Prosperity and Depression.pdf

74 AnalYsis of Theories Part Iproduction of consumption goods shows no marked dependenceon trade cycles. This means that the alternation between periodsof boom and slump is fundamentally a variation in the productionof fixed capital, but has no direct connection with the rest ofproduction. "1§ II. THE UPSWINGProfessor SPIETHOFF describes the mechanism ofCumulative the cumulative and self-sustaining process ofexpanexpansionsion, which begins to work after the dead point ofprocess. the depression has been overcome, in approximatelythe same way as the monetary over-investmentschool. (In respect to this particular problem, indeed, there isnow much agreement even outside the schools which we haveanalysed so far.) The revival of investment activity generatesincome and purchasing power. Demand rises, first for capitalgoods and investment materials (iron, steel, cement, lumber,bricks) .and later also for consumption goods. Prices rise, mainlyprices of capital goods and investment materials. This stimulatesfurther investment. Profits are made which swell the fundsavailable for investment and provide an important psychologicalstimulus for further expansion. Thus, like a snowball, prosperityincreases rapidly as it proceeds.The monetary side of this process is not closely analysed. ButProfessor SPIETHOFF admits that " credit is an indispensable meansto the upswing". 2 Professor CASSEL is less explicit in thisrespect. But it can be inferred from various remarks which helets fall that he realises the necessity for an elastic currency supply.Both writers seem to believe that monetary funds are accumulatedduring the depression, on which the producers can draw duringthe upswing to finance the expansion. It follows that no positivesteps need be taken by the banking system, at any rate during thefirst phases of the upswing. It is, however, not denied that, aftera certain point, support by the banks is required to carryon.1 G. Cassel: The Theory 01 Social Economy, revised ed•• London, 1932,page 552.• Ope cit., page 74.