Oskar Engländer: Business Cycles, Idle Capacity, and Recovery (1933)

Oskar Engländer’s untitled contribution to Der Stand und die nächste Zukunft der Konjunkturforschung is an edited-volume essay organized around four tasks: identifying the characteristics of crisis and depression, explaining their causes, preventing their occurrence, and shortening an existing downturn. Its central move is to replace general overproduction with the underutilization of productive resources as the defining feature of depression. Engländer then locates cyclical instability in the accelerated expansion and subsequent contraction of production-goods industries. His practical conclusion is that recovery requires increased purchasing power, with direct employment creation becoming necessary when easier credit fails to stimulate investment.

The opening distinguishes unmet human needs from demand backed by purchasing power. Engländer denies that an economy generally produces beyond its actual needs. Production exceeding demand at prevailing prices can occur around a turning point, when output continues despite weakening sales, or in raw materials whose production depends on natural conditions. During depression, however, output falls sharply; inventory sales may even allow production to fall faster than demand. The decisive condition is therefore idle productive capacity, encompassing both equipment and human labour.

Was zunächst die Merkmale von Krise und Depression anbelangt, wäre an Stelle der so oft angeführten Überproduktion die Nichtausnutzung von Erzeugungsmitteln zu setzen.

English translation: As regards, first, the characteristics of crisis and depression, the underutilization of means of production should replace the overproduction so often cited.

This definition includes deficient demand resulting from insufficient purchasing power, without committing Engländer to “underconsumption” as the appropriate designation. More importantly, identifying a depressed condition does not yet explain a cycle. An adequate theory must account for expansion as well as contraction and make their recurrence intelligible. On this criterion, he excludes overproduction and underconsumption as explanations of cyclical movement.

His examination of monetary factors makes a parallel distinction between observable correspondence and causation. Money must include credit money, not merely gold. Monetary turnover, understood through the quantity of money and its circulation velocity, rises alongside the greater sales and higher prices of expansion and falls during contraction. Yet the quantity equation establishes a relationship without determining its causal direction.

Allein der Zusammenhang zwischen Aufschwung und Niedergang einerseits und Steigen bzw. Fallen des Geldumsatzes andererseits ist zunächst nur ein funktioneller, und es bleibt die Frage nach dem Verhältnisse von Ursache und Wirkung offen.

English translation: But the connection between expansion and decline on the one hand and rising or falling monetary turnover on the other is initially only a functional one, and the question of the relationship between cause and effect remains open.

Monetary policy can restrain or reinforce an expansion and can precipitate a turning point, but neither influence is necessary. During depression, Engländer considers declining monetary turnover more likely an effect than a cause. His position thus acknowledges monetary influence without treating monetary contraction as a sufficient general explanation.

The essay next considers rationalization, innovations, exceptional destruction of goods, price movements, and external changes such as slower population growth or altered international trade relations. Rationalization illustrates the intersectoral mechanism especially clearly: installing new productive equipment creates exceptional employment in production-goods industries, whereas completion releases equipment and workers in both production-goods and consumer-goods industries. Engländer’s tentative synthesis makes expansion depend on production-goods industries advancing ahead of the manufacture of use goods. When this acceleration is checked, it reverses into a disproportionately severe contraction in production-goods output. Indefinitely sustained acceleration is inherently unlikely; conversely, the lag of production-goods industries during depression prepares the conditions for renewed acceleration. This supplies a proposed explanation of recurrence, rather than merely a catalogue of shocks.

The synthesis nevertheless leaves an explicit explanatory problem. Capital becomes immobilized at the turning point, whether through a reduction in its amount or slower circulation.

Dieses Stocken des Kapitals ist Bedingung für den Eintritt des Umschwunges und muß besonders erklärt werden.

English translation: This blockage of capital is a condition for the occurrence of the turning point and must be explained separately.

This qualification limits the completeness of the account: the sectoral pattern does not by itself explain why capital ceases to move into employment. It also connects the causal discussion to prevention. A stationary economy would eliminate one source of instability, but Engländer regards renouncing progress as incompatible with a free capitalist exchange economy. The alternative would be to moderate progress so that acceleration could continue without diminishing. He judges this extremely difficult, perhaps impossible: an established upswing is hard to restrain, and whenever an expansionary stimulus ends, capital threatened with immobilization would need another outlet.

The final section turns from prevention to shortening depression.

Was die Verkürzung einer bestehenden Depression anbelangt, kann sie nur so erfolgen, daß erhöhte Nachfrage durch erhöhte Kaufkraft geschaffen wird.

English translation: As regards shortening an existing depression, this can occur only by creating increased demand through increased purchasing power.

Accordingly, Engländer rejects wage reductions because they diminish purchasing power, explicitly leaving foreign economic relations aside in that judgment. Saving likewise offers no remedy and may worsen contraction. Public finance confronts a near-insoluble conflict between cutting expenditure as revenue falls and avoiding further reductions in demand for goods and labour.

Lower interest rates and expanded credit are the first remedies, but poor profit expectations may prevent borrowing even on easier terms. Direct creation of employment must then mobilize unused purchasing power or create new purchasing power. Engländer considers the domestic inflation risk manageable through regulation of that increase, while retaining concern about the currency’s external position. This constraint, together with the international spread of crisis, grounds his closing appeal for coordinated action among the principal economic regions. The essay’s relevance lies in connecting idle resources, investment dynamics, and purchasing-power policy while preserving the distinction between describing a downturn and explaining its recurrent emergence.