Full text: Trend and Cycle

The trend is a slow movement,non-reversible, and the underlying 
type of behaviour is based on long run perspectives ("long run 
expectations 0 ) and perhaps also on long run memory. 
The cycle is a relatively quick movement,reversible,based on short 
run memory (current or rather recent experience) and, it seems 
implied, short run perspectives. ( Short run in this context 
refers to events within the course of a single business 
cycle,while long run goes beyond the experience of a cycle). 
Once these intuitive interpretations are accepted it becomes 
rather puzzling that many authors from Aftalion to Frisch and 
Kalecki have regarded the trade cycle as essentially produced by 
fluctuations in fixed capital investment. But we are inclined 
,with Keynes,to think of fixed investment as based on a long run 
perspective and not merely on the spur of the current boom. And it 
seems rather irrational to base it on short run memory ,that is on 
the current or very recent market data. 
One could imagine a variety of possible conclusions from this 
dilemma. The most radical conclusion would be that the business 
cycle is not a matter of fluctuations in fixed capital investment 
but rather a matter of inventory accumulation. In this way the 
contradiction would be cleanely eliminated. This is the path 
chosen by Goodwin in his paper The trend and the cycle (Goodwin 
1982 p.116) where he appeals to the empirical work of Abramovitz 
which demonstrates the large extent and impact of fluctuations in 
inventory accumulation in the course of the cycle. Naturally 
Goodwin recognises that there are large fluctuations in fixed 
investment in the cycle as well but he regards these as induced by 
the inventory accumulation. 
Goodwin’s paper has led me to the following idea: It is reasonable 
to think that much of fixed investment is planned, projected and 
prepared with a long run perspective and quite independently of 
the cyclical conditions. This is specially true where the 
investment is motivated by technical considerations. It is only 
the timing of the ultimate realisation of the project which very 
often (but not necessarily) is synchronised with the cycle: The 
investment projects in question are not necessarily planned with a 
view to immediate execution but may be kept in store for some 
time. The time when they are taken out and executed is often the 
beginning recovery when an athmosphere of optimism infects the 
planner and overcomes his hesitations. A rational motive will be 
that at this juncture finance usually is cheapest and easiest to 
obtain. It may be noted that by this last explanation we also 
bypass an old contentious question: Whether or how far the rate of 
interest has an effect on investment. Even if it has none in the 
sense in which the question was always understood it would with 
high plausibility affect the timing of the investment. Even modest 
differences of the cost of borrowing in different periods of time 
might have a strong influence on the choice of time for execution 
of a big investment project. 
The idea of distinguishing two things: Whether or how to invest, 
and when to invest enables us to understand the double role of 
investment, as an irreversible trend component embodying new

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