Prosperity and Depression.pdf

Chap. 3The Over-int 1 estment Theories(c) Commodity stocks.-Even ifthere are no individually durableproducers' goods (such as machines), there may be an intensificationrunning from changes in demand for the product to changes indemand for the various goods in process, in cases where a certainstock of these various goods has to be held, the amount ofwhichis relatively fixed in proportion to the magnitude of the output.Such necessary stocks can be regarded as durable in toto, althoughthe parts which'constitute the whole are perishable individually.In order to illustrate the working ofthe principle,Monetary we assume a change in demand for a particularaspects. finished article-say for shoes, hats, automobilesandinvestigate the influence of this change onderived demand for producers' goods in the preceding stage. Twovery important questions which come at once to the mind will bediscussed later, viz. : (I) Where does this first increase in'demandoriginate-i.e., is it due to a switch-over ofpurchasing power fromother uses so that, as the demand for commodity A increases, thereis a corresponding decrease in the demand for B, or does it constitutea netincrease in aggregate demand out ofinflationary sources?Again, (2.) How is the induced change in the demand for, andproduction of, producers' goods financed? By an expansionof credit or by current savings? Obviously, these problemsare closely connected with the problem ofthe place ofthe accelerationprinciple in the theory of the cycle. They will be discussedlater. For the moment we shall assume that there is an increasein the demand for particular commodities-wherever this increasecomes from-and shall endeavour to explain why the deriveddemand changes more violently.§ 19. ACCELERATION OF DERIVED DEMAND DUE TO THE EXISTENCEOF DURABLE PRODUCERS' GOODSTake the following-static-situation. ThePreliminary value of the yearly output of (say) shoes is 100.statement of The original and replacement cost of the fixedthe principle. capital equipment-that is, c;>f durable means ofproduction which we shall call "machines"­required for this output is 500, 10% of which' must be replaced