Prosperity and Depression.pdf

Nature and Causes of the CyclePart IInumber of industries will be developed to a level which they canmaintain only if other industries (or the system as a whole) go onexpanding at a given rate. Quite apart from any limits whichmay be set by insufficiency of demand or any other cause, thisrate of expansion is feasible only so long as there is a fairly elasticsupply of unemployed factors of production. This type ofmaladjustment is not so likely to arise, or at least to develop to thesame extent, ifan expansion starts from full employment. In thatcase, it will very soon encounter strong resistance in the shapeof steeply rising costs, and it is not likely that any considerablenumber of industries will be able, by'the installation of highly, durable equipment, to. adapt themselves to'a rate of expansion inother industries which it is not possible to maintain. At any rate,the danger of the development of a serious maladjustment in' thestructure of production is much grea.terin the case where anunusually rapid expansion all, along the line is mflde possible bythe existence of unused resources which are gradually drawn irltoemployment than in the other case where, we start from fairly fullemployment. If a certain industry expands production and henceincreases its demand for producers' goods (say, machines), theproducers of these machines will, hardly jump at once to theassumption that this increased demand will continue to be forthcomingfor a very longtime. Consequently, they will not atonce adopt the most up-to-date capitalistic methods of productionrequiring the installation of highly durable plant whichcannot be amortised except over a considerable period ofactivity on an enlarged scale. The longer, however, an expansionof production in various directions continues unobstructed, themore optimistic will become the expectations as to its futurecontinuation at the same or an increasing' rate. Producers in anumher of industries get accustomed to a level of demand whichcannot continue for ever: possibly they are 'led to expect a risingdemand, or even rising prices-which' are still ·'less likely to belong m~tained. It is very improbable" therefore, that thesystem will be in equilibrium when it ,approaches the upper limitof the expansion. The mere cessation, or even the slowingdown,of the expansion will produce aserio~ setback in anumber of industries; and this may very well lead to a general