General Theory of Employment，Interest and Money_第4章- 免费小说在线阅读

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　　THEORYOFEMPLOYMENT

　　alsoincreasesaggregatewealthfailstoallowforthepossibilitythatanactofindividualsavingmayreactonsomeoneelse\'ssavingsandhenceonsomeoneelse\'swealth。

　　Thereconciliationoftheidentitybetweensavingandinvestmentwiththeapparent\'free-will\'oftheindividualtosavewhathechoosesirrespectiveofwhatheorothersmaybeinvesting，essentiallydependsonsavingbeing，likespending，atwo-sidedaffair。Foralthoughtheamountofhisownsavingisunlikelytohaveanysignificantinfluenceonhisownincome，thereactionsoftheamountofhisconsumptionontheincomesofothersmakesitimpossibleforallindividualssimultaneouslytosaveanygivensums。Everysuchattempttosavemorebyreducingconsumptionwillsoaffectincomesthattheattemptnecessarilydefeatsitself。Itis，ofcourse，justasimpossibleforthecommunityasawholetosavelessthantheamountofcurrentinvestment，sincetheattempttodosowillnecessarilyraiseincomestoalevelatwhichthesumswhichindividualschoosetosaveadduptoafigureexactlyequaltotheamountofinvestment。

　　Theaboveiscloselyanalogouswiththepropositionwhichharmonisestheliberty，whicheveryindividualpossesses，tochange，wheneverhechooses，theamountofmoneyheholds，withthenecessityforthetotalamountofmoney，whichindividualbalancesaddupto，tobeexactlyequaltotheamountofcashwhichthebankingsystemhascreated。Inthislattercasetheequalityisbroughtaboutbythefactthattheamountofmoneywhichpeoplechoosetoholdisnotindependentoftheirincomesorofthepricesofthethingsprimarilysecurities，thepurchaseofwhichisthenaturalalternativetoholdingmoney。Thusincomesandsuchpricesnecessarilychangeuntiltheaggregateoftheamountsofmoneywhichindividualschoosetoholdatthenewlevelofincomesandpricesthusbroughtabouthascometoequalitywiththeamountofmoney[Page85]THEMEANING

　　OFSAVINGANDINVESTMENT

　　createdbythebankingsystem。This，indeed，isthefundamentalpropositionofmonetarytheory。

　　Boththesepropositionsfollowmerelyfromthefactthattherecannotbeabuyerwithoutasellerorasellerwithoutabuyer。Thoughanindividualwhosetransactionsaresmallinrelationtothemarketcansafelyneglectthefactthatdemandisnotaone-sidedtransaction，itmakesnonsensetoneglectitwhenwecometoaggregatedemand。Thisisthevitaldifferencebetweenthetheoryoftheeconomicbehaviouroftheaggregateandthetheoryofthebehaviouroftheindividualunit，inwhichweassumethatchangesintheindividual\'sowndemanddonotaffecthisincome。

　　TheMeaningofSavingandInvestment[Page74]

　　Chapter7

　　THEMEANINGOFSAVINGANDINVESTMENT

　　FURTHERCONSIDERED

　　Inthepreviouschaptersavingandinvestmenthavebeensodefinedthattheyarenecessarilyequalinamount，being，forthecommunityasawhole，merelydifferentaspectsofthesamething。SeveralcontemporarywritersincludingmyselfinmyTreatiseonMoneyhave，however，givenspecialdefinitionsofthesetermsonwhichtheyarenotnecessarilyequal。

　　Othershavewrittenontheassumptionthattheymaybeunequalwithoutprefacingtheirdiscussionwithanydefinitionsatall。Itwillbeuseful，therefore，withaviewtorelatingtheforegoingtootherdiscussionsoftheseterms，toclassifysomeofthevarioususesofthemwhichappeartobecurrent。

　　SofarasIknow，everyoneagreesinmeaningbysavingtheexcessofincomeoverwhatisspentonconsumption。Itwouldcertainlybeveryinconvenientandmisleadingnottomeanthis。Noristhereanyimportantdifferenceofopinionastowhatismeantbyexpenditureonconsumption。Thusthedifferencesofusageariseeitheroutofthedefinitionofinvestmentoroutofthatofincome。

　　Letustakeinvestmentfirst。Inpopularusageitiscommontomeanbythisthepurchaseofanasset，old[Page75]THEMEANING

　　OFSAVINGANDINVESTMENT

　　ornew，byanindividualoracorporation。Occasionally，thetermmightberestrictedtothepurchaseofanassetontheStockExchange。Butwespeakjustasreadilyofinvesting，forexample，inahouse，orinamachine，orinastockoffinishedorunfinishedgoods；and，broadlyspeaking，newinvestment，asdistinguishedfromreinvestment，meansthepurchaseofacapitalassetofanykindoutofincome。Ifwereckonthesaleofaninvestmentasbeingnegativeinvestment，i。e。disinvestment，myowndefinitionisinaccordancewithpopularusage；sinceexchangesofoldinvestmentsnecessarilycancelout。Wehave，indeed，toadjustforthecreationanddischargeofdebtsincludingchangesinthequantityofcreditormoney；butsinceforthecommunityasawholetheincreaseordecreaseoftheaggregatecreditorpositionisalwaysexactlyequaltotheincreaseordecreaseoftheaggregatedebtorposition，thiscomplicationalsocancelsoutwhenwearedealingwithaggregateinvestment。Thus，assumingthatincomeinthepopularsensecorrespondstomynetincome，aggregateinvestmentinthepopularsensecoincideswithmydefinitionofnetinvestment，namelythenetadditiontoallkindsofcapitalequipment，afterallowingforthosechangesinthevalueoftheoldcapitalequipmentwhicharetakenintoaccountinreckoningnetincome。

　　Investment，thusdefined，includes，therefore，theincrementofcapitalequipment，whetheritconsistsoffixedcapital，workingcapitalorliquidcapital；andthesignificantdifferencesofdefinitionapartfromthedistinctionbetweeninvestmentandnetinvestmentareduetotheexclusionfrominvestmentofoneormoreofthesecategories。

　　MrHawtrey，forexample，whoattachesgreatimportancetochangesinliquidcapital，i。e。toundesignedincrementsordecrementsinthestockofunsoldgoods，hassuggestedapossibledefinitionof[Page76]THEGENERAL

　　THEORYOFEMPLOYMENT

　　investmentfromwhichsuchchangesareexcluded。Inthiscaseanexcessofsavingoverinvestmentwouldbethesamethingasanundesignedincrementinthestockofunsoldgoods，i。e。asanincreaseofliquidcapital。MrHawtreyhasnotconvincedmethatthisisthefactortostress；foritlaysalltheemphasisonthecorrectionofchangeswhichwereinthefirstinstanceunforeseen，ascomparedwiththosewhichare，rightlyorwrongly，anticipated。MrHawtreyregardsthedailydecisionsofentrepreneursconcerningtheirscaleofoutputasbeingvariedfromthescaleofthepreviousdaybyreferencetothechangesintheirstockofunsoldgoods。Certainly，inthecaseofconsumptiongoods，thisplaysanimportantpartintheirdecisions。ButIseenoobjectinexcludingtheplayofotherfactorsontheirdecisions；andIprefer，therefore，toemphasisethetotalchangeofeffectivedemandandnotmerelythatpartofthechangeineffectivedemandwhichreflectstheincreaseordecreaseofunsoldstocksinthepreviousperiod。Moreover，inthecaseoffixedcapital，theincreaseordecreaseofunusedcapacitycorrespondstotheincreaseordecreaseinunsoldstocksinitseffectondecisionstoproduce；andIdonotseehowMrHawtrey\'smethodcanhandlethisatleastequallyimportantfactor。

　　Itseemsprobablethatcapitalformationandcapitalconsumption，asusedbytheAustrianschoolofeconomists，arenotidenticaleitherwithinvestmentanddisinvestmentasdefinedaboveorwithnetinvestmentanddisinvestment。Inparticular，capitalconsumptionissaidtooccurincircumstanceswherethereisquiteclearlynonetdecreaseincapitalequipmentasdefinedabove。Ihave，however，beenunabletodiscoverareferencetoanypassagewherethemeaningofthesetermsisclearlyexplained。Thestatement，forexample，thatcapitalformationoccurswhenthereisalengtheningoftheperiodofproductiondoesnotmuchadvancematters。

　　[Page77]THEMEANING

　　OFSAVINGANDINVESTMENT

　　III

　　Wecomenexttothedivergencesbetweensavingandinvestmentwhichareduetoaspecialdefinitionofincomeandhenceoftheexcessofincomeoverconsumption。MyownuseoftermsinmyTreatiseonMoneyisanexampleofthis。For，asIhaveexplainedonp。60above，thedefinitionofincome，whichIthereemployed，differedfrommypresentdefinitionbyreckoningastheincomeofentrepreneursnottheiractuallyrealisedprofitsbutinsomesensetheir\'normalprofit\'。ThusbyanexcessofsavingoverinvestmentImeantthatthescaleofoutputwassuchthatentrepreneurswereearningalessthannormalprofitfromtheirownershipofthecapitalequipment；andbyanincreasedexcessofsavingoverinvestmentImeantthatadeclinewastakingplaceintheactualprofits，sothattheywouldbeunderamotivetocontractoutput。

　　AsInowthink，thevolumeofemploymentandconsequentlyofoutputandrealincomeisfixedbytheentrepreneurunderthemotiveofseekingtomaximisehispresentandprospectiveprofitstheallowanceforusercostbeingdeterminedbyhisviewastotheuseofequipmentwhichwillmaximisehisreturnfromitoveritswholelife；whilstthevolumeofemploymentwhichwillmaximisehisprofitdependsontheaggregatedemandfunctiongivenbyhisexpectationsofthesumoftheproceedsresultingfromconsumptionandinvestmentrespectivelyonvarioushypotheses。InmyTreatiseonMoneytheconceptofchangesintheexcessofinvestmentoversaving，astheredefined，wasawayofhandlingchangesinprofit，thoughIdidnotinthatbookdistinguishclearlybetweenexpectedandrealisedresults。[59]Itherearguedthatchangeintheexcessof[Page78]THEGENERAL

　　THEORYOFEMPLOYMENT

　　investmentoversavingwasthemotiveforcegoverningchangesinthevolumeofoutput。Thusthenewargument，thoughasInowthinkmuchmoreaccurateandinstructive，isessentiallyadevelopmentoftheold。ExpressedinthelanguageofmyTreatiseonMoney，itwouldrun:theexpectationofanincreasedexcessofinvestmentoversaving，giventheformervolumeofemploymentandoutput，willinduceentrepreneurstoincreasethevolumeofemploymentandoutput。Thesignificanceofbothmypresentandmyformerargumentsliesintheirattempttoshowthatthevolumeofemploymentisdeterminedbytheestimatesofeffectivedemandmadebytheentrepreneurs，anexpectedincreaseofinvestmentrelativelytosavingasdefinedinmyTreatiseonMoneybeingacriterionofanincreaseineffectivedemand。ButtheexpositioninmyTreatiseonMoneyis，ofcourse，veryconfusingandincompleteinthelightofthefurtherdevelopmentsheresetforth。

　　MrD。H。Robertsonhasdefinedto-day\'sincomeasbeingequaltoyesterday\'sconsumptionplusinvestment，sothatto-day\'ssaving，inhissense，isequaltoyesterday\'sinvestmentplustheexcessofyesterday\'sconsumptionoverto-day\'sconsumption。Onthisdefinitionsavingcanexceedinvestment，namely，bytheexcessofyesterday\'sincomeinmysenseoverto-day\'sincome。ThuswhenMrRobertsonsaysthatthereisanexcessofsavingoverinvestment，hemeansliterallythesamethingasImeanwhenIsaythatincomeisfalling，andtheexcessofsavinginhissenseisexactlyequaltothedeclineofincomeinmysense。Ifitweretruethatcurrentexpectationswerealwaysdeterminedbyyesterday\'srealisedresults，to-day\'seffectivedemandwouldbeequaltoyesterday\'sincome。ThusMrRobertson\'smethodmightberegardedasanalternative。attempttominebeing，perhaps，afirstapproximationtoittomakethesamedistinction，sovitalforcausalanalysis，thatIhavetried[Page79]THEMEANING

　　OFSAVINGANDINVESTMENT

　　tomakebythecontrastbetweeneffectivedemandandincome。[60]

　　Wecomenexttothemuchvaguerideasassociatedwiththephrase\'forcedsaving\'。Isanyclearsignificancediscoverableinthese？InmyTreatiseonMoneyvol。1，p。171，footnote[JMK，vol。V，p。154]Igavesomereferencestoearlierusesofthisphraseandsuggestedthattheyboresomeaffinitytothedifferencebetweeninvestmentand\'saving\'inthesenseinwhichIthereusedthelatterterm。IamnolongerconfidentthattherewasinfactsomuchaffinityasIthensupposed。Inanycase，Ifeelsurethat\'forcedsaving\'andanalogousphrasesemployedmorerecentlye。g。byProfessorHayekorProfessorRobbinshavenodefiniterelationtothedifferencebetweeninvestmentand\'saving\'inthesenseintendedinmyTreatiseonMoney。Forwhilsttheseauthorshavenotexplainedexactlywhattheymeanbythisterm，itisclearthat\'forcedsaving\'，intheirsense，isaphenomenonwhichresultsdirectlyfrom，andismeasuredby，changesinthequantityofmoneyorbank-credit。

　　Itisevidentthatachangeinthevolumeofoutputandemploymentwill，indeed，causeachangeinincomemeasuredinwage-units；thatachangeinthewage-unitwillcausebotharedistributionofincomebetweenborrowersandlendersandachangeinaggregateincomemeasuredinmoney；andthatineithereventtherewillormaybeachangeintheamountsaved。Since，therefore，changesinthequantityofmoneymayresult，throughtheireffectontherateofinterest，inachangeinthevolumeanddistributionofincomeasweshallshowlater，suchchangesmayinvolve，indirectly，achangeintheamountsaved。Butsuch[Page80]THEGENERAL

　　THEORYOFEMPLOYMENT

　　changesintheamountssavedarenomore\'forcedsavings\'thananyotherchangesintheamountssavedduetoachangeincircumstances；andthereisnomeansofdistinguishingbetweenonecaseandanother，unlesswespecifytheamountsavedincertaingivenconditionsasournormorstandard。Moreover，asweshallsee，theamountofthechangeinaggregatesavingwhichresultsfromagivenchangeinthequantityofmoneyishighlyvariableanddependsonmanyotherfactors。

　　Thus\'forcedsaving\'hasnomeaninguntilwehavespecifiedsomestandardrateofsaving。Ifweselectasmightbereasonabletherateofsavingwhichcorrespondstoanestablishedstateoffullemployment，theabovedefinitionwouldbecome:\'Forcedsavingistheexcessofactualsavingoverwhatwouldbesavediftherewerefullemploymentinapositionoflong-periodequilibrium\'。Thisdefinitionwouldmakegoodsense，butasenseinwhichaforcedexcessofsavingwouldbeaveryrareandaveryunstablephenomenon，andaforceddeficiencyofsavingtheusualstateofaffairs。

　　ProfessorHayek\'sinteresting\'NoteontheDevelopmentoftheDoctrineofForcedSaving\'[61]showsthatthiswasinfacttheoriginalmeaningoftheterm。\'Forcedsaving\'or\'forcedfrugality\'was，inthefirstinstance，aconceptionofBentham\'s；andBenthamexpresslystatedthathehadinmindtheconsequencesofanincreaseinthequantityofmoneyrelativelytothequantityofthingsvendibleformoneyincircumstancesof\'allhandsbeingemployedandemployedinthemostadvantageousmanner\'。

　　[62]Insuchcircumstances，Benthampointsout，realincomecannotbeincreased，and，consequently，additionalinvestment，takingplaceasaresultofthetransition，involvesforcedfrugality\'attheexpenseofnationalcomfortandnationaljustice\'。Allthenineteenth-century[Page81]THEMEANING

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　　writerswhodealtwiththismatterhadvirtuallythesameideainmind。

　　Butanattempttoextendthisperfectlyclearnotiontoconditionsoflessthanfullemploymentinvolvesdifficulties。Itistrue，ofcourseowingtothefactofdiminishingreturnstoanincreaseintheemploymentappliedtoagivencapitalequipment，thatanyincreaseinemploymentinvolvessomesacrificeofrealincometothosewhowerealreadyemployed，butanattempttorelatethislosstotheincreaseininvestmentwhichmayaccompanytheincreaseinemploymentisnotlikelytobefruitful。AtanyrateI

　　amnotawareofanyattempthavingbeenmadebythemodernwriterswhoareinterestedin\'forcedsaving\'toextendtheideatoconditionswhereemploymentisincreasing；andtheyseem，asarule，tooverlookthefactthattheextensionoftheBenthamiteconceptofforcedfrugalitytoconditionsoflessthanfullemploymentrequiressomeexplanationorqualification。

　　Theprevalenceoftheideathatsavingandinvestment，takenintheirstraightforwardsense，candifferfromoneanother，istobeexplained，Ithink，byanopticalillusionduetoregardinganindividualdepositor\'srelationtohisbankasbeingaone-sidedtransaction，insteadofseeingitasthetwo-sidedtransactionwhichitactuallyis。Itissupposedthatadepositorandhisbankcansomehowcontrivebetweenthemtoperformanoperationbywhichsavingscandisappearintothebankingsystemsothattheyarelosttoinvestment，or，contrariwise，thatthebankingsystemcanmakeitpossibleforinvestmenttooccur，towhichnosavingcorresponds。

　　Butnoonecansavewithoutacquiringanasset，whetheritbecashoradebtorcapital-goods；andnoonecanacquireanassetwhichhedidnotpreviouslypossess，unlesseitheranassetofequalvalueisnewlyproducedorsomeoneelse[Page82]THEGENERAL

　　THEORYOFEMPLOYMENT

　　partswithanassetofthatvaluewhichhepreviouslyhad。Inthefirstalternativethereisacorrespondingnewinvestment:inthesecondalternativesomeoneelsemustbedis-savinganequalsum。Forhislossofwealthmustbeduetohisconsumptionexceedinghisincome，andnottoalossoncapitalaccountthroughachangeinthevalueofacapital-asset，sinceitisnotacaseofhissufferingalossofvaluewhichhisassetformerlyhad；heisdulyreceivingthecurrentvalueofhisassetandyetisnotretainingthisvalueinwealthofanyform，i。e。hemustbespendingitoncurrentconsumptioninexcessofcurrentincome。Moreover，ifitisthebankingsystemwhichpartswithanasset，someonemustbepartingwithcash。Itfollowsthattheaggregatesavingofthefirstindividualandofotherstakentogethermustnecessarilybeequaltotheamountofcurrentnewinvestment。

　　Thenotionthatthecreationofcreditbythebankingsystemallowsinvestmenttotakeplacetowhich\'nogenuinesaving\'correspondscanonlybetheresultofisolatingoneoftheconsequencesoftheincreasedbank-credittotheexclusionoftheothers。Ifthegrantofabankcredittoanentrepreneuradditionaltothecreditsalreadyexistingallowshimtomakeanadditiontocurrentinvestmentwhichwouldnothaveoccurredotherwise，incomeswillnecessarilybeincreasedandataratewhichwillnormallyexceedtherateofincreasedinvestment。Moreover，exceptinconditionsoffullemployment，therewillbeanincreaseofrealincomeaswellasofmoney-income。Thepublicwillexercise\'afreechoice\'astotheproportioninwhichtheydividetheirincreaseofincomebetweensavingandspending；

　　anditisimpossiblethattheintentionoftheentrepreneurwhohasborrowedinordertoincreaseinvestmentcanbecomeeffectiveexceptinsubstitutionforinvestmentbyotherentrepreneurswhichwouldhaveoccurredotherwise

　　atafasterratethanthepublicdecidetoincreasetheir[Page83]THEMEANING

　　OFSAVINGANDINVESTMENT

　　savings。Moreover，thesavingswhichresultfromthisdecisionarejustasgenuineasanyothersavings。Noonecanbecompelledtoowntheadditionalmoneycorrespondingtothenewbank-credit，unlesshedeliberatelypreferstoholdmoremoneyratherthansomeotherformofwealth。Yetemployment，incomesandpricescannothelpmovinginsuchawaythatinthenewsituationsomeonedoeschoosetoholdtheadditionalmoney。Itistruethatanunexpectedincreaseofinvestmentinaparticulardirectionmaycauseanirregularityintherateofaggregatesavingandinvestmentwhichwouldnothaveoccurredifithadbeensufficientlyforeseen。Itisalsotruethatthegrantofthebank-creditwillsetupthreetendencies&frac34；1

　　foroutputtoincrease，2forthemarginalproducttoriseinvalueintermsofthewage-unitwhichinconditionsofdecreasingreturnmustnecessarilyaccompanyanincreaseofoutput，and3forthewage-unittoriseintermsofmoneysincethisisafrequentconcomitantofbetteremployment；

　　andthesetendenciesmayaffectthedistributionofrealincomebetweendifferentgroups。Butthesetendenciesarecharacteristicofastateofincreasingoutputassuch，andwilloccurjustasmuchiftheincreaseinoutputhasbeeninitiatedotherwisethanbyanincreaseinbank-credit。

　　Theycanonlybeavoidedbyavoidinganycourseofactioncapableofimprovingemployment。Muchoftheabove，however，isanticipatingtheresultofdiscussionswhichhavenotyetbeenreached。

　　Thustheold-fashionedviewthatsavingalwaysinvolvesinvestment，thoughincompleteandmisleading，isformallysounderthanthenew-fangledviewthattherecanbesavingwithoutinvestmentorinvestmentwithout\'genuine\'saving。Theerrorliesinproceedingtotheplausibleinferencethat，whenanindividualsaves，hewillincreaseaggregateinvestmentbyanequalamount。Itistrue，that，whenanindividualsavesheincreaseshisownwealth。Buttheconclusionthathe[Page84]THEGENERAL

　　THEORYOFEMPLOYMENT

　　alsoincreasesaggregatewealthfailstoallowforthepossibilitythatanactofindividualsavingmayreactonsomeoneelse\'ssavingsandhenceonsomeoneelse\'swealth。

　　OFSAVINGANDINVESTMENT

　　createdbythebankingsystem。This，indeed，isthefundamentalpropositionofmonetarytheory。

　　ThePropensitytoConsume:I[Page89]

　　Chapter8

　　THEPROPENSITYTOCONSUME:

　　I。THEOBJECTIVEFACTORS

　　Wearenowinapositiontoreturntoourmaintheme，fromwhichwebrokeoffattheendofBookIinordertodealwithcertaingeneralproblemsofmethodanddefinition。Theultimateobjectofouranalysisistodiscoverwhatdeterminesthevolumeofemployment。Sofarwehaveestablishedthepreliminaryconclusionthatthevolumeofemploymentisdeterminedbythepointofintersectionoftheaggregatesupplyfunctionwiththeaggregatedemandfunction。Theaggregatesupplyfunction，however，whichdependsinthemainonthephysicalconditionsofsupply，involvesfewconsiderationswhicharenotalreadyfamiliar。Theformmaybeunfamiliarbuttheunderlyingfactorsarenotnew。Weshallreturntotheaggregatesupplyfunctioninchapter20，wherewediscussitsinverseunderthenameoftheemploymentfunction。But，inthemain，itisthepartplayedbytheaggregatedemandfunctionwhichhasbeenoverlooked；anditistotheaggregatedemandfunctionthatweshalldevoteBooksIIIandIV。

　　Theaggregatedemandfunctionrelatesanygivenlevelofemploymenttothe\'proceeds\'whichthatlevelofemploymentisexpectedtorealise。

　　The\'proceeds\'aremadeupofthesumoftwoquantities&frac34；thesumwhichwillbespentonconsumptionwhenemploymentisatthegivenlevel，andthesumwhichwillbedevoted[Page90]THEGENERAL

　　THEORYOFEMPLOYMENT

　　toinvestment。Thefactorswhichgovernthesetwoquantitiesarelargelydistinct。Inthisbookweshallconsidertheformer，namelywhatfactorsdeterminethesumwhichwillbespentonconsumptionwhenemploymentisatagivenlevel；andinBookIVweshallproceedtothefactorswhichdeterminethesumwhichwillbedevotedtoinvestment。

　　Sincewearehereconcernedindeterminingwhatsumwillbespentonconsumptionwhenemploymentisatagivenlevel，weshould，strictlyspeaking，considerthefunctionwhichrelatestheformerquantityCtothelatterN。Itismoreconvenient，however，toworkintermsofaslightlydifferentfunction，namely，thefunctionwhichrelatestheconsumptionintermsofwage-unitsCwtotheincomeintermsofwage-unitsYwcorrespondingtoalevelofemploymentN。ThissuffersfromtheobjectionthatYwisnotauniquefunctionofN，whichisthesameinallcircumstances。

　　FortherelationshipbetweenYwandNmaydependthoughprobablyinaveryminordegreeontheprecisenatureoftheemployment。

　　Thatistosay，twodifferentdistributionsofagivenaggregateemploymentNbetweendifferentemploymentsmightowingtothedifferentshapesoftheindividualemploymentfunctions&frac34；amattertobediscussedinChapter20belowleadtodifferentvaluesofYw。Inconceivablecircumstancesaspecialallowancemighthavetobemadeforthisfactor。ButingeneralitisagoodapproximationtoregardYwasuniquelydeterminedbyN。WewillthereforedefinewhatweshallcallthepropensitytoconsumeasthefunctionalrelationshipbetweenYwagivenlevelofincomeintermsofwage-units，andCwtheexpenditureonconsumptionoutofthatlevelofincome，sothatCw=Yw

　　orC=WYw。Theamountthatthecommunityspendsonconsumptionobviouslydependsi

　　partlyontheamount[Page91]THEPROPENSITY

　　TOCONSUME:I

　　ofitsincome，iipartlyontheotherobjectiveattendantcircumstances，andiiipartlyonthesubjectiveneedsandthepsychologicalpropensitiesandhabitsoftheindividualscomposingitandtheprinciplesonwhichtheincomeisdividedbetweenthemwhichmaysuffermodificationasoutputisincreased。Themotivestospendinginteractandtheattempttoclassifythemrunsthedangeroffalsedivision。Neverthelessitwillclearourmindstoconsiderthemseparatelyundertwobroadheadswhichweshallcallthesubjectivefactorsandtheobjectivefactors。Thesubjectivefactors，whichweshallconsiderinmoredetailinthenextchapter，includethosepsychologicalcharacteristicsofhumannatureandthosesocialpracticesandinstitutionswhich，thoughnotunalterable，areunlikelytoundergoamaterialchangeoverashortperiodoftimeexceptinabnormalorrevolutionarycircumstances。Inanhistoricalenquiryorincomparingonesocialsystemwithanotherofadifferenttype，itisnecessarytotakeaccountofthemannerinwhichchangesinthesubjectivefactorsmayaffectthepropensitytoconsume。But，ingeneral，weshallinwhatfollowstakethesubjectivefactorsasgiven；andweshallassumethatthepropensitytoconsumedependsonlyonchangesintheobjectivefactors。

　　Theprincipalobjectivefactorswhichinfluencethepropensitytoconsumeappeartobethefollowing:

　　1Achangeinthewage-unit。ConsumptionCisobviouslymuchmoreafunctionofinsomesenserealincomethanofmoney-income。Inagivenstateoftechniqueandtastesandofsocialconditionsdeterminingthedistributionofincome，aman\'srealincomewillriseandfallwiththeamountofhiscommandoverlabour-units，i。e。

　　withtheamountofhisincomemeasuredinwage-units；thoughwhentheaggregatevolumeofoutputchanges，hisrealincomewillowing[Page92]THEGENERAL

　　THEORYOFEMPLOYMENT

　　totheoperationofdecreasingreturnsriselessthaninproportiontohisincomemeasuredinwage-units。Asafirstapproximation，therefore，wecanreasonablyassumethat，ifthewage-unitchanges，theexpenditureonconsumptioncorrespondingtoagivenlevelofemploymentwill，likeprices，changeinthesameproportion；thoughinsomecircumstanceswemayhavetomakeanallowanceforthepossiblereactionsonaggregateconsumptionofthechangeinthedistributionofagivenrealincomebetweenentrepreneursandrentiersresultingfromachangeinthewage-unit。Apartfromthis，wehavealreadyallowedforchangesinthewage-unitbydefiningthepropensitytoconsumeintermsofincomemeasuredintermsofwage-units。

　　2Achangeinthedifferencebetweenincomeandnetincome。

　　Wehaveshownabovethattheamountofconsumptiondependsonnetincomeratherthanonincome，sinceitis，bydefinition，hisnetincomethatamanhasprimarilyinmindwhenheisdecidinghisscaleofconsumption。

　　Inagivensituationtheremaybeasomewhatstablerelationshipbetweenthetwo，inthesensethattherewillbeafunctionuniquelyrelatingdifferentlevelsofincometothecorrespondinglevelsofnetincome。If，however，thisshouldnotbethecase，suchpartofanychangeinincomeasisnotreflectedinnetincomemustbeneglectedsinceitwillhavenoeffectonconsumption；and，similarly，achangeinnetincome，notreflectedinincome，mustbeallowedfor。Saveinexceptionalcircumstances，however，Idoubtthepracticalimportanceofthisfactor。Wewillreturntoafullerdiscussionoftheeffectonconsumptionofthedifferencebetweenincomeandnetincomeinthefourthsectionofthischapter。

　　3Windfallchangesincapital-valuesnotallowedforincalculatingnetincome。Theseareofmuchmoreimportanceinmodifyingthepropensitytoconsume，sincetheywillbearnostableorregularrelationshiptotheamountofincome。Theconsumptionofthe[Page93]THEPROPENSITY

　　TOCONSUME:I

　　wealth-owningclassmaybeextremelysusceptibletounforeseenchangesinthemoney-valueofitswealth。Thisshouldbeclassifiedamongstthemajorfactorscapableofcausingshort-periodchangesinthepropensitytoconsume。

　　4Changesintherateoftime-discounting，i。e。intheratioofexchangebetweenpresentgoodsandfuturegoods。Thisisnotquitethesamethingastherateofinterest，sinceitallowsforfuturechangesinthepurchasingpowerofmoneyinsofarastheseareforeseen。Accounthasalsotobetakenofallkindsofrisks，suchastheprospectofnotlivingtoenjoythefuturegoodsorofconfiscatorytaxation。

　　Asanapproximation，however，wecanidentifythiswiththerateofinterest。

　　Theinfluenceofthisfactorontherateofspendingoutofagivenincomeisopentoagooddealofdoubt。Fortheclassicaltheoryoftherateofinterest，[63]whichwasbasedontheideathattherateofinterestwasthefactorwhichbroughtthesupplyanddemandforsavingsintoequilibrium，itwasconvenienttosupposethatexpenditureonconsumptioniscet。

　　par。negativelysensitivetochangesintherateofinterest，sothatanyriseintherateofinterestwouldappreciablydiminishconsumption。

　　Ithaslongbeenrecognised，however，thatthetotaleffectofchangesintherateofinterestonthereadinesstospendonpresentconsumptioniscomplexanduncertain，beingdependentonconflictingtendencies，sincesomeofthesubjectivemotivestowardssavingwillbemoreeasilysatisfiediftherateofinterestrises，whilstotherswillbeweakened。Overalongperiodsubstantialchangesintherateofinterestprobablytendtomodifysocialhabitsconsiderably，thusaffectingthesubjectivepropensitytospend&frac34；thoughinwhichdirectionitwouldbehardtosay，exceptinthelightofactualexperience。Theusualtypeofshort-periodfluctuationintherateofinterestisnotlikely，however，tohavemuchdirectinfluenceonspendingeitherway。

　　[Page94]THEGENERAL

　　THEORYOFEMPLOYMENT

　　Therearenotmanypeoplewhowillaltertheirwayoflivingbecausetherateofinteresthasfallenfrom5to4percent，iftheiraggregateincomeisthesameasbefore。Indirectlytheremaybemoreeffects，thoughnotallinthesamedirection。Perhapsthemostimportantinfluence，operatingthroughchangesintherateofinterest，onthereadinesstospendoutofagivenincome，dependsontheeffectofthesechangesontheappreciationordepreciationinthepriceofsecuritiesandotherassets。Forifamanisenjoyingawindfallincrementinthevalueofhiscapital，itisnaturalthathismotivestowardscurrentspendingshouldbestrengthened，eventhoughintermsofincomehiscapitalisworthnomorethanbefore；andweakenedifheissufferingcapitallosses。Butthisindirectinfluencewehaveallowedforalreadyunder3above。Apartfromthis，themainconclusionsuggestedbyexperienceis，Ithink，thattheshort-periodinfluenceoftherateofinterestonindividualspendingoutofagivenincomeissecondaryandrelativelyunimportant，except，perhaps，whereunusuallylargechangesareinquestion。Whentherateofinterestfallsverylowindeed，theincreaseintheratiobetweenanannuitypurchasableforagivensumandtheannualinterestonthatsummay，however，provideanimportantsourceofnegativesavingbyencouragingthepracticeofprovidingforoldagebythepurchaseofanannuity。

　　Theabnormalsituation，wherethepropensitytoconsumemaybesharplyaffectedbythedevelopmentofextremeuncertaintyconcerningthefutureandwhatitmaybringforth，shouldalso，perhaps，beclassifiedunderthisheading。

　　5Changesinfiscalpolicy。Insofarastheinducementtotheindividualtosavedependsonthefuturereturnwhichheexpects，itclearlydependsnotonlyontherateofinterestbutonthefiscalpolicyofthegovernment。Incometaxes，especiallywhentheydiscriminateagainst\'unearned\'income，taxeson[Page95]THEPROPENSITY

　　TOCONSUME:I

　　capital-profits，death-dutiesandthelikeareasrelevantastherateofinterest；whilsttherangeofpossiblechangesinfiscalpolicymaybegreater，inexpectationatleast，thanfortherateofinterestitself。

　　Iffiscalpolicyisusedasadeliberateinstrumentforthemoreequaldistributionofincomes，itseffectinincreasingthepropensitytoconsumeis，ofcourse，allthegreater。[64]

　　Wemustalsotakeaccountoftheeffectontheaggregatepropensitytoconsumeofgovernmentsinkingfundsforthedischargeofdebtpaidforoutofordinarytaxation。Fortheserepresentaspeciesofcorporatesaving，sothatapolicyofsubstantialsinkingfundsmustberegardedingivencircumstancesasreducingthepropensitytoconsume。Itisforthisreasonthatachange-overfromapolicyofgovernmentborrowingtotheoppositepolicyofprovidingsinkingfundsorviceversaiscapableofcausingaseverecontractionormarkedexpansionofeffectivedemand。

　　6Changesinexpectationsoftherelationbetweenthepresentandthefuturelevelofincome。Wemustcataloguethisfactorforthesakeofformalcompleteness。But，whilstitmayaffectconsiderablyaparticularindividual\'spropensitytoconsume，itislikelytoaverageoutforthecommunityasawhole。Moreover，itisamatteraboutwhichthereis，asarule，toomuchuncertaintyforittoexertmuchinfluence。

　　Wearelefttherefore，withtheconclusionthatinagivensituationthepropensitytoconsumemaybeconsideredafairlystablefunction，providedthatwehaveeliminatedchangesinthewage-unitintermsofmoney。Windfallchangesincapital-valueswillbecapableofchangingthepropensitytoconsume，andsubstantial[Page96]THEGENERAL

　　THEORYOFEMPLOYMENT

　　changesintherateofinterestandinfiscalpolicymaymakesomedifference；

　　buttheotherobjectivefactorswhichmightaffectit，whilsttheymustnotbeoverlooked，arenotlikelytobeimportantinordinarycircumstances。

　　Thefactthat，giventhegeneraleconomicsituation，theexpenditureonconsumptionintermsofthewage-unitdependsinthemain，onthevolumeofoutputandemploymentisthejustificationforsumminguptheotherfactorsintheportmanteaufunction\'propensitytoconsume\'。Forwhilsttheotherfactorsarecapableofvarying{andthismustnotbeforgotten，theaggregateincomemeasuredintermsofthewage-unitis，asarule，theprincipalvariableuponwhichtheconsumption-constituentoftheaggregatedemandfunctionwilldepend。

　　III

　　Granted，then，thatthepropensitytoconsumeisafairlystablefunctionsothat，asarule，theamountofaggregateconsumptionmainlydependsontheamountofaggregateincomebothmeasuredintermsofwage-units，changesinthepropensityitselfbeingtreatedasasecondaryinfluence，whatisthenormalshapeofthisfunction？

　　Thefundamentalpsychologicallaw，uponwhichweareentitledtodependwithgreatconfidencebothapriorifromourknowledgeofhumannatureandfromthedetailedfactsofexperience，isthatmenaredisposed，asaruleandontheaverage，toincreasetheirconsumptionastheirincomeincreases，butnotbyasmuchastheincreaseintheirincome。Thatistosay，ifCwistheamountofconsumptionandYwisincomebothmeasuredinwage-unitsDCwhasthesamesignasDYwbutissmallerinamount，i。e。dCw/dYwispositiveandlessthanunity。

　　[Page97]THEPROPENSITY

　　TOCONSUME:I

　　Thisisespeciallythecasewherewehaveshortperiodsinview，asinthecaseoftheso-calledcyclicalfluctuationsofemploymentduringwhichhabits，asdistinctfrommorepermanentpsychologicalpropensities，arenotgiventimeenoughtoadaptthemselvestochangedobjectivecircumstances。

　　Foraman\'shabitualstandardoflifeusuallyhasthefirstclaimonhisincome，andheisapttosavethedifferencewhichdiscoversitselfbetweenhisactualincomeandtheexpenseofhishabitualstandard；or，ifhedoesadjusthisexpendituretochangesinhisincome，hewillovershortperiodsdosoimperfectly。Thusarisingincomewilloftenbeaccompaniedbyincreasedsaving，andafallingincomebydecreasedsaving，onagreaterscaleatfirstthansubsequently。

　　But，apartfromshort-periodchangesinthelevelofincome，itisalsoobviousthatahigherabsolutelevelofincomewilltend，asarule，towidenthegapbetweenincomeandconsumption。Forthesatisfactionoftheimmediateprimaryneedsofamanandhisfamilyisusuallyastrongermotivethanthemotivestowardsaccumulation，whichonlyacquireeffectiveswaywhenamarginofcomforthasbeenattained。Thesereasonswilllead，asarule，toagreaterproportionofincomebeingsavedasrealincomeincreases。Butwhetherornotagreaterproportionissaved，wetakeitasafundamentalpsychologicalruleofanymoderncommunitythat，whenitsrealincomeisincreased，itwillnotincreaseitsconsumptionbyanequalabsoluteamount，sothatagreaterabsoluteamountmustbesaved，unlessalargeandunusualchangeisoccurringatthesametimeinotherfactors。Asweshallshowsubsequently，[65]thestabilityoftheeconomicsystemessentiallydependsonthisruleprevailinginpractice。

　　Thismeansthat，ifemploymentandhenceaggregateincomeincrease，notalltheadditionalemploymentwillberequiredtosatisfytheneedsofadditionalconsumption。

　　[Page98]THEGENERAL

　　THEORYOFEMPLOYMENT

　　Ontheotherhand，adeclineinincomeduetoadeclineinthelevelofemployment，ifitgoesfar，mayevencauseconsumptiontoexceedincomenotonlybysomeindividualsandinstitutionsusingupthefinancialreserveswhichtheyhaveaccumulatedinbettertimes，butalsobythegovernment，whichwillbeliable，willinglyorunwillingly，torunintoabudgetarydeficitorwillprovideunemploymentrelief；forexample，outofborrowedmoney。Thus，whenemploymentfallstoalowlevel，aggregateconsumptionwilldeclinebyasmalleramountthanthatbywhichrealincomehasdeclined，byreasonbothofthehabitualbehaviourofindividualsandalsooftheprobablepolicyofgovernments；whichistheexplanationwhyanewpositionofequilibriumcanusuallybereachedwithinamodestrangeoffluctuation。

　　Otherwiseafallinemploymentandincome，oncestarted，mightproceedtoextremelengths。

　　Thissimpleprincipleleads，itwillbeseen，tothesameconclusionasbefore，namely，thatemploymentcanonlyincreaseparipassuwithanincreaseininvestment；unless，indeed，thereisachangeinthepropensitytoconsume。Forsinceconsumerswillspendlessthantheincreaseinaggregatesupplypricewhenemploymentisincreased，theincreasedemploymentwillproveunprofitableunlessthereisanincreaseininvestmenttofillthegap。

　　Wemustnotunderestimatetheimportanceofthefactalreadymentionedabovethat，whereasemploymentisafunctionoftheexpectedconsumptionandtheexpectedinvestment，consumptionis，cet。par。，afunctionofnetincome，i。e。ofnetinvestmentnetincomebeingequaltoconsumptionplusnetinvestment。Inotherwords，thelargerthefinancialprovisionwhichitisthoughtnecessarytomakebeforereckoningnetin-

　　[Page99]THEPROPENSITY

　　TOCONSUME:I

　　come，thelessfavourabletoconsumption，andthereforetoemployment，willagivenlevelofinvestmentprovetobe。

　　Whenthewholeofthisfinancialprovisionorsupplementarycostisinfactcurrentlyexpendedintheupkeepofthealreadyexistingcapitalequipment，thispointisnotlikelytobeoverlooked。Butwhenthefinancialprovisionexceedstheactualexpenditureoncurrentupkeep，thepracticalresultsofthisinitseffectonemploymentarenotalwaysappreciated。

　　Fortheamountofthisexcessneitherdirectlygivesrisetocurrentinvestmentnorisavailabletopayforconsumption。Ithas，therefore，tobebalancedbynewinvestment，thedemandforwhichhasarisenquiteindependentlyofthecurrentwastageofoldequipmentagainstwhichthefinancialprovisionisbeingmade；withtheresultthatthenewinvestmentavailabletoprovidecurrentincomeiscorrespondinglydiminishedandamoreintensedemandfornewinvestmentisnecessarytomakepossibleagivenlevelofemployment。

　　Moreover，muchthesameconsiderationsapplytotheallowanceforwastageincludedinusercost，insofarasthewastageisnotactuallymadegood。

　　Takeahousewhichcontinuestobehabitableuntilitisdemolishedorabandoned。Ifacertainsumiswrittenoffitsvalueoutoftheannualrentpaidbythetenants，whichthelandlordneitherspendsonupkeepnorregardsasnetincomeavailableforconsumption，thisprovision，whetheritisapartofUorofV；constitutesadragonemploymentallthroughthelifeofthehouse，suddenlymadegoodinalumpwhenthehousehastoberebuilt。

　　Inastationaryeconomyallthismightnotbeworthmentioning，sinceineachyearthedepreciationallowancesinrespectofoldhouseswouldbeexactlyoffsetbythenewhousesbuiltinreplacementofthosereachingtheendoftheirlivesinthatyear。Butsuchfactorsmaybeseriousinanon-staticeconomy，especially[Page100]THE

　　GENERALTHEORYOFEMPLOYMENT

　　duringaperiodwhichimmediatelysucceedsalivelyburstofinvestmentinlong-livedcapital。Forinsuchcircumstancesaverylargeproportionofthenewitemsofinvestmentmaybeabsorbedbythelargerfinancialprovisionsmadebyentrepreneursinrespectofexistingcapitalequipment，upontherepairsandrenewalofwhich，thoughitiswearingoutwithtime，thedatehasnotyetarrivedforspendinganythingapproachingthefullfinancialprovisionwhichisbeingsetaside；withtheresultthatincomescannotriseabovealevelwhichislowenoughtocorrespondwithalowaggregateofnetinvestment。Thussinkingfunds，etc。，areapttowithdrawspendingpowerfromtheconsumerlongbeforethedemandforexpenditureonreplacementswhichsuchprovisionsareanticipatingcomesintoplay；

　　i。e。theydiminishthecurrenteffectivedemandandonlyincreaseitintheyearinwhichthereplacementisactuallymade。Iftheeffectofthisisaggravatedby\'financialprudence\'，i。e。byitsbeingthoughtadvisableto\'writeoff\'theinitialcostmorerapidlythantheequipmentactuallywearsout，thecumulativeresultmaybeveryseriousindeed。

　　IntheUnitedStates，forexample，by1929therapidcapitalexpansionofthepreviousfiveyearshadledcumulativelytothesettingupofsinkingfundsanddepreciationallowances，inrespectofplantwhichdidnotneedreplacement，onsohugeascalethatanenormousvolumeofentirelynewinvestmentwasrequiredmerelytoabsorbthesefinancialprovisions；anditbecamealmosthopelesstofindstillmorenewinvestmentonasufficientscaletoprovideforsuchnewsavingasawealthycommunityinfullemploymentwouldbedisposedtosetaside。Thisfactoralonewasprobablysufficienttocauseaslump。And，furthermore，since\'financialprudence\'ofthiskindcontinuedtobeexercisedthroughtheslumpbythosegreatcorporationswhichwerestillinapositiontoaffordit，itofferedaseriousobstacletoearlyrecovery。

　　[Page101]THE

　　PROPENSITYTOCONSUME:I

　　Oragain，inGreatBritainatthepresenttime1935thesubstantialamountofhouse-buildingandofothernewinvestmentssincethewarhasledtoanamountofsinkingfundsbeingsetupmuchinexcessofanypresentrequirementsforexpenditureonrepairsandrenewals，atendencywhichhasbeenaccentuated，wheretheinvestmenthasbeenmadebylocalauthoritiesandpublicboards，bytheprinciplesof\'sound\'financewhichoftenrequiresinkingfundssufficienttowriteofftheinitialcostsometimebeforereplacementwillactuallyfalldue；withtheresultthatevenifprivateindividualswerereadytospendthewholeoftheirnetincomesitwouldbeaseveretasktorestorefullemploymentinthefaceofthisheavyvolumeofstatutoryprovisionbypublicandsemi-publicauthorities，entirelydissociatedfromanycorrespondingnewinvestment。Thesinkingfundsoflocalauthoritiesnowstand，Ithink，[66]atanannualfigureofmorethanhalftheamountwhichtheseauthoritiesarespendingonthewholeoftheirnewdevelopments。[67]YetitisnotcertainthattheMinistryofHealthareaware，whentheyinsistonstiffsinkingfundsbylocalauthorities，howmuchtheymaybeaggravatingtheproblemofunemployment。Inthecaseofadvancesbybuildingsocietiestohelpanindividualtobuildhisownhouse，thedesiretobeclearofdebtmorerapidlythanthehouseactuallydeterioratesmaystimulatethehouse-ownertosavemorethanheotherwisewould；&frac34；thoughthisfactorshouldbeclassified，perhaps，asdiminishingthepropensitytoconsumedirectlyratherthanthroughitseffectonnetincome。Inactualfigures，repaymentsofmortgagesadvancedbybuildingsocieties，whichamountedto&pound；24，000，000in1925，hadrisento[Page102]THE

　　GENERALTHEORYOFEMPLOYMENT

　　&pound；68，000，000by1933，ascomparedwithnewadvancesof&pound；103，000，000；

　　andto-daytherepaymentsareprobablystillhigher。

　　Thatitisinvestment，ratherthannetinvestment，whichemergesfromthestatisticsofoutput，isbroughtoutforciblyandnaturallyinMrColinClark\'sNationalIncome，1924-1931。

　　Healsoshowswhatalargeproportiondepreciation，etc。，normallybearstothevalueofinvestment。Forexample，heestimatesthatinGreatBritain，overtheyears1928-1931，[68]theinvestmentandthenetinvestmentwereasfollows，thoughhisgrossinvestmentisprobablysomewhatgreaterthanmyinvestment，inasmuchasitmayincludeapartofusercost，anditisnotclearhowcloselyhis\'netinvestment\'

　　correspondstomydefinitionofthisterm:

　　&pound；million

　　1928192919301931

　　GrossInvestment-Output791731620482

　　\'Valueofphysicalwastingofoldcapital\'433435437439

　　NetInvestment35829618343MrKuznetshasarrivedatmuchthesameconclusionincompilingthestatisticsoftheGrossCapitalFormationashecallswhatIcallinvestment

　　intheUnitedStates，1919-1933。Thephysicalfact，towhichthestatisticsofoutputcorrespond，isinevitablythegross，andnotthenet，investment。MrKuznetshasalsodiscoveredthedifficultiesinpassingfromgrossinvestmenttonetinvestment。\'Thedifficulty\'，hewrites，\'ofpassingfromgrosstonetcapitalformation，thatis，thedifficultyofcorrectingfortheconsumptionofexistingdurablecommodities，isnotonlyinthelackofdata。Theveryconceptofannualconsumptionofcommoditiesthatlastoveranumberofyearssuffersfromambiguity\'。Hefallsback，therefore，\'onthe[Page103]THE

　　PROPENSITYTOCONSUME:I

　　assumptionthattheallowancefordepreciationanddepletiononthebooksofbusinessfirmsdescribescorrectlythevolumeofconsumptionofalreadyexisting，finisheddurablegoodsusedbybusinessfirms\'[69]。

　　Ontheotherhand，heattemptsnodeductionatallinrespectofhousesandotherdurablecommoditiesinthehandsofindividuals。HisveryinterestingresultsfortheUnitedStatescanbesummarisedasfollows:[70]

　　Severalfactsemergewithprominencefromthistable。Netcapitalformationwasverysteadyoverthequinquennium1925-1929，withonlya10percent。

　　Millionsofdollars

　　19251926192719281929

　　Grosscapitalformationafterallowingfornetchangeinbusinessinventories30，70633，57131，15733，93434，491

　　Entrepreneurs\'servicing，repairs，maintenance，depreciationanddepletion7，6858，2888，2238，4819，010

　　NetcapitalformationonMrKuznets\'definition23，02125，28322，93425，45325，481

　　Millionsofdollars

　　1930193119321933

　　Grosscapitalformationafterallowingfornetchangeinbusinessinventories27，53818，7217，78014，879

　　Entrepreneurs\'servicing，repairs，maintenance，depreciationanddepletion8，5027，6236，5438，204

　　NetcapitalformationonMrKuznets\'definition19，03611，0981，2376，675

　　[Page104]THE

　　GENERALTHEORYOFEMPLOYMENT

　　increaseinthelatterpartoftheupwardmovement。Thedeductionforentrepreneurs\'repairs，maintenance，depreciationanddepletionremainedatahighfigureevenatthebottomoftheslump。ButMrKuznets\'methodmustsurelyleadtotoolowanestimateoftheannualincreaseindepreciation，etc。；forheputsthelatteratlessthan1&frac12；percentperannumofthenewnetcapitalformation。Aboveall，netcapitalformationsufferedanappallingcollapseafter1929，fallingin1932toafigurenolessthan95percentbelowtheaverageofthequinquennium1925-1929。

　　Theaboveis，tosomeextent，adigression。Butitisimportanttoemphasisethemagnitudeofthedeductionwhichhastobemadefromtheincomeofasociety，whichalreadypossessesalargestockofcapital，beforewearriveatthenetincomewhichisordinarilyavailableforconsumption。

　　Forifweoverlookthis，wemayunderestimatetheheavydragonthepropensitytoconsumewhichexistseveninconditionswherethepublicisreadytoconsumeaverylargeproportionofitsnetincome。

　　Consumption&frac34；torepeattheobvious&frac34；isthesoleendandobjectofalleconomicactivity。Opportunitiesforemploymentarenecessarilylimitedbytheextentofaggregatedemand。Aggregatedemandcanbederivedonlyfrompresentconsumptionorfrompresentprovisionforfutureconsumption。Theconsumptionforwhichwecanprofitablyprovideinadvancecannotbepushedindefinitelyintothefuture。Wecannot，asacommunity，provideforfutureconsumptionbyfinancialexpedientsbutonlybycurrentphysicaloutput。Insofarasoursocialandbusinessorganisationseparatesfinancialprovisionforthefuturefromphysicalprovisionforthefuturesothateffortstosecuretheformerdonotnecessarilycarrythelatterwiththem，financialprudencewillbeliabletodiminishaggregatedemandandthusimpairwell-being，astherearemanyexamples[Page105]THE

　　PROPENSITYTOCONSUME:I

　　totestify。Thegrcater，moreover，theconsumptionforwhichwehaveprovidedinadvance，themoredifficultitistofindsomethingfurthertoprovideforinadvance，andthegreaterourdependenceonpresentconsumptionasasourceofdemand。Yetthelargerourincomes，thegreater，unfortunately，isthemarginbetweenourincomesandourconsumption。So，failingsomenovelexpedient，thereis，asweshallsee，noanswertotheriddle，exceptthattheremustbesufficientunemploymenttokeepussopoorthatourconsumptionfallsshortofourincomebynomorethantheequivalentofthephysicalprovisionforfutureconsumptionwhichitpaystoproduceto-day。

　　Orlookatthematterthus。Consumptionissatisfiedpartlybyobjectsproducedcurrentlyandpartlybyobjectsproducedpreviously，i。e。bydisinvestment。

　　Totheextentthatconsumptionissatisfiedbythelatter，thereisacontractionofcurrentdemand，sincetothatextentapartofcurrentexpenditurefailstofinditswaybackasapartofnetincome。Contrariwisewheneveranobjectisproducedwithintheperiodwithaviewtosatisfyingconsumptionsubsequently，anexpansionofcurrentdemandissetup。Nowallcapital-investmentisdestinedtoresult，soonerorlater，incapital-disinvestment。Thustheproblemofprovidingthatnewcapital-investmentshallalwaysoutruncapital-disinvestmentsufficientlytofillthegapbetweennetincomeandconsumption，presentsaproblemwhichisincreasinglydifficultascapitalincreases。Newcapital-investmentcanonlytakeplaceinexcessofcurrentcapital-disinvestmentiffutureexpenditureonconsumptionisexpectedtoincrease。Eachtimewesecureto-day\'sequilibriumbyincreasedinvestmentweareaggravatingthedifficultyofsecuringequilibriumto-morrow。A

　　diminishedpropensitytoconsumeto-daycanonlybeaccommodatedtothepublicadvantageifanincreasedpropensitytoconsumeisexpectedtoexistsomeday。Weareremindedof\'TheFableoftheBees\'&frac34；thegay[Page106]THE

　　GENERALTHEORYOFEMPLOYMENT

　　ofto-morrowareabsolutelyindispensabletoprovidearaisond\'&ecirc；treforthegraveofto-day。Itisacuriousthing，worthyofmention，thatthepopularmindseemsonlytobeawareofthisultimateperplexitywherepublicinvestmentisconcerned，asinthecaseofroad-buildingandhouse-buildingandthelike。Itiscommonlyurgedasanobjectiontoschemesforraisingemploymentbyinvestmentundertheauspicesofpublicauthoritythatitislayinguptroubleforthefuture。\'Whatwillyoudo，\'

　　itisasked，\'whenyouhavebuiltallthehousesandroadsandtownhallsandelectricgridsandwatersuppliesandsoforthwhichthestationarypopulationofthefuturecanbeexpectedtorequire？\'Butitisnotsoeasilyunderstoodthatthesamedifficultyappliestoprivateinvestmentandtoindustrialexpansion；particularlytothelatter，sinceitismucheasiertoseeanearlysatiationofthedemandfornewfactoriesandplantwhichabsorbindividuallybutlittlemoney，thanofthedemandfordwelling-houses。

　　Theobstacletoaclearunderstandingis，intheseexamples，muchthesameasinmanyacademicdiscussionsofcapital，namely，aninadequateappreciationofthefactthatcapitalisnotaself-subsistententityexistingapartfromconsumption。Onthecontrary，everyweakeninginthepropensitytoconsumeregardedasapermanenthabitmustweakenthedemandforcapitalaswellasthedemandforconsumption。

　　ThePropensitytoConsume:II[Page107]

　　Chapter9

　　THEPROPENSITYTOCONSUME:

　　II。THESUBJECTIVEFACTORS

　　Thereremainsthesecondcategoryoffactorswhichaffecttheamountofconsumptionoutofagivenincome&frac34；namely，thosesubjectiveandsocialincentiveswhichdeterminehowmuchisspent，giventheaggregateofincomeintermsofwage-unitsandgiventherelevantobjectivefactorswhichwehavealreadydiscussed。Since，however，theanalysisofthesefactorsraisesnopointofnovelty，itmaybesufficientifwegiveacatalogueofthemoreimportant，withoutenlargingonthematanylength。

　　Thereare，ingeneral，eightmainmotivesorobjectsofasubjectivecharacterwhichleadindividualstorefrainfromspendingoutoftheirincomes:iTobuildupareserveagainstunforeseencontingencies；iiToprovideforananticipatedfuturerelationbetweentheincomeandtheneedsoftheindividualorhisfamilydifferentfromthatwhichexistsinthepresent，as，forexample，inrelationtooldage，familyeducation，orthemaintenanceofdependents；iiiToenjoyinterestandappreciation，i。e。becausealargerrealconsumptionatalaterdateispreferredtoasmallerimmediateconsumption；

　　[Page108]THE

　　GENERALTHEORYOFEMPLOYMENTivToenjoyagraduallyincreasingexpenditure，sinceitgratifiesacommoninstincttolookforwardtoagraduallyimprovingstandardofliferatherthanthecontrary，eventhoughthecapacityforenjoymentmaybediminishing；vToenjoyasenseofindependenceandthepowertodothings，thoughwithoutaclearideaordefiniteintentionofspecificaction；viTosecureamassedemanoeuvretocarryoutspeculativeorbusinessprojects；viiTobequeathafortune；viiiTosatisfypuremiserliness，i。e。unreasonablebutinsistentinhibitionsagainstactsofexpenditureassuch。TheseeightmotivesmightbecalledthemotivesofPrecaution，Foresight，Calculation，Improvement，Independence，Enterprise，PrideandAvarice；

　　andwecouldalsodrawupacorrespondinglistofmotivestoconsumptionsuchasEnjoyment，Shortsightedness，Generosity，Miscalculation，OstentationandExtravagance。

　　Apartfromthesavingsaccumulatedbyindividuals，thereisalsothelargeamountofincome，varyingperhapsfromone-thirdtotwo-thirdsofthetotalaccumulationinamodernindustrialcommunitysuchasGreatBritainortheUnitedStates，whichiswithheldbycentralandlocalgovernment，byinstitutionsandbybusinesscorporations&frac34；formotiveslargelyanalogousto，butnotidenticalwith，thoseactuatingindividuals，andmainlythefourfollowing:iThemotiveofenterprise&frac34；tosecureresourcestocarryoutfurthercapitalinvestmentwithoutincurringdebtorraisingfurthercapitalonthemarket；iiThemotiveofliquidity&frac34；tosecureliquidresourcestomeetemergencies，difficultiesanddepressions；

　　[Page109]THE

　　PROPENSITYTOCONSUME:IIiiiThemotiveofimprovement&frac34；tosecureagraduallyincreasingincome，which，incidentally，willprotectthemanagementfromcriticism，sinceincreasingincomeduetoaccumulationisseldomdistinguishedfromincreasingincomeduetoefficiency；ivThemotiveoffinancialprudenceandtheanxietytobe\'ontherightside\'bymakingafinancialprovisioninexcessofuserandsupplementarycost，soastodischargedebtandwriteoffthecostofassetsaheadof；ratherthanbehind，theactualrateofwastageandobsolescence，thestrengthofthismotivemainlydependingonthequantityandcharacterofthecapitalequipmentandtherateoftechnicalchange。Correspondingtothesemotiveswhichfavourthewithholdingofapartofincomefromconsumption，therearealsooperativeattimesmotiveswhichleadtoanexcessofconsumptionoverincome。Severalofthemotivestowardspositivesavingcataloguedaboveasaffectingindividualshavetheirintendedcounterpartinnegativesavingatalaterdate，as，forexample，withsavingtoprovideforfamilyneedsoroldage。Unemploymentrelieffinancedbyborrowingisbestregardedasnegativesaving。

　　Nowthestrengthofallthesemotiveswillvaryenormouslyaccordingtotheinstitutionsandorganisationoftheeconomicsocietywhichwepresume，accordingtohabitsformedbyrace，education，convention，religionandcurrentmorals，accordingtopresenthopesandpastexperience，accordingtothescaleandtechniqueofcapitalequipment，andaccordingtotheprevailingdistributionofwealthandtheestablishedstandardsoflife。Intheargumentofthisbook，however，weshallnotconcernourselves，exceptinoccasionaldigressions，withtheresultsoffar-reachingsocialchangesorwiththesloweffectsofsecularprogress。Weshall，thatistosay，takeasgiventhemainbackgroundofsubjective[Page110]THE

　　GENERALTHEORYOFEMPLOYMENT

　　motivestosavingandtoconsumptionrespectively。Insofarasthedistributionofwealthisdeterminedbythemoreorlesspermanentsocialstructureofthecommunity，thisalsocanbereckonedafactor，subjectonlytoslowchangeandoveralongperiod，whichwecantakeasgiveninourpresentcontext。

　　Since，therefore，themainbackgroundofsubjectiveandsocialincentiveschangesslowly，whilsttheshort-periodinfluenceofchangesintherateofinterestandtheotherobjectivefactorsisoftenofsecondaryimportance，weareleftwiththeconclusionthatshort-periodchangesinconsumptionlargelydependonchangesintherateatwhichincomemeasuredinwage-units

　　isbeingearnedandnotonchangesinthepropensitytoconsumeoutofagivenincome。

　　Wemust，however，guardagainstamisunderstanding。Theabovemeansthattheinfluenceofmoderatechangesintherateofinterestonthepropensitytoconsumeisusuallysmall。Itdoesnotmeanthatchangesintherateofinteresthaveonlyasmallinfluenceontheamountsactuallysavedandconsumed。Quitethecontrary。Theinfluenceofchangesintherateofinterestontheamountactuallysavedisofparamountimportance，butisintheoppositedirectiontothatusuallysupposed。Foreveniftheattractionofthelargerfutureincometobeearnedfromahigherrateofinteresthastheeffectofdiminishingthepropensitytoconsume，neverthelesswecanbecertainthatariseintherateofinterestwillhavetheeffectofreducingtheamountactuallysaved。Foraggregatesavingisgovernedbyaggregateinvestment；ariseintherateofinterestunlessitisoffsetbyacorrespondingchangeinthedemand-scheduleforinvestmentwilldiminishinvestment；henceariseintherateofinterestmusthavetheeffectofreducingincomestoalevelatwhichsavingisdecreasedinthe[Page111]THE

　　PROPENSITYTOCONSUME:II

　　samemeasureasinvestment。Sinceincomeswilldecreasebyagreaterabsoluteamountthaninvestment，itis，indeed，truethat，whentherateofinterestrises，therateofconsumptionwilldecrease。Butthisdoesnotmeanthattherewillbeawidermarginforsaving。Onthecontrary，savingandspendingwillbothdecrease。

　　Thus，evenifitisthecasethatariseintherateofinterestwouldcausethecommunitytosavemoreoutofagivenincome，wecanbequitesurethatariseintherateofinterestassumingnofavourablechangeinthedemand-scheduleforinvestmentwilldecreasetheactualaggregateofsavings。Thesamelineofargumentcaneventellusbyhowmuchariseintherateofinterestwill，cet。par。，decreaseincomes。

　　Forincomeswillhavetofallorberedistributedbyjustthatamountwhichisrequired，withtheexistingpropensitytoconsumetodecreasesavingsbythesameamountbywhichtheriseintherateofinterestwill，withtheexistingmarginalefficiencyofcapital，decreaseinvestment。

　　Adetailedexaminationofthisaspectwilloccupyournextchapter。

　　Theriseintherateofinterestmightinduceustosavemore，ifourincomeswereunchanged。Butifthehigherrateofinterestretardsinvestment，ourincomeswillnot，andcannot，beunchanged。Theymustnecessarilyfall，untilthedecliningcapacitytosavehassufficientlyoffsetthestimulustosavegivenbythehigherrateofinterest。Themorevirtuousweare，themoredeterminedlythrifty，themoreobstinatelyorthodoxinournationalandpersonalfinance，themoreourincomeswillhavetofallwheninterestrisesrelativelytothemarginalefficiencyofcapital。Obstinacycanbringonlyapenaltyandnoreward。Fortheresultisinevitable。

　　Thus，afterall，theactualratesofaggregatesavingandspendingdonotdependonPrecaution，Foresight，Calculation，Improvement，Independence，Enterprise，PrideorAvarice。Virtueandviceplaynopart。Itall[Page112]THE

　　GENERALTHEORYOFEMPLOYMENT

　　dependsonhowfartherateofinterestisfavourabletoinvestment，aftertakingaccountofthemarginalefficiencyofcapital。[71]No，thisisanoverstatement。Iftherateofinterestweresogovernedastomaintaincontinuousfullemployment，virtuewouldresumehersway；&frac34；therateofcapitalaccumulationwoulddependontheweaknessofthepropensitytoconsume。Thus，onceagain，thetributethatclassicaleconomistspaytoherisduetotheirconcealedassumptionthattherateofinterestalwaysissogoverned。

　　TheMarginalPropensitytoConsume[Page113]

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