Been discussed before here: https://forum.freecapitalists.org/t/a-question-regarding-production-purchasing-power/16944/13
My contribution was:
OK, let’s get the Math straight. Bill Gates pays his workers, say, ten dollars to priduce one widget. He sells it for twelve dollars, which they cannot possibly afford. Therefor, Capitalism is doomed.
Well, not exactly. The workers work 40 hours a week. Each one produces many many widgets, and gets paid much more than the cost of one widget. So he buys one, and lives happily ever after.
“Ah,” one may argue. “Who is going to buy all those excess widgets that are produced?”
“People who work at other jobs, like milking cows.”
OK, let’s do the math. Every week 10,000 widgets are produced by 5,000 workers, and 10,000 gallons of milk are produced by 5,000 other workers. The milkmen get paid $2 for every gallon of milk, and milk is sold for $3 a gallon. The widget workers get, as before, $10 per widget, which is sold for $12.
Each widget worker gets $20 for making two widgets, and each milkman gets $4 for producing two gallons. To buy a widget and a gallon of milk cost $15. So the widget workers are doing fine. The milkmen buy a gallon of milk, cannot afford the widget, and have $1 to save. After 12 weeks, they buy the widget from their savings. Capitalism rules.
EDIT: “But there are still too many widgets being made.”
“True. So widget prices will go down,”
“But the widget workers’s salaries will have to go down too.”
“True. However, they still get their widgets and their milk at the lower wage, plus a bit more to save. Meanwhile the milk workers can afford more widgets. Everyone benfits.”