The Essential Flaw in the Keynesian Macro Model Is that It Ignores the Intermediate Aggregate Stages

Unfortunately, the paradox of thrift doctrine is a prime example of how “macro” economics can obscure the real events that occur in the economy when the consumption/savings pattern shifts. The Keynesian-monetarist monolithic approach ignores the multi-stage architecture of “higher-order” capital goods, “lower-order” intermediate goods, and the multitude of stages throughout the whole inter-temporal conveyor belt. It neglects the critical time element in the production process. Even a division into three or four stages would resolve the paradox of thrift dilemma. In fact, the neoclassical theorists could maintain their two-story structure if they would allow the second stage “investment” sector to become a higher, but narrower, building. The investment building should also grow more in height than it has lost at the base, signifying that total investment has increased. But since they disregard varying production periods altogether, they do not envision an investment sector that could be more remote from consumption. Structural change is not even considered in their model of the whole economy. The essential flaw in the Keynesian macroeconomic model is that aggregate demand refers only to final aggregate demand and ignores the intermediate aggregate stages necessary to produce final demand.

—Mark Skousen, The Structure of Production, new rev. ed. (New York: New York University Press, 2015), 241.