Prosperity and Depression.pdf

47° Recent Developments in Trade Cycle Theory Part IIIports" and will "neutralize the stimulating effect of an [equal] rise inexports." But he continues that this is not true in the case of consequentialincreases in imports.! This reasoning cannot be accepted. Anyincrease in imports, whether of the one or the other sort, is a negativefactor, a "leakage." 2 According to Mr. CLARK'S own formula, iteither reduces the multiplicand or the multiplier, the latter throughincreasing q', the propensity to import. 3 It is misleading to say thatwhile autonomous changes in imports are a cause, consequential changesare an effect of changes in national income. 4 If consequential importswere different from what they are, that would clearly influence nationalincome in the next period. They are "causally relevant," although byassumption they can be explained as the effect of a change in income ina previous period.The essence of the matter is that all these new concepts as the marginalpropensity to import, the multiplier, etc., become really useful onlyif they are a part of a truly dynamic theory, that is to say, a period orsequence analysis which carefully distinguishes between successive periods.Such analyses were clearly envisaged by Professor ROBERTSON inhis saving-investment-hoarding studies and have been worked out in increasingnumber by such writers as LUNDBERG, TINBERGEN, SAMUEL­SON, etc. In such a scheme there is then no difficulty in assigning adual role of cause and effect to the various elements. 5 A rise in export1 Economic Journal, September 1938, pages 438 and 439.2 It must not be forgotten, however, that imports will affect favourably nationalincome of the countries- where they are exports. This will lead to increased exports-"consequentialexports" of the first country. Hence imports cannot betreated unqualifiedly as leakages. Only if we deal with a small country as againstthe rest of the world can that be done. (See on this point Machlup, "PeriodAnalysis and Multiplier Theory," Quarterly Journal of Economics, Vol. 54,November 1939, page 21.)3 In the English case, Mr. Clark was not able statistically to separate autonomousfrom consequential changes in imports. He deals with this situation byputting all imports into the multiplicand, which becomes V + X - M as informula (I). Naturally he has to adjust the multiplier, making it larger ascompared with (3). However, on the theory that the multiplicand has beenmade too small by deducting not only autonomous but also consequential imports,he overad;usted the multiplier, making it larger than in formula (I). He thusobtains a formula whi~h is clearly wrong. (For details see Professor Robertson'snote, page 355, and Villard, loco cit., pages 172-5.)4 National Incof' e of Australia, 1 page 100.5 In Professor Tinbergen's statistical models, imports and exports have alwaysfigured among the variable elements. A theoretical model a la Lundberg, withspecial reference to imports and exports, has been constructed by Mr. SvendLaursen in an unpublished doctoral· thesis (Harvard 1941 ).