¹ Hicks, J. R., A Contribution to the Theory of the Trade Cycle. Oxford: At the Clarendon Press. 1950. Pp. vii, 201. 10s.Google Scholar Cf. also, for a summary of the theory, Hicks, J. R., “Mr. Harrod's Dynamic Theory,” Economica, 05, 1949.Google Scholar

² Kaldor, N., “A Model of the Trade Cycle,” Economic Journal, 1940.CrossRefGoogle Scholar

³ Kaldor's model also used the ex ante concepts of saving and investment in contrast to Mr. Hicks's period analysis; it was this, rather than the shape of the saving and investment functions, which gave his model its “distinctly esoteric” (p. 9) character. For another contrast, see p. 399 below.

⁴ The notion of the “diminishing marginal utility of income” is certainly not, in itself, a convincing reason; but it rests in part on the recognition of certain facts about social behaviour which, as we shall suggest presently, cannot be overlooked.

⁵ E.g., apart from work cited by Mr.Hicks, , Duesenberry, J. S., “Income, Saving and the Theory of Consumer Behavior” (Cambridge, Mass., 1950).Google Scholar

⁶ Such Government action could be treated as induced investment with a negative coefficient; but such treatment, appropriate for some purposes, would go particularly badly with Hicks's concept of induced investment.

⁷ Mr. Hicks relies exclusively on institutional and technical consumption lags and makes no use of the psychological lag which operates chiefly in a downward direction (because of reluctance to lower living standards that have once been achieved) and which plays the major role in Duesenberry's hypothesis.

⁸ See p. 405 below.

⁹ In the Economica article, Mr. Hicks adds two further conditions upon which he believes the assumption of a constant ν to be reasonably justified; they are (a) given conditions of technique, and (b) a given rate of interest (p. 107). Neither changes in techniques nor changes in interest rates, however, would seem as likely as some of the factors mentioned in the text to cause changes in ν. In fairness, it should also be mentioned that Mr. Hicks admits his assumption of constant coefficients to be a “serious limitation” on his theory (p. 170).

¹⁰ For instance, in analysing the recovery (p. 105) Mr. Hicks writes as if the accelerator came into operation simultaneously all over the economy at the moment when excess capacity had been absorbed. In practice, of course, the absorption of excess capacity will be “completed” and the accelerator come into action, at different points of time in different industries; the investment coefficient for the economy as a whole will, therefore, increase gradually. Similarly, business men's views about the temporary or permanent character of an increase in output may not be unanimous and may change.

¹¹ There is a fleeting reference, in a later chapter (p. 128), to “deliberate price stabilisation (cartels, valorisation schemes, and so on).”

¹² Even if, owing to “transformation,” there is an upper limit to induced disinvestment in fixed capital, that does not apply to disinvestment in stocks, and there may, as we shall suggest, even be repercussions on “autonomous” investment.

¹³ Marrama, G. V., “Short Notes on a Model of the Trade Cycle,” Revieiw of Economic Studies, no. 35, 1946–1947.Google Scholar

¹⁴ In his Economica article, Mr. Hicks points out that “if only part of consumption is lagged, we can manage to work our model with much smaller values of [v]. The value of [v] can be appreciably less than unity and we can still get the required instability of output” (p. 119 f.).

¹⁵ Two reviewers have pointed out that Mr. Hicks's rejection of the possibility of explaining the cycle in terms of damped oscillations (implying that v lies below the middle point) is not necessary if the transformation of the accelerator, in effect, makes each cycle “the first of its kind”; cf. Duesenberry, J. S., “Hicks on the Trade Cycle,” Quarterly Journal of Economics, 08, 1950 CrossRefGoogle Scholar; and Swan, T. W., “Progress Report on the Trade Cycle,” Economic Record, 12, 1950, 197 ff.Google Scholar

¹⁶ This of course corresponds closely to Kaldor's assumption of an S-shaped investment function.

¹⁷ Cf. Domar, E. D., “Capital Accumulation and the End of Prosperity” (abstract), Econometrica, 1948, 191, III (a).Google Scholar

¹⁸ International Labour Office, Public Investment and Full Employment (Montreal, 1946).Google Scholar Professor Higgins devised the two terms to distinguish between the effects of investment on the level of economic activity (“process” effects ) and on welfare, i.e., full employment output (“product” effects). They will be used rather differently here, to differentiate between (a) the effects on income of the process of construction of capital equipment (“process” effects) and (b) the effects of the products of construction of capital equipment (in the form of increases in effective productive capacity) both on the level of economic activity and on full employment output (“product” effects).

¹⁹ Whether this would still hold if allowance were made for specificity and immobility of resources, with the resulting possibility that sectional ceilings might be due to scarcity of fixed equipment or raw materials, is another matter.

²⁰ Strictly speaking, a fall in the rate of net investment below zero would lead to a temporary absolute reduction of “full employment output” owing to depreciation; but by the time the ceiling became again effective at the peak of the following upswing, the dip in the ceiling would have been more than made good.

²¹ In fact, in his first reference to the product effects of induced investment, Mr. Hicks insists that it is “not directly relevant” to the discussion of “effects on changes in the demand for output”; it is to the discussion of the ceiling that “it belongs” (p. 40 n). In the second reference, however, he admits the possibility that “the movement of the ceiling (that is to say, of full capacity output) has more effect upon actual output, when that is below the ceiling,” than he has allowed (p. 123 n). This is not quite how we would put it; but it may refer to the same point.

²² Fellner, W. J., Monetary Policies and Full Employment (2nd ed., Berkeley, Cal., 1947), 22.Google Scholar

²³ While some such explanation of the downturn has been popular, it is not Kaldor's. Although he did not distinguish clearly between autonomous and induced investment, in his model the downturn resulted from the product effects of what was essentially induced investment. This was, in fact, one of the least convincing features of Kaldor's model.

²⁴ But see Professor T. W. Swan's claim for priority for Harrod's, Trade Cycle (“Progress Report on the Trade Cycle,” 193 ff.).Google Scholar

²⁵ Cf. Knox, G. A. D., “On a Theory of the Trade Cycle,” Economica, 08, 1950, 321 f.Google Scholar

²⁶ Higgins, B., “The Concept of Secular Stagnation,” American Economic Review, 03, 1950.Google Scholar

²⁷ This might need to be qualified to allow for possible effects of the rate of growth on the investment coefficient. Once it is realized that v depends on entrepreneurial expectations, the possibility that “stagnation” may have a depressive effect on v cannot be ruled out altogether.

²⁸ This conclusion would, of course, need to be substantially modified if, as Duesenberry and Swan suggest, “free” cycles may be the rule rather than the exception; cf. note 15 above.