Prosperity and Depression.pdf

34° Nature and Causes of the Cycle Part II§ 9. .WHY DOES THE PRODUCTION OF PRODUCERS' GOODSAND DURABLE GOODS FALL FASTER THAN THE PRODUCTIONOF CONSUMERS tGOODS AND PERISHABLE GOODS?Assuming the ratio of durable means of produc­The operation tion (machines) to labour and raw material (workingof the capital) required for the production of a unit ofacceleration output to be' rigidly fixed (within a certain rangeprinciple of output) by technological considerations-anin the assumption which would seem to be a good approxicontraction.mation in the short run-the acceleration principle!readily explains why demand for, and consequentlyproduction of, durable producers tgoods and the various materialsrequired for their production falls more rapidly than the demandfort and production of, the finished product.When in,the upward phase of the cycle all branches of theeconomic system are expanding and production and employmentare increasing in all industries, the producers' goods industriesand especially the durable-goods industries experience a particularlyrapid growth. When the system stops expanding or even curtailsoutput, people naturally stop adding to their fixed equipment.It is not at all paradoxical that no newinvestments should be madewhen the existing equipment is insufficiently employed owingto the fall in the demand for the product. The production ofdurable means ofproduction is reduced to the replacement requiredfor the maintenance of capacity and, in 'many lines of industry,virtually no replacement may be needed for some time in viewof the fact that, during the preceding boom, the equipment hasto a large extent been renewed, presumably on the most up-to-datelines.. If the depression is particularly severe and long-drawn-out,it is possible that even replacement will be neglected and capacityallowed to shrink.We may put the matter in a different way. Suppose consumers'demand falls to a certain level and production is curtailed so asto bring the output down to the level strictly required by the new1 Compare § 5 of this chapter and §§ 17-24 of Chapter 3.