ABSTRACT

The production and distribution of commodities and services in a State are only necessarily limited by its natural resources, man power and potential means of development; but the extent in which these resources are actually employed, and the effi ciency with which they are employed, are determined by the extent of existing incentives for production. Apart from the negligible quantity of production that takes place in the spare time of individuals who have taken up “hobbies,” incentives for production arise from the effective demand, and the expectation of an effective demand, for commodities and services. It must be noted that production includes not only the services rendered by labour and capital in actual vegetable, mineral and industrial production, but it also includes the services rendered by labour and capital in the distribution of every kind of commodity and service for purposes of production, fi nal consumption and deferred utilisation, of all commodities and services. It is generally taken for granted that the extent of the effective demand for commodities and services is determined by, and equal to, production; or, in other words, that the total income earned by production creates an effective demand for an equal quantity of commodities and services in some form or another. Such a conception of the existing economic system is not consistent with the facts. It is quite correctly argued that the greater the quantity of commodities and services continuously produced in relation to the population, the greater will be the total continuous purchasing power of everybody individually and collectively. It is, further, correctly argued that the money earned by labour, land, capital, entrepreneurs and governments, represents the total amount of money continuously earned by all factors and parties, irrespective of the manner in which it is divided among them, in the continuous production of commodities and services (presumably excluding monetary specie); that these total earnings are determined by the prices which the commodities and services in question continuously realise; and, consequently, the total amount of money used to demand effectively, or spent, must be continuously equal to the total amount of money earned by the production of commodities and services (presumably excluding monetary specie).