Prosperity and Depression.pdf

182. AnalYsis of Theories Part Ifinds that he has had a larger net income than he expected and that,therefore, the surplus over and above hie; consumption is greaterthan his planned savings, has provided' unintentional savings'which is equal to this unexpected surplus. Un expected newinvestment, which, like unintentional saving, may, of course, benegative, can mean simply that stocks at the end of the periodare different from what the entrepreneur expected.. "1" Assume that people decide to reduce their savings and increasetheir consumption during the next period by 10 millions, ascompared with realised savings and consumption during theperiod which has just finished. Assume further that theplanned investment is equal to the, realised investment during thelast period." (Since realised savings and realised investment areequal, these assumptions imply that ex ante saving falls short by10 millions of ex ante investment.) "What will be the result?Retail sales of consumption goods will rise 10 millions and thestocks of retailers will, at the end of the period, be down-e.g.,7 millions, the remaining 3 millions being extra income of theretailers. This latter sum is 'unintentional' savings. Thusrealised saving is down only 7 millions, or the same amount asrealised investment."2 Realised investment is down because thedepletion of stocks by 7 millions is counted as unintentionaldisinvestment. 3t Ohlin, Ioc cit., pages 64 and 65.I Ibid., pages 65 and 66.a This ana\ysis can be readily translated into Robertsonian language.We would have to say that investment actually exceeds saving by 3 millions.The difference is H financed by other means than by saving from(disposable) income". This way of expressing the matter has the advantagethat it calls attention explicitly to the fact (which is, of course,implied also by Professor Ohlin's analysis) that bank credits must beexpanded or that some people mustdishoard-i.e., "reducetheirquantityof cash H. (Ohlin. loco cit.• page 425.) The supply of loanable fundsmust be elastic; otherwise the planned investments could not go aheadundisturbed by the fact that people spend more on consumption than wasforeseen. This assumption about the elasticity of the money supplymay be correct in many cases, especially if the period in question issufficiently short. It need, however, not always be correct, and if itis not, the rate of interest will rise so much (or credit will be rationedin such a way) that the investment plans will be sufficiently scaleddown. This may very well lead to more or less serious disturbances in the