Prosperity and Depression.pdf

Chap. 13 The Multiplier, Rigidities and Public Spending 467prima facie assumption that the more complicated multipliers are lessstable. than the simple one.!'Since formulae (2) and (3) c~ be converted into (I) by simplealgebraic 'operations, it is not a valid argument to say that (2) and (3)are -superior to (I) for the reason that what .generates income and actsas a stimulant is an increase in exports, as such, rather than in the excessof exports over imports (foreign balance). This idea seems, however,to be in the mind of many writers on the subject. Mr. HARROD,for example, puts forward a.lengthy argument to the effect that whatmatters is "volume of exports" rather than "excess of exports." 2 Buthis reasoning is unconvincing, though here only.a few remarks will bemade. In Chapter 12, above,s it has been discussed at great lengthunder what kind of international monetary arrangements a change inexports (imports) brought about by (say) a tariff or a shift in demandwill be automatically offset by an equal change in imports (exports) 4 ;and under what circumstances or assumptions a parallel shift in exportsand imports (in contradistinction to an export or import surplus)will be a stimulating· or depressing factor. There it was pointed outthat an increase in exports accompanied by an increase in imports (withouta lag) is equivalent to a shift in demand from goods displaced byimports to export goods. Similarly a simultaneous decrease in exportsand imports is equivalent to a shift in demand from export goods togoods competing with imports. Now, it is not impossible that a shiftin demand will, on' balance, stimulate aggregate effective demand (cf.pages 99-100, above). If new investment in plant and equipment areinduced in the industries where demand has risen and only replacementof outworn equipment falls away where demand has fallen, there will1 There is, however, the logical possibility' that (-(q (or c-q') is more stablethan either ( or q (or q') if there were a tendency for fluctuations in both elementsto offset one another. The writer cannot, however, think of any goodreason why. that should be the case and it has never been asserted that it is.Clark and Crawford in their Australian study determine ( and q' separately andassume them both constant over the relevant period, implying that their sum isnot more stable than each part.2 International Economics, 2nd ed., 1939, page 143, et seq.s Page 444, ff.4 A strictly bilateral clearing system which· completely excludes currency andcapital movements by preventing the accumulation of clearing balances is a casein point. Under most other arrangements temporary balances do occur, but exchangerontrol usually holds them down to small proportions.