Prosperity and Depression.pdf

AnalYsis of TheoriesPart Ithe depression can be postponed, but not averted, by a cheapmoneypolicy. The reason is that the difficulties do not arise, ordo not solely arise, from an insufficiency of the flow of money ingeneral so much as from the fact that the structure ofproductioni.e.,the allocation of the factors of production to different stagesand branches of industry-does not correspond to the flow ofmoney as determined by the distribution of individual moneyincomes between saving and spending and the different branchesof spending. Such a discrepancy cannot be remedied by a simpleexpansion of credit. The authorities may perhaps determinewhere the new money is to be spent at first. They ..can, that is tosay, choose the point of injection of the new money into theeconomic system; but they cannot hope-at any rate withoutdrastic reorganisation of the whole economic system (i.e., withoutabandoning the existing individualistic organisation ofthe system)-to control how the money is spent by the successive recipients.But suppose it were feasible to change at will the people's habit asto saving and spending, what changes would be best calculated toforestall serious trouble? Obviously, ifwe rule out an insufficiencyin total demand, there must be such a distribution of the nationalincome as will make the flow of money correspond to the flowof goods.The capital-shortage theory replies that all trouble could beavoided if .people would.consume less and save more, and thussupply the necessary funds for completing the uncompletedroundabout processes of production. The reply of the pureunder-consumptionist is the contrary. If people will expandconsumption and save less, he says, the breakdown can be averted.Thatis very well, ifthe difficulty is due to the too early completionof the new roundabout processes of production. The situationis that people intend to save more, to wait longer. This impliesthat they are not yet prepared to take over an increased outputof consumers' goods. Over-investment is not a correct descriptionof.such a situation. Under-investment would be a betterdescription, since the crisis can be avoided, for the time being atleast, by undertaking longer roundabout processes of production-i.e.,more ambitious investment schemes which \vouldpostpone the appearance of consumable goods on the market.