Prosperity and Depression.pdf

Chap. S Under-conJllflJption Theories 12.1profit inflation and. lead to a dangerous boom and later oninevitably to a collapse and depression. To this proposition weshall return later.In the case of a growing population, the situation is different.Here most authorities (with the notable exception of ProfessorHAYEK) would agree that the quantity ofmoney ought to increase.Otherwise all prices, including the prices of the factors of production,principally wages, must fall. It goes without saying thatthis is not a satisfactory arrangement, ifonly because ofthe rigidityof wages. 1More difficulties a.re presented in the case of a growing capitalstock. Should the quantity of money be increased in such away that prices remain stable? And which pric~s : commodityprices or factor prices ?'These problems, which cannot be dealt with exhaustively atthis juncture, have been much discussed, principally by monetarywriters (in recent times, for example, by Mr. HAWTREY andProfessoA: ROBERTSON).- They occur in the writings of the underconsumptiontheorists intermingled with other arguments whichwill be discussed presently. (It is for this reason that they have beentouched upon here, although they do not constitute the heart ofthe under-consumption theory.)But what is the bearing of these considerations on the explanationof the business cycle? The growth of population, theenlargement ofthe capital stock, the improvements in the technical1 This Professor Hayek too would admit. But he thinks that theinjection of money necessary to prevent the fall in wages would createa vertical maladjustment in the structure of production, of the kind thatwe have discussed in the section on the monetary over-investmenttheory. See Prices and Production, 2nd ed., 1934, page 161.t Compare also G. Haberler, The Different Meanings attached to th'!- Term" Fluctuations in the Purchasing Power of Gold" and the Best Instrumentor Instruments for measuring such Fluctuations (Memorandum submittedto the Gold Delegation of the League of Nations, 1931). A Germantranslation appeared under the title: " Die Kaufkraft des Ge1des und dieStabilitat der Wirtschaft, " in Schnioller's Jahrbuch, Vol. 55, 1932. Seealso W. Egle, Das neutrale Geld, Jena, 1933, and J. G. Koopmans, U ZumProblem des neutralen Geldes, " in Beitrage zur Geldtheorie, Vienna, 1933.The older literature is well reviewed in C.M. Wash. The FundamentalProblem in Monetary Science, New York, 1903.