Hayek on the Meaning of the Well-Known Doctrine Called the “Acceleration Principle of Derived Demand”

The significance of the results so far obtained can perhaps be made clearer if we relate them to a well-known doctrine, the so-called “acceleration principle of derived demand.” This doctrine, into the long history and the detail of which we need not enter here, essentially asserts that, since the production of any given amount of final output usually requires an amount of capital several times larger than the output produced with it during any short period (say a year), any increase in final demand will give rise to an additional demand for capital goods several times larger than that new final demand. The demand for capital goods according to this theory is the result of final demand multiplied by a given coefficient. We shall refer here to the two factors which determine this product as the “multiplicand” and the “multiplier” respectively, the former being final demand and the latter the ratio at which this final demand is transformed into demand for capital goods. (This “multiplier” with which the acceleration principle operates must, of course, not be confused with the Multiplier which plays such an important role in Mr. Keynes’ theories).

—Friedrich A. von Hayek, “Profits, Interest and Investment (1939),” in Profits, Interest and Investment and Other Essays on the Theory of Industrial Fluctuations (1939; repr., Clifton, NJ: Augustus M. Kelley Publishers, 1975), 18-19.