensurate with production, rightly proportioned…. Vary our suppositions as we will, increased production, provided it be duly proportioned, is the one and only cause of extended demand, and diminished production the one and only cause of contracted demand.”
In other words, if production does not correctly anticipate consumers’ preferences, it doesn’t create demand. Furthermore, and contrary to Keynes’s wildly irresponsible assertion, failure to anticipate consumers’ demand preference was one way classical economists explained recessions. According to Torrens: “The want of due proportion in the quantities of the several commodities brought to market, which operates thus injuriously upon capitalists, inflicts equal injury upon the other classes of the community…. The ruin of the cultivator involves that of the proprietor of land; and when the motive and the power to employ productive capital are destroyed, the productive labourer is cut off by famine.”
Work and value-adding production make an economy prosper, and eliminating disincentives to doing so, such as high taxation and regulatory burdens, stimulates growth.
Unfortunately, so focused was Keynes on Malthus and the notion of demand failure that he hardly bothered to study classical theory beyond Malthus’s work. In fact, as I’ve noted before, so superficially familiar was Keynes with the classical school that he leveled the unbelievable claim that it had no explanation for recessions: “Classical theory … is best regarded as a theory of distribution in conditions of full employment. So long as the classical postulates hold good, unemployment, which in the above sense involuntary, cannot occur….”
Equally preposterously, he charged his predecessors with believing the grossly oversimplified notion that “supply creates its own demand”—that is, merely producing a good guarantees its sale. Had Keynes read Ricardo or virtually any other classical economist, he would have known that production creates demand only if consumers desire what is produced.
As Robert Torrens put it, production creates demand assuming there are “proper proportions”—that is, assuming the structure of supply must match the structure of demand: “In every conceivable case, effectual demand is created by and is commensurate with production, rightly proportioned…. Vary our suppositions as we will, increased production, provided it be duly proportioned, is the one and only cause of extended demand, and diminished production the one and only cause of contracted demand.”
In other words, if production does not correctly anticipate consumers’ preferences, it doesn’t create demand. Furthermore, and contrary to Keynes’s wildly irresponsible assertion, failure to anticipate consumers’ demand preference was one way classical economists explained recessions. According to Torrens: “The want of due proportion in the quantities of the several commodities brought to market, which operates thus injuriously upon capitalists, inflicts equal injury upon the other classes of the community…. The ruin of the cultivator involves that of the proprietor of land; and when the motive and the power to employ productive capital are destroyed, the productive labourer is cut off by famine.”
