The Distribution of Outlay and the 'Multiplier' in the British Dominions

When people receive their money incomes they may employ them in any of three ways: (1) they may spend them on imported products, (2) they may spend them on services or goods produced locally, (3) they may save, accumulating bank deposits or securities. The way in which people in general and exporters in particular dispose of additions to their incomes, and the manner in which they economize when their incomes diminish, are important factors in determining the ultimate effect of an initial change in the level of incomes. If most of an increase of incomes is spent upon the purchase of goods produced within the country, it will induce re-employment and a further increase in incomes; if spent upon imports, its effect will be upon the foreign exchange situation rather than employment.The Marginal Propensity to Import. The extent to which a community devotes any addition to its existing incomes to the purchase of goods from abroad has been called by Mr. Paish the “marginal propensity to import.” The high per capita trade of the Dominions ensures a fairly high propensity to import. But another cause contributes to the high propensity. Their imports are, in considerable degree, high grade manufactures and luxury articles: just the sort of things which will be more in demand if incomes rise and will be dispensed with if incomes fall. Moreover, machinery and capital goods rank high amongst their imports, and these will be in demand chiefly when incomes are rising.