Turning Points in Business Cycles

By Leonard P. Ayres | Go to book overview
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PROBABLY the theories relating to depressions which are most widely accepted in this country are the ones that hold that hard times are caused by a lack of purchasing power on the part of consumers. The wide acceptance of these theories is of special importance because they underlie the policies with respect to wages and hours that were formerly embodied in the provisions of the NRA codes, and those that are now incorporated in the terms of the Wages and Hours Act.

The theory that prosperity can be engendered, and depressions avoided, by supplying consumers with increased purchasing power is the basis of the Townsend Plan. It was adopted as the most powerful argument of the advocates of the bonus payments to the veterans, and it is the fundamental doctrine of the whole program for spending our way out of depressions by priming the business pump through huge governmental expenditures financed by continued budget deficits. It is heavily relied upon by the advocates of our many and varied sorts of bonus payments to farmers.

It was noted in the last chapter that we now have index numbers based on the production data of the Federal Reserve System which show monthly changes since the beginning of 1899 in the physical volume of manufacturing production. These series show separately the output of durable goods and that of nondurable goods, and this latter compilation may be made to throw much light on the theories of the business cycle which place responsibility for depressions on shortages of consumer purchasing power.

Durable goods are the long-lasting goods. They include such things as iron and steel, building materials, machinery, automobiles, furniture, bridges, ships, locomotives, cars, and a long list


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Turning Points in Business Cycles


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