Prosperity and Depression.pdf

Chap. 8 Recent Discussions on the Trade Cycle 205Finally, it should be observed that the total amount which anindividual or a firm is able to hoard during a given period is by nomeans always limited by the income received during this period orby net new saving. It would perhaps be better to refrain fromsaying that a part of income or of saving is hoarded and, instead,to speak only of the hoarding of money. But whether thisterminological rule is observed or not, it should be clear that anindividual ,(firm) may hoard, besides money income, all the moneyreceived from regular sales. We then speak of the hoarding ofamortisation quotas and of working capital. In addition an indi.vidual may sell any asset in his possession and hoard the proceeds­Or he may borrow(sell claims) and hoard the proceeds of the loan.!We can pass now to Mr. KEYNES'· theory of the rate of interestand investigate whether or not it is compatible with the traditionalviews.Mr. KEYNES holds that the rate of interest,The definition contrary to the traditional view, according to whichof the rate of it is " the reward of not spending " (on consumpinterest.tion), is "the reward of not hoarding ",2 "thereward for parting with liquidity for a specifiedperiod ".a It" is a measure of the unwillingness of those whopossess .money to part with their liquid control over it. Therate of interest is not the ' price ' which brings into equilibriumthe demand for resources to invest with the readiness to abstainfrom present consumption. It is the 'price' which equilibratesthe desire to hold wealth in the form of cash with the availablequantity of cash.".need have hoarded, on our definition. This would, for example, be thecase if demand for agricultural products increases (assuming that thefarmer's k is greater than the industrialist's k).1 Mr. Keynes is, of course, quite right in saying that" the decision tohoard is not taken absolutely" (General Theory, page 174). It maydepend on the price obtainable for certain assets. _ Given a certainsituation, we may conceive of a demand curve for idle balances plottedagainst the rate of interest.S General Theory, page 174.I Ibid., page 167. Precisely the same definition has been given byProfessor Albert Hahn in his Volkswirtschattliche Theor'le·des Bankkredits,Tubingen, 1920.• Ibid., page 167.