Most modern business-cycle theories are couched in terms of 'cumulative processes'. Investment creates incomes which are spent on consumption goods, and consumption stimulates investment. The turning points of the cycle, crisis and recovery, have then to be explained by exogenous forces.
It can, however, be shown that the theory of cumulative processes is not beyond doubt. It is generally agreed that for various reasons a process of expansion will be accompanied by rising costs. In a world of immobile labour and specialized equipment, unemployment and idle resources may coexist with scarcity of factors and inelastic supply of output, and the concept of 'full employment' loses much of its meaning. If this is so, increasing demand for consumption goods must, by its effects on costs, adversely affect durable investment. During the upswing, the rise in costs and prices will be accentuated by commodity speculation. The faster the rise the sooner the boom will break, because durable investment becomes unprofitable. The dilemma of a monetary policy which aims at stabilizing the rate of expansion is recognized.
One of the more gratifying aspects of recent investigations into the trade cycle is the remarkable rapprochement on the nature and conditions of the cumulative processes of expansion and contraction. However much economists may quarrel about the forces determining the 'turning points' of the cycle, i.e. crisis and recovery, there exists today fairly wide agreement that the intermediate periods of the cycle, i.e. prosperity and depression, are character-