Prosperity and Depression.pdf

Chap. 5 UnJer-con.r1l111ptiOIl T!Hone.r 12.5industries to expand production are not only not a sufficientcondition of prosperity in the higher stages of prqduction, but~on the contrary~ the cause of its collapse. The monetary overinvestmenttheory has shown the possibility that, when at the endof the boom the demand for consumers' goods rises and theirproduction tends to increase, this upse~ the equilibrium betweencosts and prices in the higher stages, because there are then no idlefactors ofproduction which can be drawn into employment in thehigher stages, and there are not the necessary funds (capital supplyin terms of money) to retain employed factors of productionagainst the competition ofthe consumption industries.According to the over-saving (under-consumption) theory, theequilibrium is upset by the opposite course of events-that is, bya decrease in the demand for consumers' goods. The criticisms towhich the theories of Messrs. FOSTER AND CATCHINGS (who haveelaborated the over-saving theory most fully) have been subjectedby Messrs. DUBBIN, HANSEN, HAYEK, ROBERTSON and others, l haveat least shown that, in spite of a high rate of saving, there is alwaysan equilibrium position po.rsible with full employment of thefactors of production. This is true in the .first instance (that is;during the period of construction of the new capital) as well asin the long run (after the new capital equipment has been put intooperation).Looking at the problem broadly, it is clear thatThe ftmetion the social function of saving is to release resourcesof .raving. from the production of goods for immediate consumptionfor the production of producers' goods. 1Temporarily, the production of consumers' goods is curtailedin order to permit ofincreased production at a later point with thehelp of capital goods which have been constructed in the meantime.The fall in the demand for consumers' goods has thereforeits function. The monetary incentive for the entreprepeur1 See Durbin: PuYchasing Powey and Tyade DepYession6 LondoD 6 1933 ;Hansen: Business C'ycle TheoYy, 1928, Chapter III ; Hayek: " TheParadox of Saving tt in Economica 6May 1931 ; D. H. Robertson: " TheMonetary Doctrines of Messrs. Foster and Catchings n in Economic Essaysand Addyesses of Pigou and Robertson 6 London 6 1931.t Compare especially C. Bresciani-Turroni, " The Theory of Saving, tIin Economica 6 1936.