Prosperity and Depression.pdf

Recent Developmenti in Trade Cycle TheoryPart IIIbe an increase in aggregate effective demand. This reasoning canreadily be applied to export and import industries when exports andimports both rise or fall.The point is that what will happen depends on special conditions,whilst in the case of an excess of exports over imports (or the opposite)the primary effect is clearly stimulating (or depressing). It follows thaton the level of abstraction and simplification on which ,the multiplieranalysis is carried out traditionally" dealing as it does with broad aggregatesand averages, only an excess of exports over imports can be regardedas a stimulating factor, whilst a parallel shift upward of bothexports and imports must be assumed to be neutra1. 1There is, of course, an entirely different situation if, following anincrease in exports, imports rise with a Jag. Then there is temporarilyan export surplus. It is possible that the secondary and tertiary effects(multiplier plus acceleration effect) of this export surplus are so strongthat the subsequent rise in imports will not interrupt the expansion.In other words, a cumulative process may be started which gathers momentumso that it is not interrupted by a lat~r rise in imports. But sucha development can no longer be understood and analysed by means ofthe multiplier alone.Messrs. CLARK and eRAWFORD introduce foreign trade into the multiplieranalysis with the following statement: "In the short period thereis no necessity that an increase of exports should be followed by anincrease of imports, and, therefore,2 an increase in either the volume orprice of exports will generate income without increasing the quantity ofgoods available and thereby start an upward fluctuation." 3 This state..ment implies or' at least suggests that an increase in exports will exert a1 Those who maintain that changes in exports must be put into the multiplicandirrespective of whether they are or are not accompanied by parallelchanges in imports, may have a point; but t1ley are stepping outside the multiplieranalysis. There is no objection to that provided that the conditions underwhich the stimulating effects of the increase in exports exceed the depressingeffects of the increase in imports are precisely stated. This haSt in fact, notbeen done. It is worth noting that, if the case is correctly stated, it followsthat also a decrease in exports may have to be regarded as a stimulating factorif it is accompanied by a decrease in imports, because the stimulating effects feltby the industries favoured by the fall in imports may be greater than the depressioncaused in the export industries.2 Not in italics in the original.3 op. cit., page 93.