Prosperity and Depression.pdf

Recent Developments in Trade Cycle TheoryPart IIIof ideal which may perhaps be reached in the future but is far fromrealisation at present. What we now hold in our hands are shortthreads, and any fabric woven of such material must be tentative andfull of loose ends. In other words, we have only short causal links,some of untested strength, which in many places can be connected onlyby tentative hypotheses and hence cannot yet be forged into a solidband capable of spanning whole cycles. We must always be on thelookout for possible modifications and improvements of the tentativemodels which we set up. Turning point theories and analyses of particularturning points. may be regarded as phases of model constructionor modification. There is always the possibility that we may find itnecessary or expedient to explain a turning point by going outside orInodifying a model which we may have set up tentatively instead, ofby applying it. To go back to the example mentioned before, we maysay that the turning point bet~een period 4 and 5 would not haveoccurred (at that time, or not at all) if the marginal propensity to consumeor the relation were greater than assumed. Or we might go stillfurther outside the model and' say that the, turning point would comeearlier, if the marginal propensity to consume were assumed to becomesmaller when income increases and vice versa (instead of being constant).'Thus, special turning point analyses seem to be called for not onlyfor the purpose of testing but also for. the construction of theoreticalmodels. The testing of assumed relationships would seem to be particularlyfruitful under the most extreme circumstances (maximum andminimum output and employment) offered by the business cycle, that isat the turning points. Relationships which hold well to a, constantlevel during long stretches of, say, the upswing, may change their valuewhen full employment is being approached. The marginal propensityto import may be an example.We may summarise by saying that special turning-point theories havetheir place in business-cycle analysis, although it may eventually bepossible to incorporate them into a general theory which is capable ofexplaining the cycle in all its phases.We now turn to some specific theories of the upper turning-point.