100 THE GENERAL THEORY OF EMPLOYMENT BK. III

during a period which immediately succeeds a livelyburst of investment in long-lived capital. For in suchcircumstances a very large proportion of the new itemsof investment may be absorbed by the larger financialprovisions made by entrepreneurs in respect of existingcapital equipment, upon the repairs and renewal ofwhich, though it is wearing out with time, the date hasnot yet arrived for spending anything approachingthe full financial provision which is being set aside;with the result that incomes cannot rise above a levelwhich is low enough to correspond with a low aggregateof net investment. Thus sinking funds, etc., are aptto withdraw spending power from the consumer longbefore the demand for expenditure on replacements(which such provisions are anticipating) comes intoplay; i.e. they diminish the current effective demandand only increase it in the year in which the replace-ment is actually made. If the effect of this is aggravatedby “financial prudence”, i.e. by its being thoughtadvisable to “write off” the initial cost more rapidlythan the equipment actually wears out, the cumulativeresult may be very serious indeed.

In the United States, for example, by 1929 therapid capital expansion of the previous five years hadled cumulatively to the setting up of sinking funds anddepreciation allowances, in respect of plant which didnot need replacement, on so huge a scale that anenormous volume of entirely new investment was re-quired merely to absorb these financial provisions; andit became almost hopeless to find still more new invest-ment on a sufficient scale to provide for such new savingas a wealthy community in full employment would bedisposed to set aside. This factor alone was probablysufficient to cause a slump. And, furthermore, since“financial prudence” of this kind continued to beexercised through the slump by those great corpora-tions which were still in a position to afford it, it offereda serious obstacle to early recovery.