Before the rise of Keynesianism, the classical school of economics always believed that "supply will create its own demand", which means that in the eyes of economic masters such as Say, Ricardo and Marshall, supply and demand are balanced and insufficient demand does not exist. During the recession, a large number of companies went bankrupt because their products could not find a market. Faced with hard facts, why do these masters still believe that supply will create their own demand? Do they only know how to talk on paper?
It is from this question that Keynes delved into and wrote the greatest economics book of the 20th century, The General Theory of Employment, Interest, and Money; for us, re-examining this question will help us gain a deeper understanding Fax List of insufficient demand. Why supply creates its own demand, Marshall made a clear interpretation: "All an individual's income is used to buy labor and commodities. Some people often use part of their income and save a part; but from an economic point of view, everyone thinks that part of the income is saved. , the ultimate purpose is to buy labor and commodities, the substance of which is exactly the same as the effect of the part he uses up."
That is to say, all the costs in the production process of the enterprise will actually be converted into income - workers' wages, government taxes, revenue of industrial chain partners, etc. This income, sooner or later, ends up being used to buy goods and services. In this sense, the production process creates both the commodity and the purchasing power of the commodity. In the view of the classical school, although there are widespread situations where a single product cannot find a market, in the economy as a whole, supply and demand are still in equilibrium.