ABSTRACT
Let us denote by s the increase in the balance of trade which caused the upswing. Let us suppose that in the next phase of the upswing investment increased by k, and the previous increase in the balance of trade got "lost" owing to the increase in imports, i.e. it dropped by s thus returning to its initial level. Therefore in the period of expansion of investment, aggregate profits increased because of the rise in the item "investment" by k, but fell by s as a result of the decline in the item "balance of trade". On balance the increase in profits amounted to k - s. As in section 2 and 4, let us denote the relative share of profits in the value of aggregate production by a and the ratio of imports to this value by fl. The increase in the value of production corresponding to the increase in profits by k - s is equal to k - s, and the cor-
responding rise in imports to k - S p. Since imports increased by a
the same amount as the decline in the balance of trade, i.e. by s, we obtain:
k=8(1+;;) (5) As in sections 2 and 4, let a=O.5 and {J=O.2; k will then
amount to 3.5 s. It will be seen that the tension in the ba1ance of payments, which accompanied "domestic exports" from the start,' in the case of an upswing stimulated by secUring a surplus in foreign
trade arises only at the point when investment has reached a level several times greater than this surplus, i.e. at an advanced stage of the boom. Moreover, it is probable that prior to this a considerable improvement in the economic situation which does not involve ba:lance of payment difficulties will lead to an influx of foreign capital. If this flow of foreign capital is lasting in character there may be no tension in the balance of payments at a later stage as well. It is now clear what are the advantages of an upswing stimulated by means of securing a surplus in foreign trade. It is worth mentioning that the "natural" upswing based on the automatic increase in investment activity does not enjoy these advantages, and if there is no influx of foreign capital, it will be confronted with the same balance of payments difficulties as the upswing based on "domestic exports".
