Editing Underconsumption (section)

{{Short description|Economic stagnation from inadequate consumer demand}}
'''Underconsumption''' is a theory in [[economics]] that recessions and [[economic stagnation|stagnation]] arise from an inadequate consumer demand, relative to the amount produced. In other words, there is a problem of [[overproduction]] and overinvestment during a demand crisis. The theory formed the basis for the development of [[Keynesian economics]] and the theory of [[aggregate demand]] after the 1930s.

[[File:US inflation rate CPI.png|thumb]]

Underconsumption theory narrowly refers to [[heterodox economics|heterodox economists]] in Britain in the 19th century, particularly from 1815 onwards, who advanced the theory of underconsumption and rejected [[classical economics]] in the form of [[Ricardian economics]]. The economists did not form a unified school, and their theories were rejected by [[mainstream economics]] of the time.

Underconsumption is an old concept in economics that goes back to the 1598 French [[mercantilism|mercantilist]] text ''Les Trésors et richesses pour mettre l'Estat en splendeur'' (''The Treasures and riches to put the State in splendor'') by [[Barthélemy de Laffemas]], if not earlier.<ref>Cited in ''Mercantilism,'' by [[Eli Heckscher]], vol. ii, p. 290, who discusses other examples. They are cited and discussed by [[John Maynard Keynes]] in ''[[The General Theory]],'' [http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch23.htm#vii Chapter 23. Notes on Mercantilism, The Usury Laws, Stamped Money and Theories of Under-Consumption, section VII]</ref> The concept of underconsumption had been used repeatedly as part of the criticism of [[Say's law]] until underconsumption theory was largely replaced by Keynesian economics which points to a more complete explanation of the failure of aggregate demand to attain [[potential output]], i.e., the level of production corresponding to [[full employment]].

One of the early underconsumption theories says that because workers are paid a wage less than they produce, they cannot buy back as much as they produce. Thus, there will always be inadequate demand for the product.