Prosperity and Depression.pdf

AnalYsis of TheoriesPart Itypes of investment which look forward for their utilisation to avery distant future-e.g., the opening up of a new region by theconstr :ction of a railroad. In such cases, the connection betweenthe investment and the present state and recent movement of thedemand for consumers' goods is very slender. Long-run expectationsdetermine investment decisions ofthis sort, and theinfluenceofthe current outputoffinished goods on these expectations can hardlybe assumed to follow a uniformly defined quantitative pattern.!Besid"es these adventurous kinds of investments, there are otherinvestments, in working and fixed capital, which follow more orless closely the ups and downs of consumers' demand-routineinvestments one might call them. It is with these that the accelerationprinciple in its more rigorous form is concerned.§ 2.4. THE CONTRIBUTION OF THE PRINCIPLE OF DERIVED DEMANDTO THE EXPLANATIOI\l OF THE GENERAL BUSINESS CYCLEIt has sometimes been assumed that, in order toReciprocal utilise the acceleration principle for the explanationaction of the general business cycle, one has to presupposeof consumers' a cyclical alternation of expansion and contractiondemand in consumers' demand. 2 The acceleration principleand capital then serves to explain the larger fluctuations in theproduction. capital-goods industries. The situation is, however,much more involved, because consumers' demandand capital production (investment) interact on one another.In order to throw light on this inter-relation, the two questionswhich have been raised above and reserved for later discussionmust now be dealt with.! This has also been well put by Professor D. H. Robertson. " ... Someof the principal forms of investruent in the modern world-the instrumentsof power-productionl .of transport, of office activity-are, afteralll very loosely geared to the visible demand for particular types ofconsumption goods and depend rather on fairly vague estimates of thefuture progress of whole areas and populations. (See his review ofHarrod's The Trade Cycle in The Canadian Journal oj Economics andPolitical Science, Vol. III, 19371 pa.ge 126,)• Criticism by C. O. Hardyhefore the American Statistical Association,December 1931. Quoted by J. M. Clark in Journ.al 01 Political Economy,October I93z, page 693.