Prosperity and Depression.pdf

Chap- 9Definition of the Cycleand prosperity is what we should normally expect. What callsfor explanation is, in the first place, the duration and wide amplitudeof the fluctuations-particularly those in the negative direction,since the upward movement, the approach to full employment,might be explained as a natural conseGuence of the inherenttendency of the economic system towards equilibrium. Why dowe not-find short irregular oscillations around a trend, but longswings in both directions?It is not merely, however, the magnitude of the fluctuations,but their peculiar nature, which constitutes the problem of thecycle. What that nature is can be indicated at this point onlyin negative terms. With the positive explanation of these fluctuations,the whole of the rest of this study is concerned. Themysterious thing about them is that they cannot be accountedfor by such cc external" causes as bad harvests due to weather conditions,diseases, genetal strikes, lock-outs, earthquakes, the suddenobstruction of international trade channels and the like. Severedecreases in the volume of production, real income or levelof employment as a result of crop failures, wars, earthquakesand similar physical" disturbances of the productive processesrarely affect the economic system as a whole, and certainly-do notconstitute depressions in the technical sense of business-cycletheory.l By depression in the technical sense we mean thoseprolonged and conspicuous falls in the volume of production,real "income and employment which can only be explained by theoperation of factors originating 'within the economic systemitself, and .in the first instance by an insufficiency of monetarydemand and the absence of a sufficient margin betwec;p price andcost.If external disturbances -of the kind referred to have a causalrelation to the occurrence of depressions in the technical sense-"­which is unquestionably the case-it is not so much the materialobstruction of the production process that accounts for the fall1 This by no mea.ns excludes the possibility of such external disturbanceshaving a:ij indirect influence on the business cycle in the technicalsense. On the contrary, we shall see that those disturbances play theirrOle by starting or reversing" retarding, or accelerating, internal processesof eJq>ansion and contraction of output and employment.