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Chapter 14 Macroeconomic Concepts: GNP and Welfare • 263kets must be kept competitive, but that is about the only collective actionneeded. 2In Chapter 2, we met Say’s Law (supply creates its own demand),which asserts that production always generates sufficient aggregate incometo purchase aggregate production. Therefore, there can be no generalglut of all products—at worst an imbalance in the mix of products, amisallocation, too much of something, too little of something else. Thatmisallocation will soon be corrected by relative price changes in competitivemarkets. The same applies to the labor market—if there is unemployment(a surplus of labor), it simply means real wages are too high, notthat there is a problem on a larger scale. If unemployment persists, youjust need to let wages fall some more.This view lasted well into the Great Depression of the 1930s and stillhas its adherents today. But under the leadership of John Maynard Keynes,economists began to think that prolonged unemployment, though theoreticallyimpossible, was sufficiently real to warrant rethinking the theory.This rethinking led to the discovery of the leakages and injections fromthe circular flow and the problem of making sure that total injectionsequal total leakages. We considered this in Chapter 2.In addition, economists remembered the fallacy of composition, thefalse belief that whatever is true for the part must be true for the whole,or vice versa. For example, one spectator in a football stadium can get abetter view by standing up. But all spectators cannot. If all stand on tiptoe,then no one has a better view than when everyone was comfortablyseated. Similarly, one country can have a surplus or deficit in its balanceof payments. But for the world as a whole, neither surplus nor deficit ispossible because the sum of all exports must identically equal the sum ofall imports. One worker may gain employment by being willing to workfor a lower wage, but all workers probably could not, because lower wagesfor everyone means less income for the majority of the people, whichmeans less spending on goods and services and less demand for laboreven at the lower wage. Reduced spending leads to reduced investment,which further lowers aggregate demand. In addition, any individual caneasily convert his money holdings into real assets, but the community asa whole cannot, because when everyone tries to exchange money for realassets, someone has to end up holding the money.2 Many economists even question the need to prevent monopolies. For example, AlanGreenspan, the former chair of the U.S. Federal Reserve Bank, has argued that only governmentprotectedmonopolies are harmful. When a firm in a free market develops a monopoly position inan industry, it is a just reward for its efforts and only promotes social welfare. A. Greenspan. "Antitrust"in Ayn Rand, Capitalism: The Unknown Ideal.