Prosperity and Depression.pdf

86 Ana!ysis of Theories Part Itheories is not very great : there are intermediate positions, andthe two types shade off into each other. They are at one in thebelief that the impetus which sets the process of expansion inmotion comes from the side of investment and not from thatof consumption. Demand for consumers' goods is, however,affected indirectly by changes in investment; and variations inthe demand for consumers' goods are an important link in thecumulative processes of expansion and contraction. But it hasnot been sufficiently investigated how changes in consumers'demand react back on investment.We have now to discuss an explanation of the business cycle,given by a number of writers, which assigns a leading role tochanges in the demand for consumers' goods. It is the propositionthat, for technological reasons, slight changes in the demandfor consumers' goods produce much more violent variations inthe demand for producers' goods. This proposition alon~ doesnot furnish a c9rnplete theory of the business cycle. It must becombined with other relationships between economic variables,and there are various possible schemes into which it can be fitted.It does not necessarily lead to the over-investment theory; and, infact, .the explanations which are built on the acceleration principleare not as a rule classified as over-investment theories. But weshall see that it can easily be combined with the over-investmentexplanation. The acceleration principle and the over-investmenttheory as discussed in the preceding pages are in reality not alternativebut complementary explanations. The proposition thatchanges in demand for consumers' goods are transmitted withincreasing intensity to the higher stages of production serves,in conjunction with other factors which have already been mentioned,as an explanation of the cumulative force and self-sustainingnature of the upward movement. It adds an important touchto the picture of the typical business cycle as painted by the overinvestmenttheoreticians. The matter is of the greatest practicalimportance for the reason that much light is shed on the fact, whichin the last few years has been more and more recognised andFritz Sternberg, Imperialismus (t928). For a brief review,. criticism andreferences to this literature compare H. Neisser, Some InternationalAspects of the Business Cycle, Philadelphia, 1936, pages 161-1 72 •