Production (supply) drives demand: In a free market, individuals produce goods and services to exchange for others’ output; demand is constrained by one’s ability to produce, so increasing production naturally expands the economy’s capacity to demand and consume. 

Government stimulus cannot create sustainable demand: Expansionary fiscal and monetary policies divert resources from wealth generators to non-productive activities, reducing the pool of savings and weakening overall production, which harms real economic growth. 

Focus should shift to production and savings: True economic revival requires curbing government spending, halting money creation “out of thin air,” and expanding savings to support capital formation, rather than attempting to boost demand directly.

Most experts believe that the key driver of economic growth is total demand for goods and services. Whenever an economy shows signs of weakness, experts hold that strengthening total demand is required to prevent a recession. 

Thus, according to this viewpoint, if the private sector fails to increase demand, then it is the role of the government to increase government demand in such a way that the total economy’s demand is going to strengthen.

Such thinking claims that economic recessions are the lack of total demand in the economy. We know, however, that individuals are aspiring to improve their living standards, which means that their demand for goods and services is growing and cannot be scarce.

In the free market economy, wealth generators do not produce everything for their own consumption. Part of their production is used to exchange for the products of other producers. Hence, in the free-market economy, production precedes consumption. 

This means that something is exchanged for something else. This also means that an increase in the production of goods and services sets in motion an increase in the demand for goods and services. According to David Ricardo, 

No man produces but with a view to consume or sell, and he never sells but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person.

No man produces but with a view to consume or sell, and he never sells but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person.

Observe that one’s demand is constrained by his ability to produce goods. The more goods that an individual can produce, the more goods he can demand. 

Demand cannot stand by itself and be independent – it is constrained by production. Hence, what drives the economy is not demand but the production of goods and services. In this........

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