Prosperity and Depression.pdf

Chap. 3The Over-investment TheoriesAfter the upward movement has been started, the accelerationprinciple explains the rapid absorption of unused factors of productionin the upper stages ofproduction. Naturally, the principlecannot work unobstructed after all the factors, or· particular typesof the factors, of production have become fully employed. Butthese questions have been discussed above in connection with themonetary over-investment school.The nature ofthe cumulative process of expansionCauses having been thus explained, there remain variousof the possibilities of explaining the collapse of thebreakdown. boom. One explanation is that sooner or later ashortage of capital in the previously defined sensearises.It has been pointed out above that a decrease in the rate ofincrease of demand for a finished product (say railway lines) neednot entail an actual- decrease in demand for, and production of,producers' goods (say steel). It is possible that the decrease innew demand will be compensated by an increase in replacementdemand. If the construction of new railway lines decreases onlyafter a long period, the steel industry need not experience anydecline at all. Whether this _condition can be fulfilled dependsto a large extent (but not wholly) on the availability of capital.If a shortage of capital develops, -railway construction must becurtailed and the steel industry will suffer a decline in demand.We observe here again a close interrelation between the overinvestmenttheory and the acceleration principle.But shortage of capital is not the only conceivable explana.tionof the breakdown. Professor AFTALION, who is amongst theexponents of the acceleration principle, has put forward the theorythat the turning-point comes, not because the new investmentscannot be completed owing to a shortage of capital, but, on thecontrary, after the new roundabout processes of production(construction of durable instruments) have been completed andbegin to pour out consumers' goods. Prices faIl; consumers'goods industries. become depressed; and this depression is transmittedwith increasing violence to the higher stages ofproduction.This line of thought will be discussed again in connection withunder-consumption theories.•