Prosperity and Depression.pdf

8 AnalYsis of Theories Part IAmong factors, furthermore, which can in principle be controlled,there are those which one does not find it desirable, for one reasonor another, to control or to eliminate altogether-e.g... inventions,or the liberty of the recipient of income to spend his income orto save it, or to exercise freedom ofchoice in regard to his consumptionor occupation. Needless to say, opinion as to what it ispossible and desirable to control or influence varies from time totime and from person to person.A more usual if less pragmatic classification is that of causeswhich originate within and causes which originate outside theeconomic system. Wars, inventions, crop changes (so far asthey depend on the weather and are not economic adjustments tochanges in demand, prices or cost), spontaneous changes in demand(so far· as they are due to changes in taste and are not simply areaction to changed supply conditions) are examples of outsidecauses. Changes in production due to changed demand conditions,price changes due to rise in cost, intensified demand forproducers' goods due to changes in demand for consumers' goodsare examples of economic causes. But what is to be called aneconomic and what a non-economic factor or circumstance is frequentlyrather a matter of convention than of argument.Closely connected with the distinction betweenExogenollJ and economic and non-economic factors and causes isendogenollJ the distinction between "exogenous" and "6ndog,-theories. nOlls" theories of the business cycle. Exogenoustheories are those which assume external disturbances-e.g.,crop changes or inventions-in order to explain thebusiness cycle. Endogenous theories rely exclusively on move..ments which can be explained economically. This distinction, too,is not always definite. Is the monetary theory, which explains thebusiness cycle in the light of certain actions or a certain policyon the part ofthe banking authorities, to be regarded as exogenousor endogenous? If the banks lower the rate of interest, therebyinducing a credit inflation, their action will presumably be regardedas an exogenous factor: but suppose they do not raise the ratesufficiently in face of a rising demand for credit (due, e.g., to inventions)with the same result in the shape ofa credit inflation-is thatthe operation of an exogenous factor?