Prosperity and Depression.pdf

2.68 Nature and Causes of the Cycle Part IIin the volume of production as the peculiar response of theeconomic system. lThe continuance of production is materially perfectly possible.The necessary capital equipment is there; so is the labour-power :so are the raw materials and semi-finished products. Yet somehowa large part of the factors of production cannot be put to work;the economic machine does not function smoothly : the pricesystem is out ofequilibrium.§ 4. BASIC FACTS ABOUT THE BUSINESS CYCLEIn any attempt to apply our fundamental criteriaFour phases of prosperity and depression in order to locate andofthe cycle. measure in exact form, over any considerable lengthof time, the phenomenon which is the subject ofour study, we are at once confronted with the difficulty that thestatistical data, especially for the earlier periods,;before the warand in the nineteenth century, are very inadequate. Indices ofnational income and employment (or unemployment) are veryunreliable, and in the case of a number of countries do not existat all. Indices of the volume of production are also far frombeing complete or sufficiently representative.The fluctuations with which we are concerned are, however, somarked and extend over such a wide range of phenomena that itis possible to identify them with a high degree of accuracy on thebasis of the existing·material, even in periods for which the latteris not so complete. We begin with the attempt to determinethe length of the successive periods ofprosperity and depression inthe case of a number of countries by fixing as exactly as possiblethe turning-points from boom to slump and slump to boom. Thewhole cycle is divided into four phases or parts:(I) The upswing (prosperity phase, expansion);1 This is clearly revealed by the fact that external disturbances, suchas a war or an earthquake Jwhich directly obstruct the productive processand destroy wealth, nevertheless frequently tend tq bring about,an expansionrather than a contraction of employment and productjon.