Problems of American Economic Growth

By Bruce R. Morris | Go to book overview

CHAPTER SEVEN
CONSUMER DEMANDS

Although difficulties will occur and must be overcome, no reason needs to obtain, with proper effort and governmental policies, why physical limits should prevent us from increasing output at a fairly rapid rate. It is not enough to be able physically to produce goods; they must also find a use. In an economic society based on market actions, this means that purchasing power must be available to take the goods off the hands of the producer. Output cannot long keep ahead of the aggregate demand or inventories will pile up and investment will be discouraged.

The purchasers of goods are: households, foreign buyers, businesses, and government. The desires and purchasing power of the four combined make up the aggregate demand for goods. Unless aggregate demand is sufficient, output cannot be increased without involving the economy in difficulty. It is thus necessary to look at prospective aggregate demand to see what problems exist in this area. This aspect of the problem is often neglected or taken for granted, although on occasion "under-consumptionists," such as Karl Marx and the Keynesians, have had considerable influence.


Role of Consumption

Consumption and investment are competitive in that productive efforts can be used to turn out goods either for consumption or for capital equipment. It is possible for all of the output of a country to be consumed, or even more than all the output, in the sense that capital equipment is not maintained. If capital equipment is to be built up, consumers must refrain from using up this output. If they do not consume enough, no incentive will be present for producers to turn out goods or to invest.

Thus, an optimum relationship must exist among total production, investment, and consumption in order to permit a steady expansion of the economy. Unfortunately, we do not know what constitutes the proper relationship, which is probably a shifting one. It is probable that there is some margin of tolerance in these relation

-137-

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Problems of American Economic Growth
Table of contents

Table of contents

  • Title Page iii
  • Preface v
  • Contents vii
  • Chapter One - Introduction 3
  • Chapter Two - The American Record 19
  • Chapter Three - The Supply of Raw Materials 39
  • Chapter Four - Population and the Supply of Workers 59
  • Chapter Five - The Supply of Capital 84
  • Chapter Six - Technological Change And Entrepreneurship 111
  • Chapter Seven - Consumer Demands 137
  • Chapter Eight - Government Expenditure 158
  • Chapter Nine - Relations with Other Economies 179
  • Chapter Ten - Problem of Balanced Growth 217
  • Bibliography 256
  • Chapter Twelve - Summary and Conclusions 257
  • Appendix A 262
  • Bibliography 266
  • Index 267
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