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After land costs and rents drop, along with other costs, investment again becomes worthwhile. The economic system recovers. George (1879, p. 268) famous that depressions have been preceded by booms and land hypothesis, “followed by signs of checked production”. He rejected theories of common inadequate demand, invoking language akin to Say’s regulation: “The diminution of the efficient demand of customers is subsequently but a result of the diminution of manufacturing” (p. 269). The excessive value of land and lease is, in effect “a lockout of labor and capital by landowners” (p. 270). George’s theory attempted to resolve the paradox of idle labor and capital in the depths of a depression. The explanation the market was not clearing was that labor and capital have been minimize off from the necessary natural opportunities provided by land.
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Potential output is just not a static concept however changes over time as our economic functionality to produce goods and providers expands. This idea is analogous to an outward shift in the production potentialities frontier (PPF). As you may recall, the PPF shifts outward with growth in the labor supply, enhancements in technology, and the addition of new productive resources reminiscent of capital.