Prosperity and Depression.pdf

Chap. ~(( top " ofthe structure ofproduction according to the one theory,the cc bottom" according to the other, is over-developed in relationto the flow of money. In a sense, both theories can bedescribed as over-investment theories. In the· one case, newinvestments are excessive in relation to· the supply of saving; .inthe other case, they are excessive in relation to the demand forthe product. That the distinction is important may be seen fromthe fact that the conclusions drawn as to the appropriate policyto follow in order to avert, mitigate or postpone the breakdownare diametrically. opposed. According to the one view, everymeasure that tends to increase consumers' demand and to reducesaving is helpful. According to the other view, exactly theopposite policy is called for. (But such poliey, it should be noted.holds only for the later phase ofthe boom. As soon as the downwardmovement has got under way and the spiral of deflation hasbeen started, the position changes completely and quite differentconsiderations come into play.)We must tty to make. the distinction still clearer and to distinguishthese two cases from horizontal maladjustments and froma purely monetary insufficiency. This is not always easy : it issometimes difficult to ascertain which case a writer has in mind.The best method offinding out the exact meaningTIN sltWhIr, and implications of the different tlleories is .to askofprodll&tioli what are the appropriate measures called for, andand the flo'JII to what extent the crisis can be averted by the publicof 1IJon~. changing its habits of saving and spending and themode of spending (without considering whether inpractice this change can or cannot be brought about by State intervention).If an insufficiency of the supply of money, a creditcontraction pure and simple, is the sole cause of the terminationof. prosperity, the situation can be remedied by purely' monetarymeasures-viz., by an increase in the money or credit supply bymeans ofa reduction ofinterest rates. With a very few exceptions '(among whom Mr. HAWTRBY is prominent), most writers wouldagree·that in most cases this is impossible.! The down-turn and1. See A. Amonn: U Zur gegenw3.rtigen Krisenlage und inflationistischenKrisenpolitik" in Zeitsch,rijt jur Nationalokonomie~Vol. V, 1934, page 1and passim.