Selected underconsumption theories and the business cycle.

Abstract

An attempt has been made in this thesis to indicate that the underlying issues of the underconsumption analysis are essentially correct, that these selected underconsumption theories are characterized by the feeling that investment outruns consumption in the existing system. The manner by which to overcome this situation is to stimulate consumption by either increasing the share of income as proposed by the distribution school, or by means of monetary manipulation as advanced by the monetary school. This paper also points out that the modern underconsumption writers anticipated the tools now used in a modern business cycle approach. They did not have them; they approached them and, therefore, were on the right track. This particular business cycle approach as accepted by A. Hansen, J. Hicks, and R. Harrod integrates many theories of the business cycle into one by the use of three tools - the marginal efficiency schedule in relation to the rate of interest, the role of investment multiplier based upon the consumption function, and the principle of acceleration, i.e., the effect of change in income in respect to the rate of investment. This modern theory synthesizes the various and seemingly conflicting opinions of business cycle theorists; with one stroke it takes into consideration the role of money, the role of investment, and the role of consumption. [TRUNCATED]