Prosperity and Depression.pdf

410 Nature and Causes 0.1 the Cycle Part IIactivity the less scope there will be for local or regional monetaryexpansions and contractions.In seeking to picture an expansion from the point of view ofany particular country or area, we must bear in mind the factthat each locality is differently placed in respect to the givendistribution of economic resources over the earth's surface. Eachlocality has its own characteristic potentialities. for the productionof different goods and services, and its own characteristic constellationof transport costs affecting its exchanges with other centresof production. As a result, a fortuitous increase in the monetarydemand for goods and services in one area may tend to confineitself to that area, whereas in another area an increased demandmay rapidly overleap its own borders. lIn a country like the United Kingdom, for example, the primaryincrease in income will be spent very largely on products (food,textiles, and so on), the earlier stages of whose production arelocated abroad. Thus, a considerable portion of the expenditureof secondary and subsequent income increases will· be drained offto agricultural countries; and the favourable repercussion onBritish exports may be small and long delayed. A similarargument will apply to a country like New Zealand, whose inhabitantswill spend a considerable portion of a~y increase in incomeon the manufactured products of the United States and Europe.On the other hand, we may take the United States as an exampleof a country in which only a very small proportion of an increasein consumers' incomes will find its way abroad.It is necessary, however, to keep in mind, not only the expenditureon consumption goods, but also· the expenditure on investmentgoods which is to some extent dependent on the former. Inan undeveloped country, without heavy industries, the process ofmonetary expansion by way of reciprocal stimulation of consumptionand investment-the so-called Wicksellian process-will beof minor importance. If a revival of British industry takes place,it provides n ~timulus for the building and extension ofplant. The1 Ct. the interesting article by F. W. Paish, U Banking Policy and theBalance of International Payments". in Economica. Vol. HI (New Series),November 1936.