Prosperity and Depression.pdf

AnalYsis of TheoriesPart Iof 500 is only 25 per year. But, if an increase in demand of 10%for the finished goods supervenes and requires an increase in thestock of equipment of 10%, the total production of machinesjumps from 25 to 75 -i.e., it is trebled, instead of doubled as in theprevious case of a service life of ten years. To go to the otherextreme: suppose the service life is zero; that is to say, supposethat there are no durable means of productiqn but only materialsand labour. Then, in a static situation in regard to production,there being no permanent stocks, the whole supply of materialsmust at once be replaced. ~ If the output of the finished article(shoes) is 100, and the material (leather) used for this is 50, thewhole amount must be replaced. If the demand for shoes thenrises by 10°h to I 10, the production of leather must rise also by10 % to 55. There is no magnification at all.The qualifications of the principle which are implicit in ourassumptions should be kept in mind. The existence of unusedcapacity is excluded, and a fixed relationship between output andcapital equipment is assumed. These and other qualifications havetheir counterpart in the other two cases set forth in § 20 and § 2 Ibelow, and will be discus~ed in connection with the combinedstatement of all three cases.§ 20. ACCELERATION OF DERIVED DEMAND IN THE CASEOF DURABLE CONSUMPTION GOODSThe case ofdurable consumption goods is perhapsAnalogy the most important of the three. As an example,with previous. take apartment-houses. The situation is exactlycase. analogous to the case of the production of shoesanalysed in. § 19. We have only to substitute'c annual service ofthe house " for " annual production ofshoes ",and U apartment-houses" for" machines used for the productionof shoes". In other words, we can conceive of the durableconsumption goods as producing a stream of services.We start again from a static situation. The annual productionof the service (housing accommodation as measured, say, byapartment rent) is 100. The stock of durable goods-that is, ofhouses-fromwhich this stream ofservices originates is (say) 1,000,