Prosperity and Depression.pdf

Chap. 3 The Over-investment Theories 45this may mean that the latter have been" forced" to save (againstth eir will) by the directors of the corporation. Professor VITObelieves that this type of forced saving is likely to cause the sametroubles as the type envisaged by Professor HAYEK. 1§ 4. THE DOWN-TURN (CRISIS)Why must this process. ofmonetary expansion and heavy investmentalways end in a collapse? Why does it not go on indefinitelyor tail off into a more -stable situation ?According to the over-investment theory, this isAbandonment impossible, because, by the artificial lowering oftheof over- interest rate, the economy is lured into long roundcapitalisticabout methods of production which cannot beprocesses. maintained permanently. The structure ofproductionbecomes, so to speak, top-heavy. Forces areset up· which tend to restore the old arrangement. For some time,increasing advances by the banks enable entrepreneurs to carry onconstruction by the new roundabout methods. But sooner orlater-and the later ithappens the worse the result-it becomes clearthat the newly initiated extensions of the structure of productioncannot be completed, and the work on the new but incompletedroundabout processes must be discontinued. The investmentboom collapses and a large part of the invested capital is lost.Before discussing in detail how this comes about and whatthe external symptoms are, it will be useful to make the broadlines of the argument clearer by comparison with a centralisedcommunistic economy.The Russian Five-year Plan was a supreme effort to increasethe " roundaboutness " of production and thereby the future productionof consumers' goods. Instead of producing consumers'goods with the existing rather primitive methods, they curtailedproduction for immediate consumption to the indispensableminimum. Instead of food, shoes, clothes, houses, etc., they! ':>~d .F. Vito: " II Risparmio fOr2;ato e la teoria di cieli eeonomici "in Revista internazionale di scienze sociali, 1934, and" Die Bedeutung desZwang-sparens far die Konjunkturtheorie n in Beitriige zur Konjunkturleh"e,1936.