But that road down the way that is so congested right now? If we expanded it, and it could convey more cars at the same level of congestion- where did they come from?

The latent demand represents potential traffic that either:

1) is doing just fine taking a different route right now

2) isn't particularly economically valuable, i.e. not worth waiting through traffic for

3) things like future sprawl enabled by wider roads today

In order, #1 is not particularly valuable to reroute, it was doing ok. #2 is not very valuable either, though perhaps a little. #3 creates new demand, but the only thing we get in return is lower density.

So I guess in sum the point is that all the most economically valuable travel is already happening, right now, and by widening the road we add only the travel that has such marginal economic value it's not worth doing today. So the more we widen the road, the less & less economic value we get in return.

With schedules and business operating hours, many economic activities are impossible due to hard time constraints.

I don't see how your argument would be less applicable to a city with two dirt roads.