76 THE GENERAL THEORY OF EMPLOYMENT BK. II

investment from which such changes are excluded.In this case an excess of saving over investment wouldbe the same thing as an undesigned increment inthe stock of unsold goods, i.e. as an increase ofliquid capital. Mr. Hawtrey has not convinced methat this is the factor to stress; for it lays all theemphasis on the correction of changes which werein the first instance unforeseen, as compared withthose which are, rightly or wrongly, anticipated. Mr.Hawtrey regards the daily decisions of entrepreneursconcerning their scale of output as being varied fromthe scale of the previous day by reference to the changesin their stock of unsold goods. Certainly, in the caseof consumption goods, this plays an important part intheir decisions. But I see no object in excluding theplay of other factors on their decisions; and I prefer,therefore, to emphasise the total change of effectivedemand and not merely that part of the change ineffective demand which reflects the increase or decreaseof unsold stocks in the previous period. Moreover,in the case of fixed capital, the increase or decrease ofunused capacity corresponds to the increase or decreasein unsold stocks in its effect on decisions to produce;and I do not see how Mr. Hawtrey’s method canhandle this at least equally important factor.

It seems probable that capital formation and capitalconsumption, as used by the Austrian school of eco-nomists, are not identical either with investment anddisinvestment as defined above or with net investmentand disinvestment. In particular, capital consumptionis said to occur in circumstances where there is quiteclearly no net decrease in capital equipment as definedabove. I have, however, been unable to discover areference to any passage where the meaning of theseterms is clearly explained. The statement, for example,that capital formation occurs when there is a lengtheningof the period of production does not much advancematters.