Prosperity and Depression.pdf

Chap. 10The Expansion Processthe slump-largely as a consequence of the increased real weightof social services, maintenance of unemployed and national debt­Governments are normally forced into budget deficits which· we ­may regard as dissaving. During the upswing, these deficitsdisappear and may even be succeeded by budget surpluses.The considerations set forth above are applicableSaving during to the expansion in its beginnings and in its heyday:the later but, as the boom reaches its height,. they may loseexpansion. some of their force. There are reasons for theview that, in the later stages ofan expansion, peoplebegin to spend once again a larger proportion of their availableincomes.Workers, farmers, and business-men alike will probably haveaccumulated a certain amount of debt during the depression,which represents a psychological burden and a threat to theirsecurity out ofproportion to the actual money burden ofinterest.Any additional income coming their way during the expansionwill be used to a considerable extent to repay these debts. Oncethis is accomplished, however, it is very unlikely that the samerate ofsaving will be maintained merely with the object of addingto capital. A larger proportion of incomes received will temdto be spent; and the consumers' goods trades will receive a fillipthereby, which will transmit itself, if there is still a sufficiencyof unemployed funds and physical resources, to ~e investmentgoodstrades. The new 'Ian which will thus be given to theexpansion will provoke a further fall in the proportion of incomesaved, because the business world \vill be aware that bigger profitsare being-made and bigger dividends will in due course be distributed,so that a spirit of confidence will spread, which is veryfavourable to spending.Another influence may nlake its appearance which will havemore or less effect according to the social and economic structureof the country concerned. Rising business .profits, and theanticipation of a continuance of rising profits, will bring about arecovery of equity values on·the stock exchange. As time goeson, this boom may interest a larger and larger number of peoplein a speculative capacity. They may be disposed to utilise gainson the stock exchange as additional income, or they. may feel