Individuals who are wealthier tend to consume more. But a wealthier individual usually produces more (or what he produces is more valued than other products). In a market economy his output can be exchanged for other goods and services. The more he produces the more he can buy. His production is his “Supply” and it is exactly his “Demand”. Supply and Demand are two sides of the same coin. A man who produces nothing, supplies nothing and has nothing to exchange, so he cannot “Demand” anything on the market.

An individual who supplies large amounts of much needed goods or services to other individuals is able to exchange his output for other people’s Supply. He is wealthier and can meet his material needs much more easily than someone who produces little of value. But to re-iterate, his Supply is his Demand and vice-versa. Another individual’s Supply is simultaneously his Demand. If an individual produces something, which is in high “demand”, what we tend to observe is his ability to consume more resources.

Increased productivity requires prior saving to produce better raw materials or tools. Those tools allow the individual to supply more and thus demand more. That same individual could take his increased productivity and invest it into even better tools to even further increase his Supply and ultimately his Demand. So invested savings are necessary for increased Supply. Goods demanded by a consumer are consumed. If the by products of consumption can be recycled or reused, they are always of lesser value than the original product.

The future is uncertain and there is no guarantee that a future market will exist for whatever someone produces. Saving and investment, to increase the Supply of a certain product or service may not result in an actual increase in Demand. This will happen if the products, which have been brought to market are not wanted, or not wanted in the quantity supplied. An excess Supply will likely result in a drop in price and less can be demanded from that Supply.

It is easy to see increased Demand and observe that increased Demand is a signal to other market players that the increased Demand is where they should invest their own resources. In this way, Demand can be seen as a driver of investment and by extension, a driver of economic growth. But this is completely wrong. Demand cannot drive growth. Only Supply can do this.

One way to see this error clearly is in a money economy when a counterfeiter is able to produce money without producing anything. With unlimited money, he can demand anything. But he produces nothing. The counterfeiter can choose what Supply he wishes to consume offer nothing in exchange. If all people were counterfeiters, nothing would be produced and the whole society would be impoverished. The action of the counterfeiter does nothing to increase real savings so cannot increase the overall stock of tools, new materials, technologies or Capital. The Demand of the counterfeiter can signal a direction to others in the economy about where they should invest their savings. So as investment in a new direction increases, the supply of tools in one activity may increase, but this will come at the cost of a reduction in investment in another activity.

Individual Supply is individual Demand. By extension, aggregate Supply is aggregate Demand. In a money economy, there is an opinion that aggregate Demand and aggregate Supply, in which their equality does not appear to be true, but the theory is completely fallacious.

Individual productivity cannot be increased beyond a certain point without improved tools. Increased individual productivity may result in an increased supply but an increase in supply cannot be achieved without an increase in productivity. An increase in productivity can be achieved by specialisation but can also be achieved by using improved tools. Improved tools cannot be produced without prior saving of real resources. So increased individual productivity is a result of saving and not a result of another’s consumption. If all individuals in society increase their productivity everyone in society will be wealthier. The more people save (overproduction is saving), the richer will be the society.

Tools, technologies, materials and Capital support the production of consumer goods. So agricultural tractors, fertilisers, irrigation systems, weather satellites, transport vehicles and refrigeration systems, which are more sophisticated goods, are used to increase food production. Without large numbers of sophisticated tools, the amount of food which could be produced would be much reduced. The relative abundance of consumer goods, permits saving of resources, to produce tools and Capital, which in turn can be used to increase the production of more consumer goods.

A primitive tool and a sophisticated tool differ in some significant ways. Imagine a farmer who uses domesticated animals to power simple tilling and planting equipment and compare this to a modern farmer who has a very sophisticated tractor and modern tilling and planting equipment. The simple tilling equipment requires a small amount of saving to produce and requires also a small number of steps to manufacture. Sophisticated tractors and tilling equipment depend on an extremely large and lengthy process for their production. The timescale for supplying all the materials and technologies to build modern tractors and tilling equipment is very long indeed. Every part of the equipment requires tools, to make other, which make other tools, which will eventually be combined to create a tyre. This complex structure exists for every single component. And while each producer in the production chain is paid for his supply when he sells his tool or component, the ultimate payment for all these stages happens when the consumer buys his food. The amount of saving present in the production system is staggering and invisible to most observers.