Prosperity and Depression.pdf

166 AnalYsis of Theories Part Irelationship of reciprocal causation (as will be shown in Part IIof this work) between increasing supplies of effective money andincreasing industrial activity; and the same holds true of thedownswing. In view of the importance to consumers of productstnanufactured \vith agricultural raw materials, it is not surprisingthat part of the general rise and fall in monf:Y demand shouldbe passed on to agriculture. But the process is tempered by twofactors:(I) The demand for consumers' goods as a whole is morestable than the demand for all goods;(2.) The demand for consumers' goods of agriculturalorigin is more stable than that for consumers' goods as a whole.On the other hand, the inelasticity in the supply of agriculturaloutput tends to make the fluctuations in demand greater, at leastin the first instance, than they might otherwise be.The close correlation betWeen agricultural prices and industrialactivity, due to the causal connection between industrial activityand the demand for agricultural produce, may be taken by theunwary as a proof that low agricultural prices and incomes, duepresumably to agricultural over-production, are responsible forlow industrial activity.. The cost items of agriculture are largely of agri-Effect on cultural origin; and to some extent they will varycosts. with the demand for agricultural produce-thevariation being only another aspect of theinelasticity of the supply.To some extent,· however, industry competes with agriculturefor factors of production; and this competition may be so strongas to force a reduction of agricultural output when demand is high,and vice versa.(1) With respect to the supply of implements and the investmentfunds for buying them, it seems probable that the farmers'increased desire to acquire instruments in good times will outweighthe competitive demand ofindustry for both of these things. Thefarmer can :finance increased purchase in part from his ownincreased earnings.