Prosperity and Depression.pdf

122 AnalYsis of Theories Part 1"yF.rprocesses of production, are all secular movements. Therefore,the proposition that the supply of money does not keep pace withthe growth of production cannot, per se, explain a cyclical movement.It is hopeless to explain the business cycle without takingaccount of the cumulative nature of the "short-run" processesof expansion and contraction. The considerations in questiondo not show why these processes are cumulative. Nor do theyexplain why those processes come to an end sooner or later andgive rise at once to a cumulative process in the opposite direction.Their value is rather as a means ofdetermining the trend, a deviationfrom which, in the one or the other direction, is liable to starta cumulative process of expansion or contraction.There remains the possibility that the growth of productionor the increase in the supply of money moves in cycles. Thevolume of production shows, of course, a cyclical movement.But this is exactly the phenomenon which is to be explained : itcannot be taken as an independent cause.! The second assumptionthat the supply of the circulating medium changes cyclicallyis the essence of the purely monetary explanation of the businesscycle.We conclude that these arguments put forward under the name" under-consumption" theory are partly irrelevant for theexplanation of· the short cycle and partly covered by othertheories.4. In its best-reasoned form (e.g., in the writingsOver-saving ofMessrs. J. A. HOBSONand FOSTERand CATCHINGS),thC01Y. the under-consumption theory uses "under-consumption" to mean " over-saving". Depressionsare caused by. the fact that too large a proportion ofcurrent incomeis being saved and too small a proportion.spent on consumers'goods. It is the process of voluntary saving by individuals andcorporations which upsets the equilibrium between productionand sales.1 By an "independent cause" is meant a change produced by outsidefactors which can be taken for granted by the economist, such as ch~ngesin agricultural production, due to weather conditions. Nothing of thissort is to be found in industrial production.