We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.
We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.
from BOOK IV - THE DYNAMICS OF THE PRICE LEVEL
Published online by Cambridge University Press: 05 November 2012
The causes of disequilibrium to be discussed in this chapter are not always separated by a sharp line from those discussed in the preceding chapter, and, after the initial stage has been passed, they shade off into one another. For a disturbance initially due to monetary factors will soon set up some disturbance on the investment side, and similarly a disturbance due to investment factors is likely, as we shall see, to cause some modification to monetary factors. But there is, nevertheless, the broad distinction that the former are due to changes on the supply side and the latter, generally speaking, to changes on the demand side.
Moreover there is a further characteristic of great importance which differentiates monetary disturbances (whenever, that is to say, the monetary change is of a quasi-permanent nature) from investment disturbances; namely that the former represents a passage from one equilibrium price level to another, whereas the latter (even when the investment change is of a quasi-permanent nature) is an oscillation about an approximately unchanged price level. Thus the former ends up in a new price structure; whereas the latter is calculated to generate an equal and opposite reaction later on. It is this characteristic which makes it appropriate to designate investment disturbances as credit cycles.
THE DEFINITION OF THE CREDIT CYCLE
Our fundamental equation has demonstrated that, if costs of production remain constant, the purchasing power of money suffers a seesaw movement up and down according as the volume of savings exceeds the cost of investment or the cost of investment exceeds the volume of savings. On the other hand, if the volume of savings is equal to the cost of investment, then the purchasing power of money fluctuates inversely with the costs of production. Moreover, the effect on the purchasing power of money of a change in the costs of production and the effect on it of a disequilibrium between the volume of saving and cost of the investment are additive and superposable.
To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.
Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.
Find out more about the Kindle Personal Document Service.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.
To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.
