Prosperity and Depression.pdf

22.6 AnalYsis of Theories Part Ihave thus three interchangeable expressions for the same thing.The expression " marginal propensity to consume " can always bereplaced, without a chaPge in meaning, by the expression " I minusthe marginal propensity to save U or by " I minus the reciprocalof the multiplier ".It follows that if, for instance, the margiral propensity toconsume is ~ (the marginal propensity to save being ~),10 10multiplier is 10; " the total employment caused (for example) bypublic works will be ten times the primary employment providedby the public works themselves, assuming no reduction of investrnentin other directions" (pages I 16 and I 17). This result isclearly implied by the assumption made. If we assume that anincrement in Yis divided in the proportion of I : 9 between I and C,then we assume that an increase in I by x units will mean an increaseof9X in C and an increase of lOX in Y. Ifwe assume the marginalpropensity to consume to be zero-in other words, that anincrement in Y is wholly confined to·I-then we assume that anincrement in I increases Y by no more than its own amount. Ifthe marginal propensity to consume is assumed to be I -that is, ifwe assume that " the next increment of output will have to bedivided between consumption and investment " in the proportionof I to a-then, in order not to contradict that assumption, we mustassume that any increase in I is accompanied by an infinite increasein C and Y: the multiplier is infinitely high. In plain English,there can be no increase in I.It will be well to keep in mind the logical nature of the " puretheory of the multiplier" 1 which is clearly revealed by theforegoing discussion. The theory is not intended by Mr. KEYNESas a statement about a relationship in the real world between twodistinguishable phenomena; there are not two facts, the marginalpropensity to consume on the one hand, and the multiplier on theother, ofwhich the former influences and governs the latter. Thelogical theory of the multiplier establishes a terminological rulethe1 Mr. Keynes calls it the u. logical theory of the multiplier" (GeneJ'alTheory, page 122).