Prosperity and Depression.pdf

Chap~ 3 The Over-investment Theories 93ofwhich 100 (10%) must be replaced each year, corresponding to'adurability of ten years. If there is an increase in the demand forapartments of 10%, the number of houses, or rather the amountof ·dwelling-space, must also be increased by Io%-which means adoub'jng of the construction of new houses, 100 for replacementand 100 as addition to the existing stock. Thus, an addition tothe annual flow of servir~s of I 0 ne~essitates an investment of 100.The further analysis is exactly the same as in the case ofthe shoes.The case of less durable goods such as motor-cars may also beanalysed in the same way by distinguishing between the flow ofservices and the durable instrument whose value is a multipleofthe value ofits annual service. (There is, ofcourse, this importantinstitutional difference that, in the case of dwelling-houses,the ownership of the instrument is usually or frequently divorcedfrom the use ofthe services, while the consumer ofthe services ofan automobile is, as a rule, the owner of the instrument. Thetechnological principle is not altered by this· circumstance; but ithas other consequences which will be discussed later.)One important quantitative peculiarity of certainDepreciation types of durable consumers' goods may be pointedand running out at this point. The cost of the final servicecost. (annual rent of an apartment) consists of two parts-viz., the contribution of the durable instrumentand the runping expenses (heating, water, maintenance, etc.).If demand for the service rises, the acceleration principle becomeseffective in respect of the ~st part. The quantitative effect-thatis, the absolute ma~nification of derived demand-depends, otherthings (especially the durability of the instrument) being equal,upon the relative importance of the two parts. In the case of thedwelling-space, the contribution of the durable instrument (thehouse) is probably relatively large, say four-fifths of the cost ofthe total output. In our example of the shoe factory, we assumedthat the total output was 100, of which only one half consisted ofthe contribution of the durable instruments, the other half consistingof materials and labour. Under these assumptions, otherthings being equal, the absolute magnification of derived demandis much greater in the case of an increase in the demand for apartmentsthan in the case ofan equal increase in the demand for shoes.