CHAPTER 10

THE MARGINAL PROPENSITY TO CONSUME AND

THE MULTIPLIER

We established in Chapter 8 that , unless something occurs to change the propensity to consume , employ­ ment can only increase pari passu with investment . We can now carry this line of thought a stage further . For in given circumstances a definite ratio , to be called the Multiplier , can be established between income and in­ vestment and , subject to certain simplifications , between the total employment and the employment directly employed on investment ( which we shall call the primary employment ) . This further step is an integral part of our theory of employment , since it establishes a precise relationship , given the propensity to consume , between aggregate employment and income and the rate of investment . The conception of the multiplier was first introduced into economic theory by Mr . R . F . Kahn in his article on The Relation of Home Invest­ ment to Unemployment ( Economic Journal , June 1931 ) . His argument in this article depended on the fundamental notion that , if the propensity to consume in various hypothetical circumstances is ( together with certain other conditions ) taken as given and we con­ ceive the monetary or other public authority to take steps to stimulate or to retard investment , the change in the amount of employment will be a function of the net change in the amount of investment ; and it aimed at laying down general principles by which to estimate the actual quantitative relationship between an incre­

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