ABSTRACT
As has been pointed out several times already, the model (set out in equations (XIII: 1°)–(XIII: 7°)) which forms the basis of discussion in Chapters XIII, XIV and XV, is a decidedly static, short-term one. The results obtained concerning economic policy are therefore also decidedly short-term ones. The static nature of the model is exhibited by the fact that all the variables in the model have the same dating; there are no equations for dynamic movements in the model. The short-term nature of the model is exhibited particularly by the fact that no consideration is taken of the importance of possible changes in the stock of real capital or in State’s debts to the private sector. In the short-term model the output of capital goods, and thus also gross investment, are positive. Since the model does not imply that capital goods production exactly corresponds to capital depreciation (which is not taken into account in the model at all, in fact), net investment may also be positive and thus the stock of real capital may be growing. This must have effects sooner or later on the short-term production functions. If we ignore Government investment, the net wealth of the private sector (households) during each period must increase by an amount equal to the total growth of real capital plus the budget deficit (in the ‘real economic’ sense of the word), or, to put it in another way, by the private real capital formation plus the increase in the private sector’s claims (including bank-notes) on the State. Since the short-term model does not imply that the real capital formation, or the budget deficit, or the sum of the two, is zero, implicit in short-term equilibrium there may be a change in the net wealth of the private sector and in its liquidity structure and this may then have certain consequences for later periods, for example on the demand for capital goods, on private saving, and on consumption.
