A Development of the Theory of the Ricardo Effect

According to Hayek's “theory of the Ricardo Effect” there is a “decline of investment” on the part of the consumer goods industries that starts halfway through the cyclical upswing. This “decline of investment” then gradually leads to the “scarcity of capital” in the consumer goods industries, which is the proximate cause of the upper turning point. This thesis was hardly made convincing by Hayek. I develop the theory of the Ricardo Effect by rebuilding it around the alternative theses that a decline of investment by both the machine producing industries and the raw materials industries leads to the “scarcity of capital.”