CH. 22

NOTES ON THE TRADE CYCLE

329

sponds to the lower rate of interest or the increasedvolume of transactions, and it is held by those indi-viduals who prefer to hold money rather than to lendit at the lower rate of interest. Or, once more, it issuggested that a boom is characterised by “capitalconsumption”, which presumably means negative netinvestment, i.e. by an excessive propensity to consume.Unless the phenomena of the trade cycle have beenconfused with those of a flight from the currencysuch as occurred during the post-war European cur-rency collapses, the evidence is wholly to the contrary.Moreover, even if it were so, a reduction in the rateof interest would be a more plausible remedy than arise in the rate of interest for conditions of under-in-vestment. I can make no sense at all of these schoolsof thought; except, perhaps, by supplying a tacitassumption that aggregate output is incapable ofchange. But a theory which assumes constant outputis obviously not very serviceable for explaining thetrade cycle.

VII

In the earlier studies of the trade cycle, notably byJevons, an explanation was found in agricultural fluc-tuations due to the seasons, rather than in the pheno-mena of industry. In the light of the above theorythis appears as an extremely plausible approach to theproblem. For even to-day fluctuation in the stocks ofagricultural products as between one year and anotheris one of the largest individual items amongst the causesof changes in the rate of current investment; whilstat the time when Jevons wrote—and more particularlyover the period to which most of his statistics applied—this factor must have far outweighed all others.

Jevons’s theory, that the trade cycle was primarilydue to the fluctuations in the bounty of the harvest, canbe re-stated as follows. When an exceptionally largeharvest is gathered in, an important addition is usually