Saving and productive expenditure

Saving and productive expenditure, not consumption expenditure, is what constitutes the demand for labor and capital goods and is what enables and sustains the roundabout capitalist production processes that enable business firms to increase their production and, as a consequence, to cut the costs of their products.

The greater the saving and productive expenditure of businessmen and capitalists, the greater is the demand for labor and capital goods relative to the demand for consumer goods and the higher are both wages and the productivity of labor, the latter because of the production and employment of more capital goods per worker.(...)

Supply creates its own demand and not the other way around. And especially during periods of economic crisis, which have always and exclusively been a product of a governmentally inaugurated policy of inflation and credit expansion, the most pernicious thing to do is to increase government expenditure at the expense of saving and productive expenditure.(...)

Conclusion

The basic error of underconsumptionism is the belief that prosperity correlates directly and positively with consumption spending, that in demanding consumer goods one somehow demands labor services along with the intermediate goods that contribute to the production of the final product. The error stems from the misidentification of the forces that are actually responsible for mass consumption and for rising prosperity in real terms. The actual forces are saving and productive expenditure made by the business firms.

With respect to economic theory, it is very important to realize that a correct understanding of the functional relationship between consumption, saving, productive expenditure, and prosperity cannot be provided on the basis of contemporary economics because it confuses things to such a degree as to be virtually worthless. "

The Fallacies of Underconsumptionism, By Wladimir Kraus