Prosperity and Depression.pdf

Chap. 10The Expansion Processcommunity, and incolne currently available for consumption. Thisdistinction rests upon the fact that, in the real world, incomeearned is. distributed, not continuously, but periodically. Wagesare paid weekly, salaries monthly, dividfnds quarterly, half-yearlyor yearly : rents are paid at similar intervals; while farmers'incomes also come in to a considerable extent annually. Thereare, of course, exceptions to this rule, particularly in small-scaletrade and handicraft where entrepreneurial withdrawals may takeplace practically continuously; but the exceptions are of solittle practical significance that they may be neglected in considerationof the immense analytical advantage of such a simplification.The fact that incomes are earned continuously, expendedcontinuously, and distributed periodically has the consequence ofcreating a time-lag between the monlent when a given sum isearned and the moment when it becomes available for expenditureon consumption. On the average, wages are available· for expenditurehalf a week after the moment of earning, salaries half amonth later, dividends (assuming six-monthly payments) a fewweeks to almost a year later, and so on. Of all the incomeearned at a given moment, part will become available forexpenditure almost immediately, and other parts at variousintervals up to (say) a year.This distinction between earned income and available incomeis of considerable importance in the description of theprocess of change in investment and in total demand, throughtime.If in any short period chosen as a unit of timeSupplY from the income currently earned (that is, the sum ofinflationary consumption expenditure and investment) exceedssources. the income available for expenditure, the excessmust be financed out of inflationary sources. Thatis to say, the hoards of individuals and the reserve proportions ofbanks must-in the absence of State inflation-be diminished incomparison with the previous period.Thus the money invested to-day is financed partly by savings outof income earned yesterday and becoming available to-day, andpartly by inflation. But all that is invested to-day, inclusive ofthe