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PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA - 5

ficits is, I think, based ofi a confusion between two different
behavior patterns as far as private investment is concerned.
On the one hand we have the dubious effect of increased effective
 demand upon investment in the case where investment is
assumed to be based on existing capacity and current earnings.
On the other hand we have the possible stimulating effect of
the mere knowledge that the government would use very large
deficits if necessary. This latter effect would then be a result
not of the fact that total activity is high but of the conviction
that total activity would not be permitted to become low.
The second of these two investment theories has, I think,
considerable strength. But it has the rather interesting implication
 that the actual use of very large budget deficits would
not be the proper means of stimulating private investment,
except perhaps for effects in the way of « teaching a lesson for
the next depression ». It is likely, however, that definite and
concrete over-all plans for the various parts of economic activity
 feasible within the capacity available would be more convincing
 as far as creating « business confidence » is concerned.

Haavelmo - pag. ..