Prosperity and Depression.pdf

Nature and Causes of the CyclePart IIpart financed by inflation, becomes to-day's earned income 1 andto-morrow's available income. If, then, a part of the latteris saved to-morrow, it constitutes again current saving, althoughit is historically of inflationary origin. (The influence whichchanges in the rate ofsaving are likely to have on the developmentof the expansion process will be discussed below in § 6.)Having discussed savings and inflation as two separate sourcesof the supply of investible funds and the implied inequality ofsaving and investment, we have now a few observations to. makein regard to the shape of the supply curve at a given point orduring a short period of time.We shall have to make further assumptions asThe shape follows. The supply of investible funds is some..of the supplY times very elastic, so that a higher demand can becurve. satisfied at slightly higher interest rates. At .othertimes it is inelastic, so that a rise in demand iscalculated to lead tp a rise in interest rates rather than to evoke agreater supply. Any hypothesis of this sort about the behavjourof supply as a whole must be supported by an analysis of thebehaviour ofthe constituent parts of the total supply.Let us first take that part which is furnished by saving fromcurrent income. It is very probable that, ceteris paribus, theamount of saving becoming available for investment ddes notreact strongly to changes in the interest rate. Ifthere is a reactionat all, its direction is not clear. When the rate of interest rises,people may just as well save more and spend less on consumptionor save less and spend more oftheir income.On the other hand, the elasticity of saving in respect to magnitudesand factors other than the rate of interest is probably great.It is, I.g., generally assumed that the rate ofsaving rises with risingI A reservation must be made as to that part of the invested moneywhich does not at once become income, but becomes amortisationquota. If we work with·gross investment on the one hand and grosssaving on the other (as, strictly speaking, we should), this qualificationbecomes superfluous. In this case, income which is a "net quantity" isreplaced by the corresponding" gross quantity"-viz., net income plusamortisation for fixed and working capital.