Prosperity and Depression.pdf

AnalYsis of TheoriesPart Iand with what price accompaniments, a given response in industrialoutput (represented by iron) to enhanced agricultural output(represented by wheat), such as would take place in barter conditions,will be reached under the operation of this or that policyon the part of the monetary authority. He realises, and expresslystates, that "iron-makers" react more readily to increasedmoney receipts than to falling prices in the objects ofexpenditure:but, for him, the money demand for iron depends only on theeffort-elasticity of the demand for wheat and the general price-levelas determined by monetary policy. He appears to overlook thefact that the buyer's elasticity of demand for wheat in terms ofiron-in the absence of any change in the total money demandinfluencesthe money demand for, and supply of, iron and pro tantothe effort-elasticity of the iron-makers' demand for wheat.In a monetary economy, it is never possible to take the effortelasticityofthe demand for a particular commodity-or, generally,of the demand of industry as a ,\\;"hole for agricultural produceasa psychological datum, as it is convenient to do in the case ofthe elasticities of buyets' demand for a single good. Producersare stimulated almost entirely by monetary incentives, so that along process of analysis by progressive stages, coupled withassumptions as to the operation ofthe monetary factors throughout,is required if it is desired to arrive at conclusions as to the actualeffort-elasticity of demand in any given case. It is not thereforepermissible, in order to indicate the probable consequences onindustry of agricultural fluctuations, to assume a particular effortelasticityfrom the start; for this is equivalent to assuming the solutionof the problem. Nor is it permissible to estimate the effortelasticityof demand from actual experience of how industrialproduction has responded to agricultural fluctuations, and toproceed to treat the estimate as a relatively stable psychologicalfunction, independent of monetary conditions.Changes in agricultural output of all sorts exerciseB. Influence on a dominating influence over those industries whichindustries using utilise agricultural raw material, such as the foodagricultural and textile industries, as also the industries engagedraw materials. in the handling and transportation of the crop oranimal produce.