"THE MULTIPLIER" 149 authorities on all accounts, whether on capital account or to meet a budgetary deficit." My italics.. What is really necessary to get the "multiplier" effect, in
Trang 165"THE MULTIPLIER" 149 authorities on all accounts, whether on capital account or
to meet a budgetary deficit." (My italics.)
What is really necessary to get the "multiplier" effect, in short, when we start calling things by their right names, is not "investment" but inflation
"Investment" is irrelevant to the multiplier If, to take another illustration, we find that the community is spending only eleven-twelfths of its income on goods whose names begin with the letters A to W, inclusive, then we get everything to come out right by having the community spend the other twelfth of its income on the goods beginning with the letters X, Y, Z And it is of no importance whatever, for this effect, whether the A-W goods or XYZ goods consist wholly or partly of consumer goods or capital goods The word "investment" is merely being used in a Pickwickian, or Keynesian, sense And the great advantage of
"loan expenditure" is not that it involves investment out
of past income, but that it involves the printing of more money
We shall have enough to do in this volume dissecting the errors of Keynes himself, without going into the supplementary or derivative errors introduced by some of the Keynesians For that reason I shall make no effort here to analyze the "foreign-trade multiplier," which contains, in addition to all the fallacies in the "multiplier" concept itself, additional fallacies based on crude mercantilistic concepts of the effects of imports and exports respectively But two criticisms of the "multiplier" remain to be made, and both are basic In the first place, even granting all of Keynes's other peculiar assumptions, it is difficult to understand just why the multiplier ( except by sheer assertion) should necessarily be the reciprocal of the marginal propensity to save If the marginal propensity to consume
is lo, we are told, the multiplier is 10 Why? How?
We have already tried to guess (p 139) how Keynes might have arrived at this astonishing notion But let us take an imaginary illustration Ruritania is a Keynesian country
Trang 166150 THE FAILURE OF THE "NEW ECONOMICS"
that has a national income of $10 billion and consumes only
$9 billion Therefore it has a propensity to consume of /0• But as in some way it manages to "save" 10 per cent of its income without "investing" the 10 per cent in anything at all, it has unemployment of 10 per cent Then the Keynesian government comes to the rescue by spending, not $1 billion, but only $100 million on "investment." For as the
"multiplier" is 10 (because Keynes has written out a mathematical formula which makes it 10 when the marginal propensity to consume is /0), this $100 million dollars worth
of direct new employment somehow multiplies itself to $1 billion of total new employment to "fill the gap," and lo!
"full employment" is achieved
(Expressing this in terms of employment, we might say: When the propensity to consume of Ruritania is lo, then, unless something is done about it, only 9 million of Ruritania's working force of 10 million are employed It is then simply necessary to spend enough to employ directly 100,-
000 more persons, and their spending, in turn, will ensure
a total additional employment of 1 million.)
The question I am raising here is simply why such a relationship between the marginal propensity to consume and the multiplier is supposed to hold Is it some inevitable mathematical deduction? If so, its causal inevitability somehow escapes me Is it an empirical generalization from actual experience? Then why doesn't Keynes condescend
to offer even the slightest statistical verification?
We have already seen that investment ) strictly speaking,
is irrelevant to the "multiplier"-that any extra spending
on anything will do We have already illustrated this by dividing commodities into those beginning with the letters from A to W, and those beginning with the letters X, Y, and Z But a still further reductio ad absurdum is possible Here is a far more potent multiplier, and on Keynesian grounds there can be no objection to it Let Y equal the income of the whole community Let R equal your (the reader's) income Let V equal the income of everybody
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equivalent to an added money supply and would raise prices and wages again
I am not arguing here that prices and wages are in fact
perfectly fluid But neither, as Keynes assumes, are wagerates completely rigid under conditions of less than full employment And to the extent that they are rigid, they
are so either through the anti-social policy of those who insist on employment only at above-equilibrium wage-rates,
or through the very economic ignorance and confusion in business and political circles to which Keynes's theories themselves make so great a contribution
But this is a subject that we shall develop more at length later
5 Paradox and Pyramids
In Section VI of Chapter 10 on the multiplier, Keynes lets himself go in one of the irresponsible little essays in satire and sarcasm that run through the General Theory
as they run through all his work As these essays rest on obviously false assumptions, and as Keynes writes them with his tongue more or less in his cheek, it might seem to
be as lacking in humor to "refute" them seriously as to
"refute" a paradox of G K Chesterton or a epigram of Oscar Wilde But these little essays are the most readable and the most easily understood part of Keynes's work They are quoted by many laymen with chuckles of approval and delight So we had bette� give them a certain amount of serious attention
Keynes begins Section VI by assuming "involuntary unemployment" without explaining how it comes about At the same time he assumes that the only way to cure it is by
"loan expenditure" -no matter how wasteful "Pyramidbuilding, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles
of the classical economics stands in the way of anything better" (p 129) (If our statesmen were really educated in