THE CYCLICAL CONSUMPTION- INCOME PATTERN
ONCE a revival is started, a cumulative process begins in which investment and consumption interact upon and stimulate one another--the first increment of investment induces an increase in consumption and this, in turn, induces further investment. This cumulative process, however, unless continually reinforced by spontaneous or independent investment, is likely to peter out rather quickly. This follows from the fact that a considerable part of the new income generated by investment is not used for consumption. Thus, the induced consumption expenditures tend continually to run down, and so, in turn, the induced investment slows up until the whole process comes to a standstill and thereafter rapidly develops into a cumulative downturn. The cumulative downward process similarly comes to a halt because, with lower incomes, consumption falls less rapidly than income and so offers an increasing resistance to a further decline.
The cumulative process, therefore, does not offer a valid theoretical basis upon which to predicate either a continued upward movement or a continued downward spiral. And it is equally precarious to pin one's faith upon the cumulative process to produce a sustained recovery. The recovery is not likely to reach any very high level, nor to be maintained for any considerable period of time, without the injection of a continuous flow of spontaneous or independent investment.
It is true that expenditures on durable consumers' goods