Looks like supply side economics theory is on the rise, so I thought I would describe it as simply as possible.
In order to consume, one first needs to produce.
Intuitive? Probably not, so here is a simple explanation.
You are poor and hungry and wonder how to satisfy your hunger. If you lived in the Garden of Eden, this is not a problem because, in the first place, you would not be hungry. Poor in the money sense of course, because food and water is aplenty in the Garden of Eden, hungry you won’t be. But we are not in the Garden of Eden where there is no scarcity, but in our present reality where there is scarcity of most things.
So you are hungry and you need to eat, and you have no money; your options are:
- Steal money/food; short term satisfaction until the next time.
- Produce something and exchange to get money which is then exchanged for food etc. Potentially long term satisfaction if production is maintained.
Socialists adopt option 1.
Capitalists adopt option 2.
No wealth is produced if production equals consumption.
Wealth is produced if production exceeds consumption.
Making money can be done in two ways, by production and by trading.
Making money by trading creates inflation, or an increase in the economic intermediary item of exchange, ‘money’.