negligible91J.B. Say, a 19th century economist, exposed the fallaciousness of the underconsumptionist philosophy in an economic law that came to be known as Say’s law. Basically, it states that the demand for a good is made up of the production of other goods. This economic law can be represented fairly easy by a barter economy. If there are only two goods, apples and oranges, and someone wants to buy an orange, they have to exchange an apple for the orange. They would not be able to buy the orange without first producing an apple. So in a larger economy, the production of a larger amount of goods will make up the demand for the orange. And in a money economy, this is no different, because money is only a medium of exchange, that eases the process of exchange (producers simply sell the products they produce for money, and then exchange the money for other products; the only difference is that there’s an intermediate step). Because of this, there cannot be a general overproduction of goods (the flip side of underconsumption). There can only be an overproduction of goods in one sector and an underproduction in another.
Now, as to your particular example, all additional saving brought on by lower prices means that consumers value consumption in the future more than consumption in the present. If consumers decide to save more, additional “stimulation” of aggregate demand will just result in creating and then prolonging a bubble of particular areas of production that consumers do not desire.
Also note that from 1921-1929, the money supply was increased in attempt to maintain price stability. Austrian business cycle theory predicts the inevitable bust from this unsustainable boom. ABCT also happens to be consistent with Say’s law, unlike the Keynesian theory of underconsumption that Volti explained.
Hope this reply is helpful!