Prosperity and Depression.pdf

186 Analysis of Theories Part I" The M curve shows the increase in the amount of moneyin the period and is here shown as a positive amoWlt andindependent of the rate of interest. Both of these conditionsare postulated merely for the purpose ofsimplifying the diagram.A decrease in the amoWlt of money could be shown by drawingthe M curve to the left of the vertical axis, signifying a negativeincrease in the amount of money. It might be the policy ofthe monetary authorities to take the rate ofinterest into accountwhen deciding by how much to increase (or decrease) theamount of money. Thus if they increase the amount ofmoneymore (or diminish it by less), the higher is the rate of interest,then the M curve will slope upward to the right. But all suchdifferences in assumptions would merely complicate the diagramwithout affecting our argument in any way." The M curve is now added horizontally to the S curve~giving the total net supply schedule of loans (or 'credit ')marked S + M. The L curve is added to the I curve, givingthe total net demand schedule for loans (or' credit ') markedI + L. The two new curves intersect at PI' giving an equilibriuminto which the conlplications due to ' hoarding , andto changes in the amount of money appear to have beenincorporated. " 1~ " Alternative Formulations of the Theory of Interest ", in EconomicJournal, Vol. 48, 1938, pages 213 to 215. It is true, Mr. Lerner puts thisaccount of the matter forward as an interpretation, not of ProfessorOhlin's theory, but of " the position [of the theory of interest] as itappears after the first step [from the' classical' to the f modern' view]has been taken" (page 213). This first step consists of the recognitionU that I hoarding " I dishoarding' and.changes in the amount of moneyalso have something to do with the supply of' credit' and the rate ofinterest-in the short period, at any rate " (page 21 I). This seems to meprecisely the position taken by Professor Ohlin. Mr. Lerner merelydoes not take cognisance of the ex ante nature of supply and demandcurves of saving in Professor Ohlin's theory. He .interprets S and Ithroughout ex post. Hence, in a second graph (page 216), he draws justone curve, which is a saving and investment curve at the same time,whilst Professor Ohlin emphasises that S and I ex ante are not necessarilyequal. Mr. Lerner probably has been misled by the fact that ProfessorOhlin introduces the interpretation of the ex ante concepts of S and I inthe schedule sense as an afterthought, as it were, in a reply to a criticismby Mr. Keynes; in his original articles, he did not make it clear that hemeant schedules when he spoke of ex ante saving and investment.