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.
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-