Prosperity and Depression.pdf

Chap. 13 The Multiplier, Rigidities and Public Sp-ending 50 7it is not undertaken, investment will collapse and depression set in.Only by bringing the propensity to consume under control, could thedilemma be avoided. 1In recent years pre-war armament booms and war booms offer severalexamples of essentially similar situations, although tremendously complicatedby other factors which cannot be gone into at this point. Germanyin her armament boom reached virtually full employment roundabout 1935. If at that time she had stopped or curtailed armamentexpenditure, investment industries would have collapsed. A. simplecontinuation of expenditures, on the other hand, would have led straight-into price inflation. Hence a complicated policy of controlling con-~~umption (and of private investment and many other things) had to beevolved. Great Britain entered this phase during the war and theUnited States is entering it only now. But it is not the purpose of thisbook to deal with war economy.1 The question may be asked: what would happen in this case if wages andprices were perfectly flexible? What are the implications of our analyses in thepreceding section upon the present case? The answer seems to be that no unemploymentcould result, but probably at least a temporary drop in investmentactivity could not be prevented and hence real wages would have to fall to a lowlevel. The case needs, however, further analysis for which space is lacking.