Prosperity and Depression.pdf

Anafysis of TheoriesPart Ithe construction of durable goods (" goods for indirect or reproductiveconsumption "), such as iron, steel, cement, lumber, bricks.It is between the production of these categories of goods, hesays, that a disproportion regularly develops during the boom.The result is a. situation in which there is shortage and plentyat the same time. As these categories ofgoods are complementary,a shortage of one category means ipso facto over-production of theother. It is as if one glove of a pair were lost. The one thatremains constitutes a useless and unsaleable surplus stock; themissing one represents an actual deficiency.Over-production occurs'regularly in the case ofOverproduction0.( durablegoods.durable capital goods, and also in the case ofdurableconsumption goods. This necessarily involves adecrease in demand and over-production of constructionalmaterial such as iron, steel, cement, etc.This discrepancy between demand for, and supplyof~ durable instruments has its causes on the supply side as well ason the side of the demand. Additions to the capital equipmentare paid for out of " capital " (" Erwerbskapital "). Therefore,the production and marketing of durable capital goods (and to acertain extent also of durable consumption goods) must dependon the amount of "capital" which seeks investment. (To-daywe should rather say that- the demand for such goods is constitutedby savings out of income,' plus supplements to the flow of savingarising out ofvarious inflationary sources-additional bank creditsand hoards of all kinds.) According to Professor SPIETHOFF, theformation of monetary capital (" Erwerbskapital ") tends usuallyto diminish at the end of the boom for various reasons. Wagesrise-which has an adverse effect on the rate of saving; and theincreased production encourages the adoption of wasteful methodsand leads to losses. Thus the demand for capital equipmentfalls off.More important, however, than the decrease in demand is theincrease in production and supply. A'large proportion of the newcapital equipment constructed during the boom is used to producematerials which are required''fOl the further production of suchnew equipment. So the supply rises progressively in face of aconstant or falling demand.