Prosperity and Depression.pdf

AnalYsis of TheoriesPart Iin fact, be some time-lag between the receipt of money and itsexpenditure, and since this time-lag will prevent an increase ininvestment from causing an immediate rise in consumption toinfinity, we must say, in Mr. KEYNES' language, that there is atemporary distortion of the propensity to consume, and thatconsumption will only gradually tend to increase to infinity if thenet increase in investment expenditure is permanently maintained.Hence, to determine the secondary effects, in time, ofnew publicexpenditure, we need, in addition to the information about themarginal propensity to consume of the various individuals, alsoinformation about the income velocity of money. This point hasbeen well discussed by Professor ]. M. CLARK (op. cit.).We are now in a position to sum up the conclu­Conclusions. sions of our discussion. The pure theory of themultiplier shows the definitional relation betweenthe cc propensity to consume· " and the multiplier. Many problemswhich are frequently discussed under the heading " multiplier " lieoutside the pure theory of the multiplier. They can be dividedinto two groups, those relating to (a) the determination of theamount of net investment associated with a given amount ofspending under!· varying circumstances and (b) the determinationofthe numerical value ofthe multiplier. The marginal propensityto consume of the individu~l· to which Mr. KEYNEs' fundamentalpsychological law refers, is only one of many factors which arecausally important for the determination ofthe marginal propensityto consume (multiplier) of society as a whole. For this reason,care must be taken not to exaggerate the stability ofthe multiplier,which cannot· be treated as a datum, but must be included amongthe variables (quaesita) ofthe theoretical system. l1 This is also the opinion of Mr. E. Lundberg (ct. Studies in the Theo'f'Y 01Economic Expansion, London, 1937, page 36), who believes that themultiplier will exhibit·a cyclical movement over time.