Prosperity and Depression.pdf

Recent Developments in Trade Cycle TheoryPart IIIoperations. Does this imply that there is nothing to choose betweenthem? In a sense it does imply that. If all data are given, it does notmatter which formula we use. Formula (2), however, requires moredata than either one of the others; this makes it less useful. Formula(3) does not require more data than formula (I). It is true it containsthe q' factor, which is not explicitly contained in (I). But this factordefined as ~ can be computed from items contained in formula (I).YFrom the practical-statistical point of view the situation is somewhatdifferent. We never have complete statistical information on all themagnitudes of the formula. If we had, there would be no point ingoing to all the trouble of calculating the multiplier. The essence ofthe matter is that the multiplier analysis is a useful device, only if-andin so far-as the multiplier can be assumed to be fairly stable over time(or else if its law of change were known), so that it cart be determinedindependently and be extrapolated with some confidence. If it weresubje~ to just as rapid and unpredictable changes as the multiplicandand hence had to i be computed for each period anew there would be noadvantage in separating the determining factors of national income (orof anything else) into a multiplicand and a multiplier.We ·saw 1 that an attempt has been made to establish the relative stabilityof the ordinary multiplier in a closed economy by Hnking i,t withcertain psychological traits in the huma~ mind,. namely, with the "propensityto consume" in the psychological sense, which can be assumedto be stable with.a certain plausibility. We saw also that the link betweenthe multiplier and its psychological basis is not so close as thefirst proponents of the multiplier believed it to be and that the stabilityof that basis itself maybe less than it was thought. But let us assumethat these doubts are exaggerated and that as a matter of statistical fact-by chance, we almost might say-the multiplier, is sufficiently stableto make it a useful analytical device. Is there a reason to believe thatthe more complicated multipliers of formula (2) and (3) are morestable, or at least as stable, as the simpler one of formula (I)?It has never been maintain~d that,it is (because the problem hasnever been approached from this point of view) ; but since the formulae(2) and (3) contain the factor q and q' in addition to c, there is a1 Chapter 8, § 4.