Prosperity and Depression.pdf

Chap. 10This statement requires elucidation in various respects. l First,a word of justification must be said. about the inclusion of amortisationquotas. This corresponds to' the inclusion of replacementunder investment on the demand side. For the individual firm,the setting-aside of amortisation quotas out of total receipts andtheU expencli.ture for replacement of o~twOttl equipm.ent do notalways coincide in time. Amortisation will usually-though notnecessarily-be a continuous process, whereas the replacement ofdurable means of production is usually discontinuous. For theeconomy as a whole t both processes are more continuous and runparallel. During any period of time, a number of firms use theiramortisation quotas to accumulate balances or to repay loans, thusadding to the supply ofinvestible funds in the market, while othersdraw on their balances or borrow from the market in order toreplace their equipment. The reason why it seems advisable toinclude replacement on the demand side and amortisation quotason the supply side has been given above. Since, however, duringthe process of expansion with which we are now c;:oncerned' netadditions to the capital stock are supposed to be made (whateverthe exact definition of this magnitude may be), we may deduct1 Compare also Chapter 8. § 2. V must not· be interpreted for ourpurposes as' &c transaction velocity n. I have not outrightly definedit as income. velocity, because of the difficulties connected with thedefinition (not to speak of those connected with the measurement) of,." income. As Mr. Hawtrey points out (see his review of the firstedition of thiS book, E&OnOm'&a.Vol. V (New Series), February 1938,page 94). the use of the concept of" trade velocity " also presents certaindifficulties for our purposes, because &C MY so defined includes all. purchasesof goods by one trader from another. But such purchases. whetherfor the purpose of use as materials in manufacture or for simple resale,. donot take the goods 011 the market. The goods continue to be offeredfor sale tI. Mr. Haewtrey would ,prefer a " final-purchases velocity ".and would include the purchase of new investment goods (e.g•• of amaethine) in the volume of final purchases. But what is the relevantdifference between the purchase'ot .raw material (say coal) for manufacturewhich will eventually be sold in the shape oftOutput as, say. pigironand the purchase of a not very durable machine whkh \fill also besold in the shape of its services which enter the output? Mr. Hawtreyseems to have overlooked that a qualifieation has been made a~ut thedegree of " integration" of industry. (Chapter 3, § 6), which seems toexclude from MY precisely those changes in the volume of purchaseswhich Mr. Hawtrey Wishes to exclude.