Prosperity and Depression.pdf

Chap. 10The Expansion ProcessIf the monetary expansion through the creation of new moneyby the banks for productive purposes goes on, there will be atendency for producers' goods industries to expand at·t..lJ.eexpenseof consumers' goods industries, the former drawing away factors ofproduction from the latter. We shall see that this process is notvery likely to continue for long-if it has a chance to start at all IBut for some time it may continue; and thus the expansion maygo beyond, or start from, the level offull employment.Having sketched the process of expansion in general, we maygo on to consider vario;us points in detail. This will be donein §§ 4-6.§4. THE MONETARY ANALYSIS OF THE PROCESS OF EXPANSIONAn expansion of the monetary circulation, in theImportance of sense that the money value ofthe volume of productotaldemand. tion and total demand for goods in terms of moneyper unit of time increases, is (as we have seen) aregular feature and, we may add, an indispensable condition for arapid expansion of production after a slump. If the lllonetarycirculation could not somehow be expanded, prices of goodsand productive services,. especially money wages, would have tofall pari passu with the rise of employment and production. Weneed· not pause to explain why in that case re-emp)oyment andrecovery would come very slowly, if they came at all. Certainlysuch a fall in prices is the contrary to what actually happens duringa recovery after a slump.We have seen (Chapters 2 and 3 above) that theThe market expansion may be described in technical languagefor investible as being due to a discrepancy between the moneyfunds. or market rate ofinterest, on the one hand, and thenatural or equilibrium rate ofinterest, on the other.Ifthe former'is below the latter, a cumulative process of expansion(a "Wicksellian process" as it is called) sets in. Since it isdifficult to define the'natural or equilibrium rate, l it seems advisableI Different interpretations have been given of the term "natural ttrate. By some it has been defined as that rate (in terms of goods) which