CHAPTER 27
RENTIERS AND THE TRADE CYCLE

THE existence of rentier incomes complicates the analysis of short-run fluctuations in activity, without affecting the main lines of our former argument.


THE BOOM

When the rate of investment first begins to increase during the revival from a depression rentier receipts may still be falling, as the backwash from an earlier period of low profits, but after a time they begin to rise. Their rise in money terms is less than in proportion to the rise in profits, partly because of interest payments fixed in terms of money, and partly because many entrepreneurs try to keep dividends stable, so that they retain in the business a larger proportion of profits when profits are high. Against this, the second-hand value of placements is likely to be rising (a bull movement on the Stock Exchange follows improved prospects of profit) so that in so far as rentiers regard capital appreciation as part of spendable income, their spending power in money terms may increase as much or more than in proportion to profits.

In general, it seems that the former influence is more powerful than the latter. Moreover, rentiers may regard boom dividends as exceptional and prudently refrain from spending them. Thus the addition to rentier spending that takes place as profits rise bears a smaller ratio to the addition to profits than does total spending to total profits.

We discussed the movement of output and employment in the consumption sector in terms of two extreme cases. At one extreme the output of commodities remains constant and

-264-

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