Since we claim to have shown in the preceding chapters what determines the volume of employment at any time, it follows, if we are right, that our theory must be capable of explaining the phenomena of the trade cycle.

If we examine the details of any actual instance of the trade cycle, we shall find that it is highly complex and that every element in our analysis will be required for its complete explanation. In particular we shall find that fluctuations in the propensity to consume, in the state of liquidity-preference, and in the marginal efficiency of capital have all played a part. But I suggest that the essential character of the trade cycle and, especially, the regularity of time-sequence and of duration which justifies us in calling it a cycle, is mainly due to the way in which the marginal efficiency of capital fluctuates. The trade cycle is best regarded, I think, as being occasioned by a cyclical change in the marginal efficiency of capital, though complicated and often aggravated by associated changes in the other significant short-period variables of the economic system. To develop this thesis would occupy a book rather than a chapter, and would require a close examination of facts. But the following short notes will be sufficient to indicate the line of investigation which our preceding theory suggests.