by Shackle
[Front Matter and Table of Contents]: Front matter for the 1968 second edition of Shackle's work, including publication details, prefaces to both the first and second editions, and the table of contents. The prefaces establish the timeline of the work's development between 1937 and 1967. [Two Languages for General-Output Theory (1967 Essay)]: A 1967 introductory essay by Shackle comparing the methodologies of Keynes's 'Treatise on Money' and 'General Theory' with the Swedish 'sequence analysis' of Myrdal and Lindahl. Shackle argues that the General Theory's equilibrium approach obscures the vital role of inconsistent expectations, which are better captured by the ex ante/ex post distinction. He critiques the 'static' interpretation of Keynes, defends the open-ended nature of investment based on uncertainty, and previews his own theories of the business cycle involving the Multiplier and the 'testing-phase' of investment projects. [Introduction and Definitions]: The introduction to the original text defines key terms such as investment (as a flow or speed), aggregate income, and the Multiplier. It introduces the Swedish concepts of ex ante and ex post as tools for analyzing expectations versus realized outcomes. Shackle explicitly links the lifting of aggregate income to the acceleration of investment through the Multiplier effect. [Chapter II: Outline of a Theory of the Business Cycle]: Shackle outlines his theory of the business cycle, focusing on how entrepreneurs decide output levels under uncertainty. He defines aggregate income as the sum of consumption and investment flows and establishes a causal chain where changes in expectations drive investment, which in turn drives aggregate income. The section details the accounting of costs (prime, total, and time-depreciation) and how realized income is determined ex post after decisions are made based on ex ante expectations. [Investment Valuation and Windfall Profits]: Shackle defines investment as a magnitude measured from the standpoint of the end of a short interval, where items are valued based on the owner's knowledge at that time. He distinguishes between income-related calculations and windfall profits or losses on capital accounts, which arise from changes in expectations regarding future production opportunities or interest rates rather than active production. [The Determinants of Interest Rates and Liquidity Preference]: This section examines why wealth is held in liquid form despite the sacrifice of interest income. Shackle discusses the transactions-motive for holding cash and explains how long-term interest rates are determined by the competing expectations of 'bulls' and 'bears' regarding future bond prices. He notes that a higher flow of money does not necessarily raise interest rates unless it strengthens the desire for instantaneous cash balances. [The Entrepreneur's Project Planning and Discounted Present Value]: Shackle outlines the mathematical process an entrepreneur uses to project the construction and operation of a new plant. By discounting expected direct outlays and future certainty-equivalents of profit back to the present moment, the entrepreneur determines the plant's present value. Investment decisions are based on whether the discounted prospective yield equals or exceeds the discounted construction cost. [The Multiplier Effect and Self-Intensifying Activity]: Drawing on Keynes and Kahn, Shackle explains how an increase in investment leads to a self-intensifying boom through the Multiplier. Increased investment creates extra income, which is partially spent on consumption, leading to further employment in consumption-goods industries. This cumulative process is often unexpected by individual entrepreneurs, who view the resulting rise in demand as a fresh signal for further investment. [The Structure of Production and the Equipment Industries]: Shackle categorizes industries into 'straight-sequence' (producing consumables) and 'equipment' industries. He highlights how the durability of equipment makes the demand for new construction highly volatile compared to maintenance. A small increase in the desired total stock of equipment can lead to a massive, though temporary, surge in demand for the output of equipment industries, fueling the boom. [Lags and the Breakdown of the Boom]: This section explores why booms last for years rather than weeks, citing lags in consumption response, technical production sequences, and entrepreneurial perception. Shackle then analyzes the breakdown of the boom, considering factors like the approach to full employment, inelastic supply of construction resources, and the role of rising interest rates as the transactions-motive exhausts the money supply. [Recovery and the Definition of Aggregate Income]: Shackle describes how the downward spiral is arrested as the marginal propensity to save falls, stabilizing consumption. Recovery begins as the memory of the crisis fades and new inventions or changes in taste create fresh profit opportunities. He concludes by refining the definition of 'income of the economy' as the sum of consumption sale-proceeds and net additions to equipment value. [Speculation and the Long-Term Rate of Interest]: Shackle analyzes the speculative motive for holding cash, focusing on the risk of capital loss on fixed-interest securities. He argues that the long-term rate of interest is maintained by the existence of conflicting expectations ('bulls' vs. 'bears'). If a single opinion were universally held, the rate would change instantly; thus, the rate's stability depends on a balance of divergent errors regarding the future. [A Formal Theory of Investment Speed]: Shackle provides a formal mathematical framework for the speed of investment. He decomposes the cost of output into labour-cost and equipment-cost, and defines the speed of investment as the flow of value-additions to equipment minus subtractions for use, decay, and obsolescence. The entrepreneur optimizes the speed of outlay where the marginal cost of investment equals the marginal growth in equipment value. [Running Costs and the Determination of Plant Present Value]: Shackle defines expected running costs as comprising labor costs, transformable materials, and the cost of replacing durable apparatus parts necessitated by wear. He explains how an entrepreneur in perfect competition determines the optimal time-shape of production by maximizing the total discounted value of the difference between sales proceeds and running costs, utilizing certainty-equivalents to handle probability distributions of future yields. [Components and Predictability of Investment Speed]: The author divides investment into five components: increase of stocks, repairs, new plant construction, equipment costs (z), and risk (q). He analyzes the time-shape of outlay during plant construction, identifying a significant lag between the decision to invest and the peak speed of investment, and argues that entrepreneurs require a 'breathing-space' between large extensions to observe results and reduce uncertainty. [Expectations, Interest Rates, and Investment Elasticity]: Shackle analyzes how changes in expectations regarding prices, technique, interest rates, and construction costs affect investment. He demonstrates that a fall in the long-term interest rate disproportionately stimulates the production of highly durable equipment because the elasticity of present value to interest rate changes increases in proportion to the time-distance of the yield. [The Mechanism of the Boom: Multipliers and Price Revisions]: This section details the cumulative process of an economic boom. It explains how initial investment (e.g., from an invention) creates income via the Multiplier (Kahn/Keynes), leading to increased consumption and further upward revisions of plant values. Shackle notes that as the boom progresses, less efficient plants are restarted, driving prices up and further incentivizing new construction despite rising resource costs. [Age-Distribution of Equipment and Construction Continuity]: Shackle explores how the age-distribution of an economy's equipment can lead to fluctuations in investment demand, using a mathematical model of replacement cycles. He also provides a demonstration that unexpected rises in construction costs are unlikely to halt projects already in progress, as the marginal cost to complete a plant decreases as it nears the fixed completion date. [Inventions and Economic Recovery]: The author examines how inventions serve as a catalyst for economic recovery by providing fresh investment opportunities that prevent the marginal efficiency of capital from declining. He distinguishes between new consumables and new production methods, arguing that a new technique triggers immediate investment by making existing old-type plants obsolete through price competition, even if idle capacity exists. [Factors Influencing Investment in New Techniques]: Shackle details six specific factors determining the size of additional investment-flow resulting from an invention, including output increases, plant construction costs, and equipment industry induced demand. He analyzes how the adoption of new techniques depends on the relationship between discounted prospective yields and construction costs, and how the rate of interest dictates the degree of mechanization and durability chosen for new plants. [Economic Stimuli and the Classification of Inventions]: This section examines how new techniques impact investment-flow based on whether product prices fall below the running costs of old plants. Shackle critiques J.R. Hicks's distinction between autonomous and induced inventions, arguing that induced inventions primarily respond to changes in natural resource availability or interest rates. He categorizes inventions based on their effect on running costs versus equipment costs per unit of product. [Mathematical Modeling of Investment-Flow and New Consumables]: Shackle provides a symbolic representation of additional investment-flow for two cases: where product price remains above old running costs and where it falls below. He also briefly discusses inventions of new consumables, noting that the construction of specialized equipment for new goods typically outweighs the reduction in replacement investment for competing older goods, often leading to a delayed 'boom' once initial ventures prove successful. [Chapter VI: The Nature of the Business Cycle]: Shackle explores why economic booms inevitably break down, even in the absence of rising interest rates or labor shortages. He proposes a theory of 'time-clustering,' where entrepreneurs concurrently embark on plant extensions, followed by a necessary 'pause for consolidation' to observe results and manage new scales of operation. This clustering creates an exhaustion of investment opportunities, leading to a downward Multiplier effect and a subsequent slump. [Expectations and the Self-Falsifying Nature of Booms]: Shackle presents an alternative theory of the crisis based on the self-falsifying nature of expectations. If entrepreneurs become convinced that yields will continue to rise and push investment to a maximum level based on that belief, the lack of further acceleration removes the unexpected Multiplier effect. This causes yields to stagnate, leading to downward revisions of value and a steep decline in investment. The same mechanism works in reverse to initiate recovery from a depression. [Chapter VII: Asymmetry of the Multiplier and the Approach to Recovery]: Shackle analyzes the asymmetry between economic upswings and downswings, noting that the decline of income is often more rapid than its rise. He attributes this to the 'downward Multiplier' and the increasing reluctance to sacrifice consumption as income falls. He also discusses the role of banks in tightening credit during a crisis and how the eventual cessation of inventory disinvestment and the need for equipment maintenance trigger the transition from slump to recovery. [Appendix to Chapter IV: Precise Treatment of Investment Growth]: The appendix provides a formal mathematical treatment of the arguments in Chapter IV. Shackle models the growth of investment as a series of jumps based on the number of schemes rendered profitable by rising aggregate income. He demonstrates how the aggregate speed of investment depends on the initial stimulus, the shape of the profitability function, and the lengths of the design and execution periods for new equipment. [Index]: A comprehensive index of terms, concepts, and thinkers discussed in the work, including detailed sub-entries for the interest-rate, investment, expectations, and the theories of Keynes and Myrdal.
Front matter for the 1968 second edition of Shackle's work, including publication details, prefaces to both the first and second editions, and the table of contents. The prefaces establish the timeline of the work's development between 1937 and 1967.
Read full textA 1967 introductory essay by Shackle comparing the methodologies of Keynes's 'Treatise on Money' and 'General Theory' with the Swedish 'sequence analysis' of Myrdal and Lindahl. Shackle argues that the General Theory's equilibrium approach obscures the vital role of inconsistent expectations, which are better captured by the ex ante/ex post distinction. He critiques the 'static' interpretation of Keynes, defends the open-ended nature of investment based on uncertainty, and previews his own theories of the business cycle involving the Multiplier and the 'testing-phase' of investment projects.
Read full textThe introduction to the original text defines key terms such as investment (as a flow or speed), aggregate income, and the Multiplier. It introduces the Swedish concepts of ex ante and ex post as tools for analyzing expectations versus realized outcomes. Shackle explicitly links the lifting of aggregate income to the acceleration of investment through the Multiplier effect.
Read full textShackle outlines his theory of the business cycle, focusing on how entrepreneurs decide output levels under uncertainty. He defines aggregate income as the sum of consumption and investment flows and establishes a causal chain where changes in expectations drive investment, which in turn drives aggregate income. The section details the accounting of costs (prime, total, and time-depreciation) and how realized income is determined ex post after decisions are made based on ex ante expectations.
Read full textShackle defines investment as a magnitude measured from the standpoint of the end of a short interval, where items are valued based on the owner's knowledge at that time. He distinguishes between income-related calculations and windfall profits or losses on capital accounts, which arise from changes in expectations regarding future production opportunities or interest rates rather than active production.
Read full textThis section examines why wealth is held in liquid form despite the sacrifice of interest income. Shackle discusses the transactions-motive for holding cash and explains how long-term interest rates are determined by the competing expectations of 'bulls' and 'bears' regarding future bond prices. He notes that a higher flow of money does not necessarily raise interest rates unless it strengthens the desire for instantaneous cash balances.
Read full textShackle outlines the mathematical process an entrepreneur uses to project the construction and operation of a new plant. By discounting expected direct outlays and future certainty-equivalents of profit back to the present moment, the entrepreneur determines the plant's present value. Investment decisions are based on whether the discounted prospective yield equals or exceeds the discounted construction cost.
Read full textDrawing on Keynes and Kahn, Shackle explains how an increase in investment leads to a self-intensifying boom through the Multiplier. Increased investment creates extra income, which is partially spent on consumption, leading to further employment in consumption-goods industries. This cumulative process is often unexpected by individual entrepreneurs, who view the resulting rise in demand as a fresh signal for further investment.
Read full textShackle categorizes industries into 'straight-sequence' (producing consumables) and 'equipment' industries. He highlights how the durability of equipment makes the demand for new construction highly volatile compared to maintenance. A small increase in the desired total stock of equipment can lead to a massive, though temporary, surge in demand for the output of equipment industries, fueling the boom.
Read full textThis section explores why booms last for years rather than weeks, citing lags in consumption response, technical production sequences, and entrepreneurial perception. Shackle then analyzes the breakdown of the boom, considering factors like the approach to full employment, inelastic supply of construction resources, and the role of rising interest rates as the transactions-motive exhausts the money supply.
Read full textShackle describes how the downward spiral is arrested as the marginal propensity to save falls, stabilizing consumption. Recovery begins as the memory of the crisis fades and new inventions or changes in taste create fresh profit opportunities. He concludes by refining the definition of 'income of the economy' as the sum of consumption sale-proceeds and net additions to equipment value.
Read full textShackle analyzes the speculative motive for holding cash, focusing on the risk of capital loss on fixed-interest securities. He argues that the long-term rate of interest is maintained by the existence of conflicting expectations ('bulls' vs. 'bears'). If a single opinion were universally held, the rate would change instantly; thus, the rate's stability depends on a balance of divergent errors regarding the future.
Read full textShackle provides a formal mathematical framework for the speed of investment. He decomposes the cost of output into labour-cost and equipment-cost, and defines the speed of investment as the flow of value-additions to equipment minus subtractions for use, decay, and obsolescence. The entrepreneur optimizes the speed of outlay where the marginal cost of investment equals the marginal growth in equipment value.
Read full textShackle defines expected running costs as comprising labor costs, transformable materials, and the cost of replacing durable apparatus parts necessitated by wear. He explains how an entrepreneur in perfect competition determines the optimal time-shape of production by maximizing the total discounted value of the difference between sales proceeds and running costs, utilizing certainty-equivalents to handle probability distributions of future yields.
Read full textThe author divides investment into five components: increase of stocks, repairs, new plant construction, equipment costs (z), and risk (q). He analyzes the time-shape of outlay during plant construction, identifying a significant lag between the decision to invest and the peak speed of investment, and argues that entrepreneurs require a 'breathing-space' between large extensions to observe results and reduce uncertainty.
Read full textShackle analyzes how changes in expectations regarding prices, technique, interest rates, and construction costs affect investment. He demonstrates that a fall in the long-term interest rate disproportionately stimulates the production of highly durable equipment because the elasticity of present value to interest rate changes increases in proportion to the time-distance of the yield.
Read full textThis section details the cumulative process of an economic boom. It explains how initial investment (e.g., from an invention) creates income via the Multiplier (Kahn/Keynes), leading to increased consumption and further upward revisions of plant values. Shackle notes that as the boom progresses, less efficient plants are restarted, driving prices up and further incentivizing new construction despite rising resource costs.
Read full textShackle explores how the age-distribution of an economy's equipment can lead to fluctuations in investment demand, using a mathematical model of replacement cycles. He also provides a demonstration that unexpected rises in construction costs are unlikely to halt projects already in progress, as the marginal cost to complete a plant decreases as it nears the fixed completion date.
Read full textThe author examines how inventions serve as a catalyst for economic recovery by providing fresh investment opportunities that prevent the marginal efficiency of capital from declining. He distinguishes between new consumables and new production methods, arguing that a new technique triggers immediate investment by making existing old-type plants obsolete through price competition, even if idle capacity exists.
Read full textShackle details six specific factors determining the size of additional investment-flow resulting from an invention, including output increases, plant construction costs, and equipment industry induced demand. He analyzes how the adoption of new techniques depends on the relationship between discounted prospective yields and construction costs, and how the rate of interest dictates the degree of mechanization and durability chosen for new plants.
Read full textThis section examines how new techniques impact investment-flow based on whether product prices fall below the running costs of old plants. Shackle critiques J.R. Hicks's distinction between autonomous and induced inventions, arguing that induced inventions primarily respond to changes in natural resource availability or interest rates. He categorizes inventions based on their effect on running costs versus equipment costs per unit of product.
Read full textShackle provides a symbolic representation of additional investment-flow for two cases: where product price remains above old running costs and where it falls below. He also briefly discusses inventions of new consumables, noting that the construction of specialized equipment for new goods typically outweighs the reduction in replacement investment for competing older goods, often leading to a delayed 'boom' once initial ventures prove successful.
Read full textShackle explores why economic booms inevitably break down, even in the absence of rising interest rates or labor shortages. He proposes a theory of 'time-clustering,' where entrepreneurs concurrently embark on plant extensions, followed by a necessary 'pause for consolidation' to observe results and manage new scales of operation. This clustering creates an exhaustion of investment opportunities, leading to a downward Multiplier effect and a subsequent slump.
Read full textShackle presents an alternative theory of the crisis based on the self-falsifying nature of expectations. If entrepreneurs become convinced that yields will continue to rise and push investment to a maximum level based on that belief, the lack of further acceleration removes the unexpected Multiplier effect. This causes yields to stagnate, leading to downward revisions of value and a steep decline in investment. The same mechanism works in reverse to initiate recovery from a depression.
Read full textShackle analyzes the asymmetry between economic upswings and downswings, noting that the decline of income is often more rapid than its rise. He attributes this to the 'downward Multiplier' and the increasing reluctance to sacrifice consumption as income falls. He also discusses the role of banks in tightening credit during a crisis and how the eventual cessation of inventory disinvestment and the need for equipment maintenance trigger the transition from slump to recovery.
Read full textThe appendix provides a formal mathematical treatment of the arguments in Chapter IV. Shackle models the growth of investment as a series of jumps based on the number of schemes rendered profitable by rising aggregate income. He demonstrates how the aggregate speed of investment depends on the initial stimulus, the shape of the profitability function, and the lengths of the design and execution periods for new equipment.
Read full textA comprehensive index of terms, concepts, and thinkers discussed in the work, including detailed sub-entries for the interest-rate, investment, expectations, and the theories of Keynes and Myrdal.
Read full text