Prosperity and Depression.pdf

474 Recent Developments in Trade Cycle Theory Part IIIof these two relationships only cannot claim to be realistic. Of this theirauthors are well aware, but it'seems that most of them believe, and theycertainly convey the impression, that the factors and relationships whichenter these models are more important than those stressed in oldertheories: changes.·in price levels, interest rates, wage rates, efficiency oflabour, etc., have receded somewhat into the background.The following writers may be mentioned in this connection: Mr. N.KALDOR,l Mr. M. KALECKI,2 Mr. E.- A. RADICE3 and Professor P.SAMUELSON. 4Of these schemes, the one worked out by Professor SAMUELSON isthe simplest .and at the same time technically most perfect. It statesall assumptions clearly and is therefore best suited as a starting pointfor the discussion of some general principles underlying this type ofanalysis.Following a suggestion by Professor HANSEN, Professor SAMUELSONhas elaborated the pure multiplier model sequence of the type representedin Table I of the preceding section by assuming that changes in.".~onsumption induce private investment. The tCadditions to the nationalincome consist [now] of three components: ( I) governmentaldeficit spending, ( 2) private consumption expenditure iriduced byprevious public expenditure, and (3) induced private investment, assumedaccording to the familiar acceleration principle to be proportionalto the time increase of consumption." 5 In the pure multiplieranalysis only the first two components are considered.1 "A Model of the Trade Cycle," Economic Journal, March 1940, page 78.Mr. Kaldor's analysis is somewhat encumbered by the use of the clumsy andvague terms ex ante and ex post saving and investment. Moreover, investmentis made a function of the level of "activity" rather than its rate of change,which makes his model a shade more unrealistic than the others. But as far asits formal structure is concerned it can be translated into a straightforward dynamicsequence or period analysis.2 "A Theory of the Business Cycle", Review of Economic Studies, February1937, reprinted in Essays in the Theory of Economic Fluctuations.3 "A Dynamic Scheme for the British Trade Cycle, 1929-193i', Econometrica,Vol. 7, ]an,uary 1939. This is the only attempt to apply such a simple schemeto a concrete case.4 P. A. Samuelson, "Interactions between the Acceleration Principle and theMultiplier," Review of Economic Statistics, May 1939, and "A Synthesis of thePrinciple of Acceleration and the Multiplier", The Journal of Political Economy,Vol. 47, December 1939.5 Review of 'Economic Statistics, Vol. 21, 1939, page 75.