Theories of Underconsumption Permeate the Main Doctrines of Socialist Economics

The assertion that saving renders the purchasing power of the consumer insufficient to take up the volume of current production, although made more often by members of the lay public than by professional economists, is almost as old as the science of political economy itself. The question of the utility of 'unproductive' expenditure was first raised by the Mercantilists, who were thinking chiefly of luxury expenditure. The idea recurs in those writings of Lauderdale and Malthus which gave rise to the celebrated Théorie des Débouchés [Theory of Markets] of James Mill and J.B. Say, and, in spite of many attempts to refute it, permeates the main doctrines of socialist economics right up to Tugan-Baranovsky, Thorstein Veblen, and J.A. Hobson. . . .

This state of affairs, however, may yet be endangered by a new theory of underconsumption now current in the United States and in England. Its authors are people who spare neither money nor time in the propagation of their ideas. Their doctrine is no less fallacious than all the previous theories of underconsumption . . .

The teachings of Messrs Foster and Catchings, with which I am primarily concerned in this study, attained their widest circulation in the United States where they have achieved considerable repute not only among members of the public, but also among professional economists.

--F.A. Hayek, Contra Keynes and Cambridge: Essays, Correspondence, ed. Bruce Caldwell, vol. 9 of The Collected Works of F.A. Hayek (London, UK: Routledge, 1995), 74-76.