Prosperity and Depression.pdf

288 Nature and Causes of the Cycle Part IIwill be shown that the economic system. becomes increasinglyvulnerable when it approaches full employment, and that there isa consequent possibility that the full employment level will notbe fully attained or, if attained, will not long persist. But forcompleteness' sake the question must be considered.Obviously, after full employment has been reached, output canno longer expand at the same pace as before, since there are noidle factors which can be drawn into employment. But it canstill expand in so far as improved methods of production areintroduced, the working population grows, and additions aremade to the capital stock.Monetary expansion can of course go on, just as before; butthe consequences will not be the same.As more and more unemployed factors ofproduc­From rise in tion are drawn into employment, the supply ofOlltpllt to rise factors of production and of goods in generalin prices. becomes more and more inelastic, and a constantexpansion in terms of n10ney will lead to a smallerand smaller increase in output and to a larger and larger rise infactor and commodity prices. In other words, at the beginning ofthe expansion, a large part of the increase in monetary circulationwill have been absorbed by a rise in the' output and turnover ofgoods, and a smaller part by increasing prices. When fullemployment is being gradually approached, this necessarilychanges.So .long as the supply of factors of production is plentiful andelastic, output can be increased all along the line at the same time.For reasons which will be discussed in § ~, the output ofproducers'goods and durable goods rises much faster than the output ofconsumers' goods. When one category of factors after the otheris becoming scarce-the transition to full employment is of coursegradual and not sudden-it becomes more and more difficult toexpand at various points at the same time. If one industryincreases its demand for means of production and succeeds inattracting labourers by offering higher wages, it lures them awayfrom other industries. The same holds true of raw materials andsemi-finished products. The expansion ofthe industry is possibleonly at the expense of a contraction somewhere else.