Prosperity and Depression.pdf

Chap. 8Recent Discussions on the Trade Cycle§ 5. THE THEORY OF UNDER-EMPLOYMENTMr. KEYNES' theory does not furnish a ready­, Application. made answer to the riddle of the business cycle, butto the is intended to supply tools for the analysis of allbusiness sorts ofproblems concerning short-term fluctuationscycle of as well as long-run conditions. "The object ofMr. K!ynes' our analysis is . . . to provide ourselves withsystem. an organised and orderly method of thinking outparticular problems; and, after we have reached aprovisional conclusion by isolating the complicating factors oneby one, we then have to go back on ourselves and allow, as wellas we can, for the probable interaction- of the factors amongstthemselves. This is the nature of economic thinking."lThe analysis of the preceding pages should have made it abundantlyclear that Mr. KEYNES' theoretical apparatus is notincompatible with-anyone ofthe theories ofthe cycle, or particularphases thereof, which have been reviewed earlier in this book.All these theories can be expressed in Keynesian language.Mr. KEYNES' own application of his theoretical apparatus to thetypical business cycles, as contained in his " Notes on the TradeCycle", 2 have been briefly reviewed above in connection with thepsychological theories (Chapter 6).However, the theory, or theories, of economicAn over-saving depressions-cyclical and otherwise-which aretheory of generally associated with, or have emerged under,depression. the influence of Mr. KEnms' General Theory ofEmployment· can be best described as a special sortofunder-consumption or over-saving theory. All the determinantswhich play a role in Mr. KEnms' system are always involved :the liquidity-preference, the supply of money, the marginalefficiency of capital and the propensity to consume. But it isthe last one which is stressed most. This under-consumptiontheory is to be found in many passages of the General Theory andin numerous writings of Mr. KEYNES' followers; it seems to refer1 General Theory, page 297t Ibid., pages 313 et seq.