[발췌: 일반이론 10장] The Marginal Propensity to Consume and the Multiplier

출처: The General Theory of Employment, Interest and Money (Keynes, 1936)
자료: MIA(html); eBook; single PDF; Gutenberg(html) (cf. my catalog of his writings)

※ This is a reading note with excerpts taken, and personal annotations and remarks added, in trying to understand the above text. So, to see the original, please visit the source links above. [일반이론 독서메모 (my reading notes of Keynes's General Theory)

※ 발췌(excerpts): 

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Chapter 10_ The Marginal Propensity to Consume and the Multiplier

We established in Chapter 8 that employment can only increase pari passu with investment. We can not carry this line of thought a stage further. For in given circumstances a definite ratio, to be called the Multiplier, can be established between income and investment and, subject to certain simplifications, between the total employment and the employment directly employed on investment (which we call the primary employment). This further step is an integral part of our theory of employment, since it establishes a precise relationship, given the propensity to consume, between aggregate employment an income and the rate of investment. The conception of multiplier was first introduced into economic theory by Mr. R. F. Kahn in his articel on "The Relation of Home investment to Unemployment" (^Economic Journal^, June 1931). His argument in this article depended on the fundamental notion that, if the propensity to consume in various hypothetical circumstances is (together with certain other conditions) taken as given an we conceive the monetary or other public authority to take steps to stimulate or to retard investment, the change in the amount of employment will be a function of the net change in the amount of investment; and it aimed at laying down general principles by which to estimate the actual quantitative relationship between an increment of net investment and the increment of aggregate employment which will be associated with it. Before coming to the multiplier, however, it will be convenient to introduce the conception of the marginal propensity to consume.


I

The fluctuations in real income under consideration in this book are those which result from applying different quantities of employment (i.e. of labour-units) to a given capital investment, so that real income increases and decreases with the number of labour-units employed. If, as we assume in general, there is a decreasing return at the margin as the number of labour-units employed on the given capital equipment is increased, income measured in terms of wage-units will increase more than in proportion to the amount of employment, which, in turn, will increase more than in proportion to the amount of real income measured (if that is possible) in terms of product. Real income measured in terms of product and income measured in terms of wage-units will, however, increase and decrease together (in the short period when capital equipment is virtually unchanged). Since, therefore, the real income, in terms of product, may be incapable of precise numerical measurement, it is often convenient to regard income in terms of wage-unit (Yw) as an adequate working index of changes in real income . In certain contexts we must not overlook the fact that, in general, Yw increases and decreases in a greater proportion than real income; but in other contexts the fact that they always increase and decrease together renders them virtually interchangeable.

  Our normal psychological law that, when the real income of the community increases or decreases, its consumption will increase or decrease but not so fast, can, therefore, be translatedㅡnot, indeed, with absolute accuracy but subject to qualifications which are obvious and can easily be stated in a formally complete fashionㅡinto the propositions that ΔCw and ΔYw have the same sign, but ΔYw ＞ΔCw, where ΔCw is the consumption in terms of wage-units. This is merely a repetition of the proposition already established on p. 29 above.

  Let us define, then, dCw/dYw, as the marginal propensity to consume.

  This quantity is of considerable importance, because it tells us how the next increment of output will have to be divided between consumption and investment. For ΔYw＝ΔCw＋ΔIw, where ΔCw and ΔIw are the increment of consumption and investment; so that we can write ΔYw＝kΔIw, where 1－(1/k) is equal to the marginal propensity to consume.

  Let us call k investment multiplier. It tells us that, when there is an increment of aggregate investment, income will increase by an amount which is k times the increment of investment.


II

Mr. Kahn's multiplier is a little different from this, being what we may call the employment multiplier designated by k', since it measures the ratio of the increment of total employment which is associated with a given increment of primary employment in the investment industries. That is to say, if the increment of investment ΔIw leads to an increment of primary employment ΔN2 in the investment industries, the increment of total employemtn ΔN＝k'ΔN2.

  There is no reason in general to suppose that k＝k' For there is no necessary presumption that the shapes of the relevant portions of the aggregate supply functions for different types of industry are such that the ratio of the increment of employment in the one set of industries to the increment of demand which has stimulated it will be the same as in the other set of industries.[n1] It is easy, indeed, to conceive of cases, as, for example, where the marginal propensity to consume is widely different from the average propensity, in which there would be a presumption in favour of ΔYw/ΔN and ΔIw/ΔN2, since there would be very divergent proportionate changes in the demands for consumption-goods and investment-goods respectively. If we wish to take account of such possible differences in the shapes of the relevant portions of the aggregate supply functions for the two groups of industries respectively, there is no difficulty in rewriting the following argument in the more generalised form. But to elucidate the ideas involved, it will be convenient to deal with the simplified case where k＝k'.

  It follows, therefore, that, if the consumption psychology of the community is such that they will choose to consume, e.g., nine-tenth of an increased income,[n2] then the multiplier k is 10; and the total employment caused by (e.g.) increased public works will be ten times the primary employment provided by the public works themselves, assuming no reduction of investment in other directions. Only in the event of the community maintaining their consumption unchanged in spite of the increase in employment and hence in real income, will the increase of employment be restricted to the primary employment provided by the public works. If, on the other hand, they seek to consume the whole of any increment of income, there will be no point of stability and prices will rise without limit. With normal psychological suppositions, an increase in employment will only be associated with a decline in consumption if there is at the same time a change in the propensity to consumeㅡas the result, for instance, of propaganda in time of war in favour of restricting individual consumption; and it is only in this event that the increased employment in investment will be associated with an unfavourable repercussion on employment in the industries producing for consumption.

  This only sums up in a formula what should by now be obvious to the reader on general grounds. An increment of investment in terms of wage-units cannot occur unless the public are prepared to increase their savings in terms of wage-units. Ordinarily speaking, the public will not do this unless their aggregate income in terms of wage-units is increasing. Thus their effort to consume a part of their increased incomes will stimulate output until the new level (and distribution) of income provides a margin of saving sufficient to correspond to the increased investment. The multiplier tells us by how much their employment has to be increased to yield an increase in real income sufficient to induce them to do the necessary extra saving, and is a function of their psychological propensities.[n3] If saving is the pill and consumption is the jam, the extra jam has to be proportionate to the size of the additional pill. Unless the psychological propensities of the public are different from what we are supposing, we have here established the law that increased employment for investment must necessarily stimulate the industries producing for consumption and thus lead to a total increase of employment which is a multiple of the primary employment required by the investment itself.

  It follows from the above that, if the marginal propensity to consume is not far short of unity, small fluctuations in investment will lead to wide fluctuations in employment; but, at the same time, a comparatively small increment of investment will lead to full employment. If, on the other hand, the marginal propensity to consume is not much above zero, small fluctuations in investment will lead to correspondingly small fluctuations in employment; but, at the same time, it may require a large increment of investment to produce full employment. In the former case involuntary unemployment would be an easily remedies malady, though liable to be troublesome if it is allowed to develop. In the latter case, employment may be less variable but liable to settle down at a low level and to prove recalcitrant to any but the most drastic remedies. In actual fact the marginal propensity to consume seems to lie somewhere between these two extremes, though much nearer to unity than to zero; with the result that we have, in a sense, the worst of both worlds, fluctuations in employment being considerable and, at the same time, the increment in investment required to produce full employment being too great to be easily handled. Unfortunately the fluctuations have been sufficient to prevent the nature of the malady from being obvious, whilst its severity is such that it cannot be remedies unless its nature is understood.

  When full employment is reached, any attempt to increase investment still further will set up a tendency in money-prices to rise without limit, irrespective of the marginal propensity to consume; i.e. we shall have reached a state of true inflation.[n4] Up to this point, however, rising prices will be associated with an increasing aggregate real income.


III

We have been dealing so far with a net increment of investment. If, therefore, we wish to apply the above without qualification to the effect of (eg.) increased public works, we have to assume that there is no offset through decreased investment in other directions,ㅡand also, of course, no associated change in the propensity of the community to consume. Mr. Kahn was mainly concerned in the article referred to above in considering what offsets we ought to take into account as likely to be important, and in suggesting quantitative estimates. For in an actual case there are several factors besides some specific increase of investment of a given kind which enter into the final result. If, for example, a Government employs 100,000 additional men on public works, and if the multiplier (as defined above) is 4, it is not safe to assume that aggregate employment will increase by 400,000. For the new policy may have adverse reactions on investment in other directions.

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IV

The discussion has been carried on, so far, on the basis of a change in aggregate investment which has been foreseen sufficiently in advance for the consumption industries to advance pari passu with the capital-goods industries without more disturbance to the price of consumption-goods than is consequential, in conditions of decreasing returns, on an increase in the quantity which is produced.

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V

We have seen above that the greater the marginal propensity to consume, the greater the multiplier, and hence the greater the disturbance to employment corresponding to a given change in investment. This might seem to lead to the paradoxical conclusion that a poor community in which saving is a very small proportion of income will be more subject to violent fluctuations than a wealth community where saving is a larger proportion of income and the multiplier consequently smaller.

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VI

When involuntary unemployment exists, the marginal disutility of labour is necessarily less than the utility of the marginal product. Indeed it may be much less. For a man who has been long unemployed some measure of labour, instead of involving disutility, may have a positive utility. If this is accepted, the above reasoning shows how "wasteful" loan expenditure[8] may nevertheless enrich the community on balance. Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesman on the principles of the classical economics stands in the way of anything better.

  It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly “wasteful” forms of loan expenditure rather than partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict “business” principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.

  If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprises on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

  The analogy between this expedient and the goldmines of the real world is complete. At periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available our wealth suffers stagnation or decline. Thus gold-mines are of the greatest value and importance to civilisation, just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance; and each of these activities have played its part in progress-failing something better. To mention a detail, the tendency in slumps for the price of gold to rise in terms of labour and materials aids eventual recovery, because it increases the depths at which gold-digging pays and lowers the minimum grade of ore which is payable.

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