Prosperity and Depression.pdf

12.4 Ana{yJis of TheorieJ Part Iafter the turning-point, when the depression has set in. Thenthere is an excess of savings over investment.But this analysis is no special contribution ofthe under-consumptionists: it is the common ground of the monetary and overinvestmenttheorists (especially Professor ROBERTSON).Now we come to the heart ofthe under-consumptionSavingor over-saving theory.decreases (b) Savings lead on the one hand to a fall in thedemand/or,and increasesdemand for. consumers' goods, because the moneysaved is not spent on consumption.supPlY of, (c) On.the other hand, savings are, as a rule,consumption invested productively. The sums saved are usedgoods. to add to the capital equipment of the community.Factories, railways, power-plants and machinesare constructed. The ultimate aim of all this is to increase theproduction of goods for ~al consumption.Thus the demand for consumers' goods is reduced, ~eir supplyis increased and their prices must fall. The market for consumptiongoods holds the central position in the economic system.So long as all goes well there, the whole productive apparatus,which is piled up behind the consumers' market and is there onlyto serve it, will run smoothly : when the equilibrium is disturbedthere, the whole economic system will suffer.To this theory there are serious objections. ToCriticism. say that/the situation in the earlier stages of productiondepends exclusivelY on the state of affairs in theconsumption industry-that, ifthe latter flourishes, the fonner willprosper and that, if production falls or stagnates in the latter, theformer will·necessarily decline or stagnate too-is, in this generaland categorical form,certainly wrong. We have already hadoccasion to discuss a case where a general increase in demand for, consumers' goods and a consequent tendency of the consumptionhis Treat1"se on .1V[oney, has given them a very peculiar definition, accordingto which an excess of savings over investment does not imply deflationbut is, by definition, equal to losses, and an excess of investment oversavings equal to profits. An extensive discussion of the px:oblem ofdefining saving, investment and hoarding is to be found in Chapter 8,below.