Prosperity and Depression.pdf

CHAPTER 4ClfANGES IN COST, HORIZONTAL MALADJUSTMENTSAND OVER-INDEBTEDNESS AS CAUSES OF CRISESAND DEPRESSIONS§ I. INTRODUCTIONIn this chapter we shall discuss certain factors which havesotnetimes been put forward as the causes ofthe periodic recurrenceof crises and depressions. The .argument, however, goes toofar. It is not in this case a question ofelaborate theories embodyinga full explanation of the business cycle comparable to themonetary explanation or the over-investment theory, but ofcertain particular factors which contribute something to theexplanation of certain phases of the cycle. To recognise thatthese factors may sometimes, or frequently, playa role in shapingthe course ofthe cycle is by no means incompatible with acceptanceof the monetary or over-investment theory of the cycle, thoughof course all members of these two schools would not attributemuch importance to the factors in question.§ 2.. CHANGES IN COST OF PRODUCTION AND EFFICIENCYOF LABOUR AND PLANTIn a competitive business economy, the statement that a restrictionin industrial activity is due to the fact that production cost hasrisen above selling price does not add much to the mere statementthat industrial activity has been reduced-at any rate, if "price"is interpreted (as it obviously should be) as the expected futureprice and" cost" as marginal cost at the expected volume of activity.This statement is compatible with any explanation ofthe crisis