Prosperity and Depression.pdf

Chap. 13 The Multiplier, Rigidities and Public Spending 469stimulating influence, only if-and insofar as-it leads to an export surplus;in other words, if it is not at once offset by an equal rise in imports.Later on, however, the two authors distinguish between whatthey call ttautonomous" and ttconsequential" changes in imports. 1 Thedistinction is not unimportant. Consequential changes in M are thosewhich are induced by prior changes in income. Autonomous changesare those caused by other factors, e.g., tariffs and other protective measures,currency depreciation, changes in consumers' demand. Mr.. CLARKbelieves that in the case of Australia they succeeded in separating statisticallythe two types of import changes. Autonomous changes-decreases--in AtI they found in the years 1928-29 and 1929-3° and instead oftaking care of this factor by adjusting the multiplier, for these two yearsthey made allowance for the ttautonomous" changes of imports in themultiplicand. 2This procedure could possibly be defended on the ground that itmakes the multiplier a more stable and predictable magnitude.s Mr.CLARK gives, however, another reason which is very misleading and hasactually led him into error. He points out, rightly, that "an autonomousincrease in imports has exactly the same effect as a decline in ex-1 Loc. cit., p. 95. See also Clark's paper, "Determination of the Multiplier",in Economic Journal, September 1938, page 438 et seq. and his "Comments onMr. Robertson's note", Economic Journal, June 1939, page 356. See also WilliamA. Sillant, "Foreign Trade Policy in the Business Cycle" in Public Policy, Vol.II, 1941, pages 208-231.2 Hence their formula is, strictly speaking, not (3), but a slightly differentone which may be written: V + X - M a .I,I - C + qwhere M a denotesautonomous imports and q' is redefined so as to represent the ratio of M - M a( ,tconsequential" imports) to. Y.S This presupposes, of course, that autonomous changes in imports are nottoo frequent or else can be predicted and measured from independent sources.Unfortunately, this will rarely be true, as Mr. Clark's own experience with theEnglish case shows.The matter throws further light on the limitations and presuppositions of themultiplier technique as such. Even in the ordinary multiplier for a closed economyit may be necessary or at least useful to distinguish between autonomousand induced changes in consumption. For clearly consumption. may change forother reasons than prior changes in investment. Such changes in consumptioncould and should be taken care of by putting them into the multiplicand (ratherthan by adjusting the multiplier). In the case of "collective consumption" throughgovernmental channels this is actually done, though under the guise of treatinggovernment expenditure as "honorary investment" as Professor Robertson hasput it.