JS Mill once wrote that “…demand for commodities does not constitute demand for labour.” And Hayek said that understanding this was the best test of an economist.
Well, I’m no economist. And I don’t understand it. Can someone explain this, because it seems completely counter-intuitive to me.
check out page 258, i believe the key is the structure of production
The full quote is as follows:
This is not dissimilar from the idea that “production creates demand”. What Mill was saying is that the demand for a product does not itself create demand for labor. What creates demand for labor is the investment which leads to the production of that product. So, by extending a million dollars to consumers to increase demand, that doesn’t necessarily mean that the demand for labor will be increased. In other words, it doesn’t mean that entrepreneurs will have to means to invest and fulfill that demand.
Mill concluded that demand only tells the entrepreneur what to invest into.