CAUSE OF SLUMPS

Hawke's Bay Herald-Tribune, Issue 156, 20 July 1937, Page 14

CAUSE OF SLUMPS

Economist Analyses and Explains Theories VALUABLE RESEARCH WORK

"Prosperity and Depression, " hy Gottfried von Haberler, is a hook written by an economist of international repdtation, dealing with one of the most important technieal problems in the whole eeonomie field — that of busuu-t-d eycles and the recurrence of periods oi prosperity and depression. The hook is the first stage in an enquiry by the Economic Intelligence Service of the Leagne of Nations into this problefti. Its objeets are to analyse existing theories of the business cycle and consider how far they are selfconsistent, to find out what grounds they have in, common and where they are incompatible, to oliminate certain hypotheses which are untenable, to show where further research is needed to clear up obscure pomts. The anaJysis of theso theories shows that a much greater harmony on certain important points between writers of different schools of thought exists than the superficial observer niight believe — the natural tnedency berng for writers to emphasize differences ratixer than stress points of agreement. liaving thus cieared the ground, the author is in a position to attempt a synthesis and development of the existing theories in so far as they can de synthesised, at the same time indieating points where it is not yet possibie to forniulate definite explanatiuns. The next stage in the investigation ■of the Economic Intelligence Service will be the appilcation as far us possibie of quantitative tests to the various hypptheses and explanations which have been put forward. The book thus falls into two distinct parts. Part I. given gives in six chapters a systematic analysis of the principal theories. To , f acilibate comparison, the theories are examined as lar as possibie under the foilowing heads:. gpneral characteristies; explanition of np-swing (prosperity) ; explanation of the upper turning point (or crisis) ; explanation of the down-swing (depression) ; explanation of the lower tdrning-point (revival) ; reasons given for recurrence, periodicity, etc.. internaitonal complications. The main theories dealt with in tlieae six chapters are those ■ which explain the cycle as due .to variations in the flcw of money; various types of overinvestment theories (emphasising mainly the tendency to over-develop industries producing capital goods), underconsumption or over-saving theories; psychological theories; harvest theories. Part II. attempts a synthesis and development of existing theories; it does not claim to give an entirply new theory, the purpose being rather to ovolve order out of the contliet of views and to present a synthesis which may seeure agreement between schools of thought. The author believes that u general theory can be evolved which will be of practieal value in expjaining the most important aspects of tho business cycle, He takes the view that any economic system organised on the lines of our present individualistic moneyprice economy is liable to cumulative processes of expansion and contraction, particularly on account • of the flqctuating profitability of investment. Stress is laid, however, on certain aggravating factors such as cost-rigidi-ties and monetary instability, ' Despite the difficulties of the subject, the book will prove of interest cven for those who are not faniiliar with the general literature of the subjcct.