Prosperity and Depression.pdf

Chap. 8 Recent Di~rcussions on the Trade Cycle(determining the demand for idle balances) and on the actual levelof activity (determining the demand for circulating balances).This) it is now admitted, was an incomplete statement. cc Theadditional factor, previously overlooked) to which ProfessorOHLIN'S emphasis on the ex-ante character of investment decisionshas directed attention) is the following." 1 There is ~ thirdfactor affecting the demand for money-viz., the necessity ofproviding what ~1r. KEYNES proposes to call ." finance" forplanned investment. Before activity has actually gone up, fundsfor the intended outlay must be secured. "During the interregnum-andduring that period only-between the date when theentrepreneur arranges his finance and the date when he ·actuallymakes his investment, there is an additional demand for liquiditywithout, as yet, any additional supply of it necessarily arising "(page 665). The adherents of the loanable-fund theory wouldmerely substitute "credits" for the word "liquidity" in thissentence.Mr. KEYNES rightly points out that this additional demand mustmeet with additional supply, if the rate of interest is not to rise.Somebpdy, the banks or the public) must cc deplete their existingcash " (page 666), and he criticises Professor OHLIN for ~uggestingthat ex-ante saving out offuture income can satisfy the demand forfinance. This is the same criticism as was made above whenit was said that ex ante saving in the sense of saving out of a futureincome cannot affect the bond market now. This criticism losesits validity, however, if ex-ante saving is interpreted, as wassuggested above, in the Robertsonian sense, as saving out of apreviously received income. The demand for finance can besatisfied by increased saving in this sense or by dishoarding. Bothsources can be described (in Mr. :KEYNEs' words) as a depletion ofexisting cash-cash from idle balances or, in the case of additionalsavings, cash released from transactions balances by the reducedexpenditure on consumption goods.One point regarding Mr. KEYNES' theory of " finance" hasgiven rise to an interesting discussion which throws much light1 ECOf7,omic Journal, loco cit., page 665.