Prosperity and Depression.pdf

Chap. 3The Over-inve.Jtment Theoric.Jsupply and demand, this can be expressed by saying that the creditdemand curve will move to the right or, loosely speaking, thatdemand will rise. At the same time, the banks will be in a liquidposition, and there is every reason to expect that they will liberallycomply with the increased demand for credit. The barrier betweenthe money market and the capital market is broken down, and thefunds accumulated behind the barrier flow into the investmentmarket. 1Thus a new upswing starts smoothly-at first, almost imperceptibly-outof the ashes of the last boom. No special stimulusfrom outside is required in the shape ofinventions, crop changes,discoveries, etc. We shall see, however, that the writers of thenext group believe that such an incentive from outside is necessary.In this respect the present theory is the more"endogenous" in thepreviously defined sense. But it would seem to be difficult andnot very helpful to lay down hard-and-fast rules as to whetherthe upswing must be assumed to be brought about by forcescc internal " or " external " to the economic system.It is convenient at this point to introduce theExpansion question of the existence of unused productivefrom a resources of all kinds. The explanation given byposition th~ writers of the school under review for theofpartial upswing, or rather for the boom, almost invariablyemplo)'menf. starts from an equilibrium position with full employmentof the means of production. 2 But the argumentcan easily be adapted to the other case. If there are unemployedresources, evidently the expansion of credit may go onmuch longer than when all resources are employed. There need,then, be no shift of factors from the lower to the higher stages,1 Strigl, Ope cit., Anhang 1. It may be added that, owing to the existenceof the various reserves which will have been accumulated during thedepression, the expansion can go far with little or no help from thebanks.• Professor l-Iayek in particular has laid down the methodological rulethat the analysis of the cyclical movement should never start on theassumption of existing unemployment, because· that would beg thequestion of why unemployment can exist at all. This postulate wouldseem to narrow down unduly and quite unnecessarily the scope of suchanalyses.