Keynes explores the factors that determine how much of a society’s total income is spent on consumption, describing this relationship as the “propensity to consume.” He distinguishes between subjective factors—those rooted in human psychology and social habits—and objective factors like interest rates, windfall changes in capital value, and government policy. While acknowledging that consumer expenditure is heavily influenced by current income, Keynes insists that changes in income do not translate one-for-one into consumption because people tend to save a portion of any extra earnings. This principle, which he calls the “fundamental psychological law” (59), underlies cyclical fluctuations and contributes to potential shortfalls in aggregate demand.

He then examines how structural or policy-driven components—such as taxes, debt-repayment schemes, and depreciation allowances—can significantly reduce the portion of income available for immediate consumption. Large-scale capital investments made in previous years may generate a heavy burden of financial provisions like depreciation and sinking funds, which do not directly reinject spending power into the economy. Such commitments absorb some of the economy’s net income, increasing the challenge of achieving full employment if overall investment fails to expand further. Keynes observes that this tension grows as a society becomes wealthier, because additional capital formation has to exceed ever larger depreciation expenses.