NHE卫 CONOMIC JOURNAL MARCH unit increment of output actually produced. Circulating and fixed capital are lumped together 1(a) is a truism, depending on the proposition that actual saving in a period(excess of the income in that period over consumption)is equal to the addition to the capital stock. Total saving is equal to ro. The addition to the capital stock is equal to Cp(i-wo This follows from the definition of C. And 发b Cp(a G is the rate of increase in total output which actually occurs; Cp is the increment in the stock of capital divided by the increment in total output which actually occurs, If the value of the incre- ment of stock of capital per unit increment of output which actually occurs, Cp, is equal to C, the amount of capital per unit increment of output required by technological and other conditions(including the state of confidence, the rate of interest, ete. )then clearly the increase which actually occurs is equal to the increase which is justified by the circumstances. This means that, since Cp includes ll goods(circulating and fixed capital), and is in fact production minus consumption per unit increment of output during the period, the sum of decisions to produce, to which g gives expression, are on balance justified-i.e, if C=Cp, then G= Ge, and(from 1(a) above) This is the fundamental equation, stated in paragraph 4, which determines the warranted rate of growth. To give numerical alues to these symbols, which may be fairly representative of odern conditions: if 10 per cent. of income were saved and the capital coefficient per annum(C) were equal to 4, the warranted rate of growth would be 2 per cent per annum It may be well to emphasise at this point that no distinction is drawn in this theory between capital goods and consumption good In measuring the increment of capital, the two are taken together the increment consists of total production less total consumption Some trade-cycle theorists concern themselves with a possible lack of balance between these two categories no doubt that has its importance. The theory here considered is more fundamental or simple; it is logically prior to the considerations regarding lack
AN ESSAY IN DYNAMIC THEORY of balance, and grasp of it is required as a preliminary to the study of them erminology recently employed by distinguishe authorities, C, is an ex post quantity. I am not clear if C should be regarded as its corresponding ex ante. C is rather that addition to capital goods in any period, which producers regard as ideally suited to the output which they are undertaking in that period For convenience the term ea ante when employed in this article ill be used in this sense The truism stated above, 1(a), gives expression to Mr. Keynes proposition that saving is necessarily equal to investment--that is to ex post investment. Saving is not necessarily equal to ea ante investment in this sense, since unwanted accretions or depletions of stocks may occur, or equipment may be found to have been produced in excess of, or short of, requirements If ec post investment is less than ea ante investment, this means that there has been an undesired reduction of stocks or insufficient provision of productive equipment, and there will be a stimulus to further expansion of output; conversely if eac post investment exceeds ex ante investment. If ea post investment is less than ea ante investment, saving is less than ex ante investment In his Treatise on Money Mr. Keynes formulated a proposition, which has been widely felt to be enlightening, though experience has led him subsequently to condemn the definitions employed as more likely to be misconstrued than helpful. He said that if investment exceeded saving, the system would be stimulated to expand, and conversely. If for the definitions on which that proposition was based, we ubstitute the definition of e ante invest ment given above, it is true that if ec ante investment exceeds saving, the system will be stimulated, and conversely. This truth may nt for the feeling of satisfaction which Mr Keynes'proposition originally evoked and the reluctance to abandon it at his behest. In many connections we are more interested in ea ante than in ex post investment, the latterincluding as it does unwanted accretions of stocks. Mr. Keynes'propos tion of the Treatise may still be a useful aid to thinking, if we substitute for Investment ' in it ex ante investment as defined above 7. Two minor points may be considered before we proceed with the main argument (i)It may be felt that there is something unreal in t analysis, since the increase in capital which producers will regard as right in period 1 is in the real world related not to the increase