A Model of the Trade Cycle Author(s): Nicholas Kaldor Source: The ...

More documents

Recommendations

Info

88 TRE ECONOMIC JOURNAL [MAROHVariations in the amplitude of successive cycles, 011 the otherhand, seem to depend entirely on extraneous factors, such as newillventions or secular changes ·in habits of saving. There appearsto be no necessary reason why, in the absen.ce of such factors, tlleamplitude should be gradually decreasing or vice-versa.!lO. Our model should also enable us to throw some light onproblems of economic policy. Rere I confine myself to twopoints. (i) It appears that measures taken to combat thedepression (through public investment) have much more chanceof success if taken at a relatively early stage, or at a relatively latestage, than at the bottom of the depressione If taken early, theproblem is merely to prevent that graduaI fall in the investmentfunction relatively to the saving function which carries the cyclefrom Stage II to Stage III. But, once Stage III is passed, nothingcan prevent the switch-over from the B-equilibrium to the Aequilibrium, and then the problenl becomes one of raising theinvestment demand schedule sufficiently to lift the position toStage VI (at which the forces of expansion come into operation).The amount of public investment required to achieve this isobviously much greater in the early phase of the depression (atStage IV) than in the later phase (at Stage V). Thus just whenthe depression is at its worst the difficulty of overcoming it is thegreatest. (ii) The chances of "evening out" fiuctuations by" anti-cyclical " public investment appear to be remote. For ifthe policy is successful in preventing the downward cumulativemovement, it will also succeed in keeping the level of privateinvestment high; and for this very reason the forces making fora down-turn will continue to accumulate, thu;s making the needfor continued public investment greater. Thus, if, on the basisof past experience, the Government Authority contemplates afour years public investment pIan, in the beliefthat thereby it canbridge the gap between one prosperity-period and the ne~t, it ismore likely that it might succeed in postponing the onset of the1 At first sight one might think that this question aiso depends on endogenousfactors: that the cycle will be "damped" (amplitude of successive cyclesdecreasing) if the point of zero net investment is so situated that there will be netcapitaI accumulation over the cycle as a whole, and vice versa. But this is notso. If there is net accumulation over the cycle as a whole (i.e., the accumulationover the boom period exceeds the decumulation during the depression), then, inthe absence of extraneous changes, the position B at the corresponding stages ofsuccessive cycles will be situated more and more to the Ieft; but the position Awill aiso be situated more to the Ieft, with the result that, though there will be agraduaI fall in the average Ievei of activity, there need be no decrease in thedeviations around the average. The same holds, mutatis mutandis, if there isnet decumulation over the cycle as a whole.
1940] A MODEL OF THE TRADE CYCLE 89depression for four years than that it will prevent its occurrencealtogether. 1 If the Trade Cycle is really governed by the forcesanalysed in this paper, the policy of internaI stabilisation must beconceived along different lines.NICHOLAS KALDORL,ondon School oj Econon~ic8.APPENDIXIt may be interesting to examine the relations of the modelhere presented to other models ofthe Trade Cycle based on sirnilarprinciples. The one nearest to it, I think, is Mr. Kalecki's theory,givenin Chap. 6 ofhis Essays in the Theory ojEconomie Fluctuations.The differences can best be shown by employing the same typeof diagram and the same denotation as used by Mr. Kalecki. Letincorne be measured along OY, and the rate of investrnent decisionsalong OD. Let D t == ([Je(Y t ) represent the rate of investoofment decisions at time t, given the quantity ofequipment available.Let the family of curves ([Je 1... etc., represent this function fordifferent qu~ntities of available equipment, where e 1 represents asmaller quantity of equipment than e 2 , and so ono Let Y t + T ==1 This argument is strictly valid only for a closed system; it is not valid inthe case of a country which receives its cyclical impulses from abroad. For in thatcase the cyclical variations in the demand for exports can be taken as givenirrespective of what the Govemment is doing; the chronological order of the" lean years " will not be altered by the attempt at suppressing them. Thus apolicy of this type is much more likely to be successful in a small country, likeSweden, than in large countries, such as Britain or the United States, whichthemselves generate the cyclical forces and transmit them to others.y
Page 1 and 2: A Model of the Trade CycleAuthor(s)
Page 3 and 4: MAROH 1940] A MODEL OF TRE TRADE OY
Page 5 and 6: 1940] A MODEL OF THE TRADE OYOLE 81
Page 7 and 8: 1940] A MODEL OF TRE TRADE CYCLE 83
Page 9 and 10: 1940] A MODEL OF THE TRADE CYCLE 85
Page 11: 1940] A MODEL OF THE TRADE CYCLE 87
Page 15 and 16: 1940] A MODEL OF TRE TRADE CYCLE 91

A Model of the Trade Cycle Author(s): Nicholas Kaldor Source: The ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?