Full text: From Stagnation in the 30s to Slow Growth in the 70s.

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9 
The restauration of a normal u may come about by an increase 
in effective demand - by a shift to wages which is the same 
as a shift to consumption - or elsi-it may come about by 
a reduction in productive capacity. In the former case 
there will be an increase in the multiplier: The reduction 
in the growth rate will thus imply a structural change in favor 
of consumption at the cost of investment. 
The alternative form of adjustment, the elimination of capacity, 
will to some extent be inevitable, if we assume that firms 
have very different cost and some are at the margin of 
existence and profitability. They will be pushed out 
mostly on account of very high break-even points. The 
solution by way of capacity elimination will also be inevitable 
if there are special structural problems owing to technica_l 
change. But the expansion of demand can in principle also 
play a role in the reestablishment of normal capacity. In 
my book I relied only on the reduction in capacity because 
I started from a micro-economic analysis of a single industry. 
Now my message was of course that this adjustment to 
a reduction in growth does not work in our modern economy 
and has not worked already for a long time, because cut 
throat competition among giant firms is exceedingly dangerous 
and costly. The elimination of excess capacity by competition 
does not work. In consequence there arises a downward 
cumulative process based on the fact that the reduction in 
utilisation affects adversely investment. In this way 
a continuing decline of accumulation may well be explained. 
If in fact it stretches out over many decades one may however, 
well ask how it could take so long: One would have expected it 
to proceed rather more quickly. It would seem, intuitively, 
that there must have been counteracting forces acting as a 
brake on the decline.
	        

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