Prosperity and Depression.pdf

Chap. IIThe Down-turn : Crisiswrong to think that there is no danger of a rapid rise in pricesfrom an expansion so long as there is considerable unemployment.We may sum up the findings of this section asConclusion. follows. During the course of an expansion whichhas started from the depth of a depression, theeconomic system becomes the-more vulnerable the nearer fullemployment is approached. That is to say, on the one hand thesystem becomes more sensitive to deflationary shocks, and on theother hand the deflationary possibilities of certain changes becomeaccentuated. .§ 5. DISTURBANCES CREATED BY THE PROCESSOF EXPANSION ITSELFHaving now shown that, with the progress ofOrganic expansion, the economic system becomes more andmaladjustment. more sensitive to deflationary shocks, and thatcertain changes in demand and production whichmay occur at any time become more and more liable to produceon balance a deflationary rather than an inflationary effect, weproceed to enquire into the likelihood of the expansion itself (orcertain more or less regular features of the expansion process)giving rise to serious maladjustments in the body economicwhich operate as starters and intensifying factors of a cumulativeprocess of contraction. The analysis of existing theories of thecycle has furnished a number of hypotheses. Few of these seemto be definitely wrong or a priori impossible. What is unsatisfactory,however, is the exclusiveness with which many writersproclaim one or other of these hypotheses as the only possiblesolution. Our task therefore will consist in setting out in aexpansion might have been directed to the consumption industries butfor the programme of rearmament, under which Government orderscontinued to be concentrated on investment-goods industries. In spiteof the possibilities of·expansion in the direction of the consumptionindustries, a continuance of the policy of financing orders for the investmentindustries by credit expansion would have meant (the writer argues)a transition from compensatory to inflationary credit expansion; and itwas for this reason that increased resort was had to taxation and to thesavings of the public for the purposes in question.