The Fallacy of the Keynesian Theory of Insufficient Demand
Keynesians claim that recessions occur because of a lack of consumer demand. However, demand comes from what we produce, so a growing economy needs more production.
Source: Mises Institute
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DW NOTE
The argument is correct but incomplete. Production does precede demand in a functional economy — Ricardo's formulation still holds. But the Keynesian retort, never adequately answered here, is: what happens when producers hoard cash rather than exchange it? The classical model assumes frictionless velocity. The 2026 reality — oil demand down 5 million barrels per day, gold off 25% from its peak, and a $1.25 trillion deficit through nine months — suggests producers are indeed withholding purchasing power. The essay diagnoses the fallacy but ignores the liquidity trap that makes it operationally relevant.