Prosperity and Depression.pdf

Nature and Catlses 0./ the CyclePart IIand, as such, are included in "real income". The absence ofprofits-or losses-in this, the strict, sense of the word is the veryessence of perfect equilibrium of the economic system; and a stateof Rerfect economic equilibrium, with full employment of allavailable resources, is surely a state ofhigh prosperity.The term " loss " also lacks precision. An individual, commercialloss need not be a loss to the community. The invention ofanew productive process, for example, may involve losses on thefixed plant used in the process supplanted : but such losses do notconstitute a deterioration in the economic situation of thecommunity. Profit-and-loss statistics are no doubt a valuablesymptom of the business cycle in the technical sense : but theyare not an unfailing criterion of the business cycle in the generalsense. (§ 3).Our employment- and production-criterion seems to expressprecisely what is meant by cc economic activity", which isfrequently used, more or less loosely, as criterion of prosperityand depression. Evidently, if it is to be at all useful as such acriterion, the concept must be capable of quantification, and if weask ourselves how the· degree or intensity of economic activity isto be measured, the answer will be in terms either of input oroutput, in terms, that is to say, of the· effort applied or the resultachieved. This is doubtless equivalent to measuring it in termsof employment (not necessarily of the available labour factoronly) or ofproduction.§ 3. THE BUSINESS CYCLE IN THE GENERAL SENSE ANDIN THE TECHNICAL SENSEThe business cycle in the general sense may be defined as analternation of periods of prosperity and depression, of good andbad trade. This definition is, however, provisional, for it isobviously too wide. It covers more than the business cycle inthe technical sense of business-cycle theory. That the generaleconomic situation is subject· to fluctuations, that the volume ofproduction, national income and level of employment shouldsometimes be above and sometimes below the average or trendis not indeed surprising. An alternation of periods of depression