Prosperity and Depression.pdf

Chap. 7Agrie-IIJtNre and the BIIJi"tJJ CyJeThis would seem the most natural interpretation of the phrase.But an examination of the footnote on page 42., and of the wholediscussion in Chapter V, of PIGOU'S Industrial FItlCtlltl/ionsshows that PIGOU supposes any increase or diminution in theamount of industrial goods offered for agricultural produce torepresent an equivalent increase or diminution in the productionof industrial goods. In this case, "elasticity of demand foragricultural produce " seems to relate to the total amount of effortor activity industrialists will undertake to produce go.ods for theirown consumption and for exchange against varying quantities ofagricultural pr0duce. Thus, by assuming the elasticity of theindustrialists for agricultural products in terms of effort as given,Professor PlGOU assumes a knowledge of how total industrialoutput changes .in response to changes in the harvest. But it isthis magnitude which .the theory is concerned to discover. Itis the unknown quantity. It must not be assumed in advance.It is only when interpreted in the first sense mentioned above-viz., in terms of money (or its complement in real terms)-thatthe phrase cc elasticity of demand " can play a useful role in theexplanation of the repercussions on industry of agriculturalfluctuations. But, a soon as U elasticity of demand" is thusintetpret~we .are confronted with the difficulty that movementsin the mong demand for industrial labour vary in the contrarydireetio!l to the Ie real" demand in the sense in which the term" real" is employed by Professor PIGOU. He says that theincreased supply of agricultural produce represents an increased" real" demand for industrial produce (and gives rise to anincreased cc real" aemand for labour) only if the demand foragricultural produce is elastic. But these are the very circum..stances in which the mon~ demand for industrial output willdiminish, since a greaterproportion ofexpenditure goes in such caseto agricultural produce: and, since wage-earners respond primarilyto the money·· demand for labour, an e/as/it demand for agricu1~tural produce in terms of money and of goods already producedmeans an ine/astil demand in terms of effort and employment.Similar difficulties and ambiguities are encountered in connectionwith Professor ROBERTSON'S treatment of the problem in hisBanking Policy and the Price Lel/el. He enquires by what process,