Gottfried Haberler · 1946
Prosperity and Depression: A Theoretical Analysis of Cyclical Movements
About this work
Prosperity and Depression — Summary
Gottfried Haberler’s Prosperity and Depression is a critical synthesis of business-cycle theory written for the League of Nations, not a defense of a single school. It asks why disturbances in market economies become cumulative waves of prosperity and depression, and it treats monetary forces, investment structure, saving, expectations, agriculture, Keynesian analysis, and international transmission as interdependent parts of one process.
The purpose is rather to gather together various hypotheses of explanation, to test their logical consistency and their compatibility with one another and with accepted economic principles.
The book’s governing principle is anti-monocausal. A shock may begin an upswing or a downturn, but initiation is not explanation: Haberler wants to know how credit, prices, costs, profits, debts, inventories, and confidence magnify change and then reverse direction. Hence he rejects theories that reduce crises to money alone, technology alone, saving alone, or psychology alone.
explanations which run in terms of one single cause have been more and more discredited and should be regarded with suspicion.
Part I classifies and tests the major theories. Hawtrey’s monetary account shows how bank credit, merchants’ inventories, discount policy, and velocity can generate expansion and contraction, though Haberler doubts that every crisis is merely monetary. He gives more sustained attention to over-investment theories because they explain how booms can distort the structure of production, especially by expanding capital-goods industries beyond what saving, final demand, or complementary resources can sustain. His distinction between vertical maladjustment among stages of production and horizontal maladjustment among industries lets him compare Wicksellian and Hayekian ideas of forced saving with Spiethoff’s, Cassel’s, and Schumpeter’s emphasis on innovations and new markets. The acceleration principle is crucial because it shows how small changes in consumption can cause amplified movements in investment.
The acceleration principle and the over-investment theory as discussed in the preceding pages are in reality not alternative but complementary explanations.
Haberler is more skeptical of under-consumption theories. Simplified versions imagine a chronic excess of production over consumption; refined versions claim that saving may outrun investment. He translates these claims into problems of definition, time period, expectations, and the demand for capital. Keynes is treated similarly: liquidity preference and the multiplier illuminate hoarding, interest, and income propagation, but they do not displace older questions about credit conditions, relative prices, profits, and the capital structure.
Part II develops Haberler’s own general account. A cycle is not any fluctuation caused by war, weather, or accident, but a recurrent cumulative movement in money demand, credit, production, prices, costs, and investment. Expansion often begins where idle labor and capacity make output responsive: credit creation or dishoarding raises incomes, sales, profits, investment, and optimism. As full employment approaches, however, costs rise, bottlenecks appear, credit becomes less elastic, and earlier investment commitments reveal disproportions. Contraction then spreads through falling demand, debt liquidation, hoarding, bank caution, pessimism, and collapsing investment.
Deflation in the sense of a gradual decrease in the total demand for goods in terms of money plays an essential rôle in the contraction process.
The turning points are asymmetrical. Restrictive credit can usually stop an expansion, but cheap money may fail in depression when expected yields are low, capacity is unused, banks are cautious, and firms see no profitable outlet. Recovery requires altered real and psychological conditions: lower costs, replacement needs, depleted inventories, accumulated balances, new opportunities, public demand, or restored confidence. Haberler extends this framework internationally, showing that gold-standard rules, exchange rates, tariffs, capital movements, transport costs, banking systems, and exchange controls determine how disturbances travel. Protection may shield one country briefly, but generalized protection deepens world contraction. Part III reassesses multiplier-accelerator models, econometrics, Hayek’s Ricardo effect, price rigidity, and public spending. Haberler values formal models and deficit spending in some depressions, yet insists that shifting expectations, credit constraints, capacity limits, and institutions prevent mechanical policy rules. The book’s lasting contribution is disciplined eclecticism: prosperity and depression are phases of one unstable adjustment mechanism, not mysteries explained by a single cause.
Sections
This work was divided into 131 sections when it entered the library's research corpus—an apparatus for search and citation, not necessarily the author's own table of contents. Each title opens its summary.
1Title Page and Publication Information
2Preface to the Original Edition
3Preface to the 1939 Edition
4Preface to the 1941 Edition
5Contents
6Analytical Table of Contents: Introduction and Part I
7Analytical Table of Contents: Part II
8Analytical Table of Contents: Part III
9Introduction
10Chapter 1 §1: The Explanation of the Business Cycle
11Chapter 1 §2: Method of the Following Analysis
12Chapter 2 §1: Preliminary Remarks on the Purely Monetary Theory
13Chapter 2 §§2–3: Hawtrey's General Theory and the Upswing
14Chapter 2 §4: The Upper Turning-Point
15Chapter 2 §5: The Downswing
16Chapter 2 §6: Revival
17Chapter 2 §7: Rhythm and Periodicity
18Chapter 2 §§8–10: Special Features, International Complications, and Conclusions
19Chapter 3 §1: General Characteristics of Over-Investment Theories
20Three Types of Over-Investment Theory and the Acceleration Principle
21Monetary Over-Investment Theories: General Characteristics and Wicksellian Foundation
22Hayek’s Capital-Shortage Mechanism and the Loss of Boom Investments
23Neisser’s Critique, Depression, Revival, and the Periodicity of Monetary Over-Investment Cycles
24The Upswing: Credit Expansion, Capital Structure, and Forced Saving
25International Complications in the Monetary Over-Investment Theory
26Concluding Remarks on the Monetary Over-Investment Theory
27General Characteristics and Upswing in Non-Monetary Over-Investment Theories
28The Down-Turn, Crisis, and Depression in Non-Monetary Over-Investment Theory
29The Upturn and Revival through Investment and Innovation
30Rhythm, International Complications, and Introduction to the Acceleration Principle
31Statement of the Acceleration Principle
32Acceleration of Derived Demand from Durable Producers’ Goods
33Acceleration in the Case of Durable Consumption Goods
34Acceleration of Derived Demand from Permanent Stocks of Goods
35Generalised Statement of the Acceleration Principle
36Qualifications to the Acceleration Principle
37Acceleration Principle: Long-Range Investment and the Opening of Derived Demand Analysis
38Initial Impulses in Derived Demand and Capital-Goods Expansion
39Demand Shifts, Fixed Capital, and Machinery Specificity
40Financing New Investment: Saving, Credit Expansion, and Over-Investment Theory
41Durability, Roundabout Production, and the Expansion Mechanism
42Breakdown of the Boom: Capital Shortage, Aftalion, and Röpke
43Chapter 4 Introduction: Cost Changes, Maladjustments, and Over-Indebtedness
44Changes in Production Cost, Labour Efficiency, and Mitchell’s Cycle Analysis
45Horizontal Maladjustments and Error Theories of Crisis
46Over-Indebtedness and Fisher’s Debt-Deflation Theory
47Chapter 4 continuation: over-indebtedness, debt-deflation, and financial rigidity
48Chapter 5 introduction: history and scope of under-consumption theories
49Different meanings of under-consumption: crude, monetary, and secular-growth variants
50Over-saving theory and the effects of saving, hoarding, and investment
51Two defensible under-consumption hypotheses: output surges and wage lag
52Capital shortage versus insufficient consumers’ demand as causes of collapse
53Monetary under-consumption, Aftalion’s construction-period theory, and gestation periods
54Wage lag, profit inflation, and the under-consumption explanation of boom excesses
55Chapter 6 introduction: psychological and economic explanations of cycles
56Expectations, uncertainty, optimism, and pessimism in the cycle
57Summary of psychological theories and their relation to monetary and maladjustment theories
58Harvest Theories, Agriculture, and the Business Cycle: Introduction
59Agricultural Fluctuations and Industry: Closed Economy and Real Elasticity Theories
60Raw Materials, Real Wages, and Labour Migration Effects of Crop Fluctuations
61Crop Fluctuations, Consumer Goods Industries, and Farmers’ Purchasing Power
62Crop Fluctuations, Investment, Saving, and Monetary Expansion or Contraction
63International aspects of crop fluctuations and concluding assessment
64Influence of the business cycle on agriculture
65Chapter 8 introduction: recent Keynesian and terminological debates
66Saving and investment: ambiguity, Keynes’s identity, and inflation example
67Saving and investment: deflation, alternative definitions, Robertson, and money income
68Stockholm ex ante/ex post saving and investment and Ohlin’s credit-market schedules
69Critique of Ohlin’s ex ante schedules, expectations, and relation to Robertson
70Hawtrey’s designed investment and Keynes on retaining saving and investment
71Hoarding, Liquidity Preference and the Rate of Interest
72The Multiplier and the Marginal Propensity to Consume
73Government Consumption, Public Investment, and the Multiplier
74Keynesian Under-employment Framework and Cycle Hypotheses
75Involuntary Unemployment, Wage Flexibility, and Chronic Under-consumption
76Macroscopic Analysis and Static versus Dynamic Theories
77Expectations, Dynamic Analysis, and Theoretical versus Statistical Models
78Definition and Measurement of Prosperity and Depression
79Business Cycle in the General and Technical Senses
80§ 4. Basic Facts about the Business Cycle
81§ 5. The Secular Trend
82§ 6. Business Cycles and Long Waves
83§ 7. Is a General Theory of the Cycle Possible?
84§ 8. Two Regular Features of the Cycle
85Chapter 9 conclusion: production and employment by industry groups
86Chapter 10 introduction: the problem of cumulative expansion and contraction
87Expansion with unemployed resources and at full employment
88Monetary analysis of expansion: interest-rate terminology and the market for investible funds
89Demand curve for investible funds, profit rates, and gross versus net investment
90Supply of investible funds: savings, amortization, inflation, and income timing
91Supply curve elasticity, liquidity preferences, and monetary circulation during expansion
92Acceleration principle and why producers’ and durable goods fluctuate more than perishables
93Saving and the Expansion Process
94The Contraction Process: General Description of the Mechanism
95Monetary Analysis of the Contraction Process
96Cumulative Fall in Investment
97Drying-Up of the Supply of Funds and Monetary Contraction Framework
98Central Bank Deflation and Private Hoarding of Gold and Bank Notes
99Commercial Bank Credit Contraction and Indirect Investment
100Hoarding by Industrial and Commercial Firms
101Debt Liquidation, Forced Asset Sales, and Deflation
102Sales of Securities to Cover Losses
103Speculative Asset Sales and Scales of Liquidity
104Acceleration Principle and the Faster Fall of Producers’ and Durable Goods
105Chapter II: The Turning-points, Crisis and Revival — Introduction
106A. The Down-turn: Crisis — Method of Procedure and Proximate Causes of Contraction
107A. The Down-turn: Crisis — Why Expansion Becomes Vulnerable to Deflationary Shocks
108A. The Down-turn: Crisis — Disturbances Created by the Process of Expansion Itself
109The Up-turn: Revival — Introduction
110The Proximate Causes of Revival
111Why the System Becomes More Responsive After Contraction
112Expansionary Tendencies Likely to Arise During Contraction
113Chapter 12 Introduction: International Aspects of Business Cycles
114Transport Costs and Imperfect Mobility of Goods
115Localization of Investment, Credit, and Banking: Imperfect Mobility of Capital
116Currency Autonomy, Gold Standard Mechanisms, and Exchange Speculation
117Exchange Standards, Reserve Countries, and Monetary Blocs
118Currency Devaluation, Trade Effects, and Capital Flight
119Free Exchanges Without Capital Movements
120Capital Movements Under Free Exchanges and Final Qualifications
121Part III and Chapter 13 Opening; § I. Further Observations on the Theory of the Multiplier
122§ 2. The Foreign Trade Multiplier
123§ 3. The Combination of the Multiplier and the Acceleration Principle in Dynamic Models
124§ 4. The Problem of the Turning Points
125Chapter 13, §§5–7: Hayek’s Ricardo Effect, Price and Wage Flexibility, and Limits to Spending Policy
126Appendix I: Description of Indices Illustrating Cyclical Movement in Various Countries
127Appendix II: Description of Curves on Production and Employment by Groups of Industries
128Appendix II: Statistical Sources for Germany, Sweden, and Australia
129Name Index to Parts I and II
130Subject Index to Parts I and II
131Name and Subject Index to Part III and Publisher Imprint
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