Prosperity and Depression.pdf

Ana(ysis of TheoriesPart Ithe various stages of production does not correspond to theflow of money. The lower stages in the structure of productionare under-developed; the higher stages which produce capitalgoods are over-developed.Con.rumer.r'good.rand capitalgood.rindustrie.r•It might sound paradoxical that a "lack" ofconsumers' goods should be the cause of thebreakdown in the capital-goods industries. Ifthere is such a shortage, consumers' goods industriesmust flourish. But should not that be a causefor rejoicing rather than for despair to the capitalgoodsindustries? Professor SPIETHOFF does notanalyse this objection explicitly. But, obviously, the questionmust be answered in the same \\7ay as it was answered by themonetary over-investment school.· If the necessary credit isavailable and the rate ofinterest remains low, the prosperity of theconsumers' goods industries will automatically spread to the higherstages, because the latter will then be in a position to compete successfullyfor the factors of production with the former. If unusedfactors of production, unemployed labourers, surplus stocks andidle plant) are available and if there are no special causes (e.g., lackofconfidence due to political risks) which deter people from investmentin spite of profitable opportunities, an all-round increase inproduction will follow with no rise, or only a slight rise, in prices.If this, however, is not the case, if additional credit is not availableand all factors are reasonably well employed, as is the case at theend of the boom, the rate ofinterest will rise and the capital-goodsindustries·will not be able to retain all the factors which they usedto employ : they will be depressed although, or even because, theconsumers' goods industries prosper. (It is not d~nied that theprosperity of the latter also will soon come to an end, because thedifficulties in the capital-goods industries will lead to a destructionofpurchasing power and a fall in the demand for consumers'goods.)Such a situation is clearly possible, although it looks superficiallyparadoxical. The phenomenon (alleged to be frequent) 11 Recent statistical studies have made it verv doubtful whether sucha lag actually exists. Compare, e.g., Professor j. Tinbergen in StatisticalTesting 01 Business-Cycle Tke01'ies II. Business cycles in the United States,1919-1937. In preparation.