Why Keynesian Spending (Consumption) Fails

“The whole annual produce of every country is distributed into two great parts; that which is destined to be employed for the purpose of reproduction, and that which is destined to be consumed. That part which is destined to serve for reproduction, naturally appears again next year, with its profit. This reproduction, with the profit, is naturally the whole produce of the country for that year. It is evident, therefore, that the greater the quantity of the produce of the preceding year, which is destined to administer to reproduction in the next, the greater will naturally be the produce of the country for that year. But as the whole annual produce of the country is necessarily distributed into two parts, the greater the quantity which is taken for the one, the smaller is the quantity which is left for the other. We have seen, that the greatness of the produce of the country in any year, is altogether dependent upon the greatness of the quantity of the produce of the former year, which is set apart for the business of reproduction. The annual produce is therefore the greater, the less the portion of which is alloted for consumption.”

— James Mill from Commerce Defended (1808).

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2:32 pm on July 8, 2012