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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 effec- 
tive 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 impli- 
cation 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 acti- 
vity feasible within the capacity available would be more con- 
vincing as far as creating « business confidence » is concerned. 
Haavelmo - pag. ..