If we have few allocation cycles, our production will be limited.

If on the other hand we can develop a great number of allocation cycles, our production will increase accordingly.

In order to understand how to encourge the allocation cycle and to thus increase or improve production, we must first understand what it is that actually starts the cycle.

This is commonly misunderstood, even by many economists.

It has long been supposed and posited that the allocation cycle begins with consumer demand.

In other words, the idea is that "because individuals want and need certain things, production will occur to satisfy those demands".

This follows the old and familiar axiom that "necessity is the mother of invention".

While not entirely false, this widely accepted assumption is largely inaccurate.

Consider - if consumer demand were indeed the key factor stimulating production, then we should expect to see the greatest amount of productive activity going on in the parts of the world where consumer demand is the greatest, such as India, China, Africa, and areas in Central and South America.

In many of these areas, there are men and women living often on the brink of starvation.  Obviously their wants and needs (demands) are many, and almost completely un-provided for by any sort of production.  So why is this the case, if demand is the cause of production?