Prosperity and Depression.pdf

Chap. SUnder-consumption Theoriesthe production of consumers' goods give rise to relatively largefluctuations in the production of capital equipment. The boomis stimulated by a deficiency of consumers' goods; and this leadsto an increase in the production ofcapital goods. But the moderncapitalistic process of production is time-consuming. The con..struction of capital goods which must precede the production ofconsumers' goods takes months or even years. Therefore, theoutput of consumers' goods does not rise at once, or at any ratedoes not at once rise sufficiently. Prices of consumers' goodsremain high, the profit margin persists, and there is a constantstimulus to produce capital equipment. This phase of capitalisticproduction, in which c~pital goods are being created, is the periodof prosperity. It is the capitalistic technique of production, thefact that, a long time must elapse before the output of consumets'goods can be increased,which prolongs the prosperity period,over-stimulates the construction of capital goods, and leads finallyto a disruption of economic equilibrium.The breakdown comes when the roundabout processes of productionwhich have been started during the upswing ~re completedand consumers' goods begin to pour out. It is of course truethat the duration of the processes of production is not unifot1nfor all types of goods.. Therefore, the processes 'of productionwhich have been initiated will not all be completed at the sametime. The prosperity does not terminate when a single processis finished; it ends only.when a great quantity of capital in ~emajority ofindustries is set to work turning out consumers' goods.,Professor APTALION compares the time required for the manufactureof means of prodqetion to the time which elapses betweenthe moment of rekindling a tire and the moment at which itbeginsto give off heat. "If one rekindles the me in the hearth in orderto warm up a room, one has to wait a while before Oile has thedesired tempe~ature. As the cQld continues, and the thermometerhere. On the whole, his theory cannot be classified as an under-consumptiontheory : but his explanation of the crisis as reviewed in the text isthe same as that of tlie under-consumptionists. His explanation of thecycle as a whole suffers from the inadequacyofthe analysis of the monetaryfactor. Compare the crIticism by D. H. Robertson in Economic ] ou~~"Vol. 24, 1914, page 81~ and A. H. Hansen's review in Business CyclsTheory, pages 1°4-111.