Prosperity and Depression.pdf

Chap. 8 Recent Discussions on the Trade Cycle 173Mr. KEYNES' and his followers' account of the matter, there mustbe somewhere savings corresponding to the amount of newinvestment. Where are they? The answer has been given mostclearly by Mr. HARROD. "For a few days, the whole of the newnet investment may be financed by those who receive the money;before they begin to spend that money, they save what theyreceive. "1 That is to say, the workers who are engaged inconstructing the railroad are said to save ¢'e money which theyreceive, say, on Saturday until they spend it during the followingweek. Ifthey keep all the money over night, they are said to havesaved it. When they then gradually spend it on consumers'goods and consume these latter, they.are said to dissave. Theexpressions "receiving" and "spending" are replaced by" saving" and "dissaving". But when people thus dissave,U the stocks of consumption goods will be depleted; this involvesdisinvestment. " 2 So the new investment is first rnatched bysaving and then cancelled by disinvestment; S is always equal to I.If, on the other hand, the production of consumption goodsincreases pari passu with the rising demand (by chance,- or becauseproducers have correctly foreseen the coming rise in demand),there is no disinvestment to cancel the originalnewinvestment; but,since the new money. must always be somewhere, those peoplewho hold it and have not yet passed it on are said to perform thenecessary saving.This account of the matter may seem strange; it is not usualto say that the savings which £fiance the construction of newcapital are provided by the workers who are engaged in thatconstruction job and not by those who provide the money whichof money as leads to a rise, or to an " excessive " rise, in prices; theyresent the use of the word for cases where the increased amount of money(or of monetary demand) is matched by an increase in the flow of goodsand hence does not bring about a rise in prices. (Cf., for example,Mr Kahn's review of the first edition of this book in the Economic Journal,Vol 47, 1937, page 675, and my answer, ibid, Vol. 48, 1938, pages 326and 327.)1 The Trade Cycle, page 72 .l! Ibid., -page 72 • If prices of consumers' goods rise, the income andsavings of the retailers go up.