Prosperity and Depression.pdf

Chap. ;The Over-investment Theoriesof others follow them. (While Professor SCHUMPETER'S accountof the revival and the description of the cumulative process ofexpansion fits in perfectly well with Professor SPIETHOPP'S theorythis story of the upper tu;ning-point is quite different and will beconsidered later.)Businessmechanismlikened tosteam-e~~ine.§ I 5. RHYTHM AND PERIODICITYWe may well startthe discussion ofthis section witha famous metaphor from Professor SpmTHoPp'S forerunner---MichaelTUGAN-BARANOWSKI. 1 TUGAN­BARANOWSKI likens the working of the businesscyclemechanism to that of a steam.;engine. U Theaccumulation of free, loanable capital plays the roleofthe steam in the cylinder; when the pressure of the steam on thepiston attains a certain force, the resistance of the piston is overcome,the piston is set. in motion and moves to the _end of thecylinder; an opening appears for the steam and the piston recedesto its old position. In the same manner the accumulating freeloan capital, after having attained a certain pressure, forces itsway into industry, which it sets in motion; it is spent andindustry returns to it~ earlier position. "2Now the question arises: What corresponds in the businesssystem to the fuel ofthe steam-engine? Why is it that the cyclicalmovement goes on and on and never comes to an end? Why dothese waves of economic activity not gradually die down like themovement of the steam-engine when no fresh fuel is added?Professor SPIETHOPP'S answer to these questions must be inferredfrom his theory in general, because he does not put the· questionexplicitly.The fact that oscillations are large is to beInevitability explained by the cumulative nature of the expansionof the cycle. and contraction process, which again is largelydue to psychological reactions. Expansion createsoptimism which stimulates investment and intensines expansion.Contraction creates pessimism, which increases contraction.1 Studien fur Geschichte de" Handelsktisen in England, Jena. 1901.I Loc. cit., page 251.