CH. 8 THE PROPENSITY TO CONSUME: I 95

capital-profits, death-duties and the like are as relevantas the rate of interest; whilst the range of possiblechanges in fiscal policy may be greater, in expectationat least, than for the rate of interest itself. If fiscalpolicy is used as a deliberate instrument for the moreequal distribution of incomes, its effect in increasingthe propensity to consume is, of course, all thegreater.1

We must also take account of the effect on theaggregate propensity to consume of Government sink-ing funds for the discharge of debt paid for out ofordinary taxation. For these represent a species ofcorporate saving, so that a policy of substantial sinkingfunds must be regarded in given circumstances asreducing the propensity to consume. It is for thisreason that a change-over from a policy of Governmentborrowing to the opposite policy of providing sinkingfunds(or vice versa) is capable of causing a severecontraction(or marked expansion) of effective demand.

(6) Changes in expectations of the relation between thepresent and the future level of income.—We must cata-logue this factor for the sake of formal completeness.But, whilst it may affect considerably a particular in-dividual’s propensity to consume, it is likely to averageout for the community as a whole. Moreover, it isa matter about which there is, as a rule, too much un-certainty for it to exert much influence.

We are left therefore, with the conclusion that in agiven situation the propensity to consume may be con-sidered a fairly stable function, provided that we haveeliminated changes in the wage-unit in terms of money.Windfall changes in capital-values will be capable ofchanging the propensity to consume, and substantial

1 It may be mentioned, in passing, that the effect of fiscal policy on thegrowth of wealth has been the subject of an important misunderstandingwhich, however, we cannot discuss adequately without the assistance of thetheory of the rate of interest to be given in Book IV.