Prosperity and Depression.pdf

S4 AnalYsis of Theories Part Icontradistinction to payments for the original factors of produc.tion). In other words, only a part of the new money becomesincome. Another part remains permanently in the businesssphere. It is only if entrepreneurs"dissave"-i.e., ifthey eat uptheir capital and refrain from investing that part of their grossreceipts which is not net income (working capital and amortisationquotas)-that the pre-inflation arrangement is restored.We may conclude that the theory under review is bound eitherto assume that the fornler proportions between capital and incomewill be restored by actual capital consumption or that the expansionmust be discontinued before the new processes have been completed-or rather before all the new processes have been completed.This latter qualification seems to be called for, and is important,becauseitsheds doubtonthe contention that no permanentextensionof the process of production can be effected by a credit expansion.It is a plausible assumption that, when the expansion comes toan end, there will always be some new processes in an incompletestate. But there is no reason why others should not have beencompleted. The latter can be retained when the former have to bescrapped. This cessation of work is the essence of the crisis.But why must there he any incomplete processes at all when theexpansion has to end? Professor HAYEK admits the possibilityof the expansion's tailing-off gradually, in such a way that thestarted processes are completed but no new ones are inaugurated(except where voluntary savings are available). But, evidently,he does not believe that this possibility has any practical importance.Much seems to depend on the intensity of the expansion and oncertain "indivisibilities ", on which Professor ROBERTSON lays somuch stress. But the writers of the. group under review havenot discussed this point in detail. We shall have occasion todeal with it in another connection.It is evident that no collapse would occur if theW~ need credit expansion could go on indefinitely. Itthe expansion follows-the point is m~de by Professor HAYEKend? himself-that a crisis is equally inevitable in thecase of voluntary saving if the. flow of saving issuddenly reduced. It is, however, asserted-although the reasonsgiven are not always quite convincing-that sudden changes are not