Only supply constitutes demand

Other than straight out socialist plunder, no better way to comprehensively ruin an economy is to think public spending and monetary expansion can raise living standards and promote employment growth. Here’s an article by Richard Salsman published at The Hill in the US that tries to point out just that: Fiscal-monetary ‘stimulus’ is depressive.

Politicians, policy wonks and pundits like to classify as economic “stimulus” the $6 trillion in recent deficit spending and Federal Reserve money creation. But subsidies for the jobless, bailouts of the illiquid and pork for cronies are purely political schemes — and they depress the economy.

What is the case for “stimulus”? Many economists believe public spending and money issuance create wealth or purchasing power. Not so. Our only means of obtaining real goods and services is from wealth creation — production. Under barter no one comes to market expecting to buy stuff without also offering stuff. A monetary economy does not alter this key principle. What we spend must come from income, which itself must come from producing. Say’s Law teaches that only supply constitutes demand; we must produce before we demand, spend or consume. Demand is not a mere desire to spend but desire plus purchasing power.

Believers in “stimulus” also claim that government spending entails a magical “multiplier” effect on aggregate output, unlike most private sector spending. They tout a government’s greater “propensity to consume.” But consuming is the opposite of producing. Welfare states certainly consume and redistribute wealth. They divide it up. But math teaches that nothing – wealth included – can be multiplied by division. The so-called “multipliers” imagined by today’s economists are, in fact, divisors. Many studies have verified the principle.

It should become a pre-req for anyone to become a political leader to have successfully run a business for at least five years. Speaking of which I must also say how much I loved Tafkas’ post today.

2 thoughts on “Only supply constitutes demand

  1. Pingback: Only supply constitutes demand - The Rabbit Hole

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