CHAPTER 8

THE PROPENSITY TO CONSUME: I. THE OBJECTIVE

FACTORS

I

We are now in a position to return to our main theme,from which we broke off at the end of Book I in orderto deal with certain general problems of method anddefinition. The ultimate object of our analysis is todiscover what determines the volume of employment.So far we have established the preliminary conclusionthat the volume of employment is determined by thepoint of intersection of the aggregate supply functionwith the aggregate demand function. The aggregatesupply function, however, which depends in the mainon the physical conditions of supply, involves few con-siderations which are not already familiar. The formmay be unfamiliar but the underlying factors are not

We shall return to the aggregate supply func-tion in Chapter 20, where we discuss its inverse underthe name of the employment function. But, in the main,it is the part played by the aggregate demand functionwhich has been overlooked; and it is to the aggregatedemand function that we shall devote Books III and IV.

The aggregate demand function relates any givenlevel of employment to the“ proceeds” which that levelof employment is expected to realise. The “proceeds”are made up of the sum of two quantities— the sumwhich will be spent on consumption when employmentis at the given level, and the sum which will be devoted

new.

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