Prosperity and Depression.pdf

Ana!Jsis 0.( TheoriesPart IOn the other hand, the situation which, according to the underconsumptiontheorists, typically arises at the end ofthe boom, canbe described as an excess ofex-ante saving over ex-ante investment,which must lead to disappointment and losses on the part of producersof consumers' goods. 1Both kinds ofmaladjustment could be avoided by an appropriatechange in the saving and spending plans of the public.If horizontal maladjustments are involved, a shift in the distributionof income between saving and expenditure on ·consumers'goods cannot remedy the situation. Changes in consumptionhabits will then be necessary to restore equilibrium. For example,if the·motor-car industry is over-developed, people must be madeto buy more motor-cars instead of something else.It is clear that shortage ofcapital and insufficiency of consumers'demand are alternative explanations. The public cannot bereproached at ~he same time for saving too little and saving toomuch. But, as Professor ROBERTSON has pointed out,I it is quiteconceivable that, if in a given situation.capital shortage was " theactual spear-head of relapse", insufficiency of consumers' demandin presence ofan increase in output would have brought about thecrisis somewhat later.Vertical maladjustments of each type on the oneDifficulty in hand and horizontal maladjustments andinsufficiencydistinguishing of total demand (insufficiency of money supply) onvertical and the other are quite compatible. To a certainhorizontal extent they probably always go together and aremaladjust- frequently difficult to distinguish. Since manyments. writers do not carefully distinguish these cases, it isoften difficult to know which·they have in mind.The reason for this ambiguity is perhaps to be found in the factthat, in all these cases, the proximate cause of the breakd.own isan insufficiency of demand as compared with the supply.comingon the market. This is true. alike in the case of a horizontal1 Certain differences, fundamentally of a terminological kind, betweenthe Swedish analysis and the analysis used by the writers dealt with inthe text will be discussed more thoroughly in Chapter 8 below.S In" Industrial Fluctuations and the Natural Rate of Interest,"Economic J oU'Ynal. December 1934·