shift in distribution owing to the interest payments may and most probably
will,however, influence effective demand in the long run unfavorably if, as is
likely, the interest income is less readily spent than most other incomes. In
all cases the shift to interest receivers can be avoided if the total income of
society increases correspondingly so that relatively speaking the position of
rentiers is unchanged. The aftereffects of a consumers'credit or a budget
deficit will become more inconvenient if the (net) borrowing is repeated, with
the object of holding effective demand on the same level. The income is then
shifted more and more to the rentiers. Since the interest has to be paid out of
the new credits these have either to be increased or the effective demand
created will decrease. Similar effects will obtain in the case of continuing
increase in land or other asset prices.
If, in order to escape from these troubles, measures are taken to reduce the
debt then this will necessarily mean a corresponding more or less drastic
restriction of effective demand. The experience of this is nowadays familiar to
everybody in view of the frequent instances of restrictive budget policies. The
dilemma is, however, the same for households and corporations.
VII.LINKS TO THE THEORY OF INFLATION
We have drawn a parallel between the concepts of Investment and Saving on the
one hand and "Inflationary Spending" on Assets and Realised Capital Gains on the
other. Actually this parallel is really hardly new or strange to the Keynesian
tradition if we think of the way in which Keynes dealt with the phenomenon of
demand inflation ( Kalecki's opinion on the subject was the same). The logic of
effective demand implies that in an underemployed economy additional investment
( or budget expenditure or exports or any other additional kind of spending )
will call forth additional output and incomes sufficient to create the saving
necessary to finance the investment. If, however, full or over full employment
of resources has been reached so that additional output can not materialise then
further additions to investment ( or other types of spending ) will exhaust
themselves in an increase of prices and the excess profits thereby created will
finance the investment ( or other types of spending ). Thus the identity of the
amounts of investment and saving will again be established but by a different
mechanism - increase of prices rather than increase in output. In the case of
raw materials where supply is inflexible at least in the short run the price
adjustment method is valid even in an otherwise underemployed economy.
The view of capital gains suggested in this paper is nothing but the application
of the same ideas to the special case of non-reproduceable or limited assets, a