Prosperity and Depression.pdf

Ana(ysis of TheoriesPart INow a number of questions arise which will beControversial taken up one after the other. First, some readers,issues. who are accustomed to speak of differences betweenI and S, would probably like to see how, in typicalcases, the equality ofI and S works out in detail. Such an analysiswill reveal that the definitions given above are, after all, not alwaysin harmony with the everyday usage ofthe terms.SecondlY, the question arises as to how S and I can be re-definedso as to make sense ofthe whole body of doctrine which speaks ofdifferences between them. We shall see that this can be and hasbeen done in several ways, and that it would be superficial todismiss as meaningless all theories whichimply a difference betweenS and I, even if some of the theorists in question may have carelesslydefined them in such a way that they are necessarily equal.ThirdlY, it might be asked whether, if we adopt Mr. KEYNES'definitions, Sand I are not, in reality, identical rather than necessarilyequal. Do S and I not really denote, are they not onlydifferent symbols for, the same thing-unconsumed output? Ifthat is so, why retain two terms? Why not drop the one or usethem interchangeably?Let us first do some exercises in the applicationHow S and I of our definitions by discussing a few typical cases.are equated Assume that new investments are made either byin the case the Govemment or by private pro,ducers and thatof inflation. they are financed by the creation of new money;for example, a factory or a railroad is being constructed.Suppose that there are unemployed workers and idleresources, so that total production can easily be expanded. Themoney is created by the banks and handed over to the entrepreneur(or the Govemment) either as a short-term loan or by purchasinglong-dated securities, new ones or old ones which have so far beenin the possession of the constructor of the railroad.There is then a certain amount of (new) investment, but, ifwe adopt Mr. KEYNES' definitions of I and S, we are precludedfrom saying that these new investments have been financed bycc inflation ", instead of by " voluntary" saving. 1 According to1 I put" inflation" in quotation marks, because some writers wouldlike to reserve the word " inflation" to such an increase in the quantity