Pre-Keynesian American underconsumption theorists, their main
theses being worked out in Profits (1925) and Money (1928). They
argued that insufficient consumer income is what leads to collapses in consumption and
hence profits, prices and outputs. They base their theory on a primitive but clumsy
version of a multiplier-accelerator
mechanism. If retained company profits are hoarded (rather than being lent
out), then consumer income is insufficient for consumers to absorb output. They argued
that even if the firm invests this hoarded money itself (and thus pays the income out to
workers), the problem is not solved: increased investment increases demand, yes, but it
also pushes out output even further. The imbalance between aggregate demand and
supply, Foster and Catchings argue, will thus maintain itself.
Their theory contains a fatal flaw in the "long-run", but seen in a short-run, dynamic manner, it is reminiscent of that of Malthus during the General Glut controversy. They publicly offered a cash award to any economist who could prove their argument flawed. Dozens upon dozens of people submitted proofs (e.g. Friedrich Hayek, 1929), but while they acknowledged minor errors, Foster and Catchings maintained that their central thesis remained correct. Apparently, Foster and Catchings had early sympathizers in Paul H. Douglas and Charles F. Roos.
William Trufant Foster
, 1879-1950.Waddill Catchings
, 1879-1969.- (1)Resources on Foster and Catchings