Prosperity and Depression.pdf

Chap. 10The Expansion Processincome. It is not unlikely that it varies, not only with the levelofincome, but also with the rate ofchange of· income. There. areyet other factors which make it probable that the rate of savingexhibits a systematic movement during the course of the cycle.We shall come back to this point later.I Here, where we areconcerned with the' shape of the supply curve at a given point orduring a short period of time, we may in all probability regardthe supply ofsavings as a constant magnitude) insensitiveto changesin the interest rate. In technical parlance, the supply of savingis, at least in the short run, inelastic in respect to changes in theinterest rate. ~ence the asserted elasticity in the total supplymust depend on the elasticity of that part of the total which isfurnished by " inflation ".We shall have to discuss the factors which determine the degreeofelasticity of supply ofinvestible funds from inflationary sourcesat various points in our analysis. .Here a few introductory remarkswill suffice. There are various inflationary sources of supplythecentral bank, the commercial· banks and, last but not least,liquid reserves of purchasing power (hoards) in the hands ofbusiness firms and individuals.The concept of elasticity of supply from the first two sourcesdoes not ptes~ntanalytical difficulties, and we know approximatelywhat the factors are on which it depends, how far the banks arewilling at any given moment to vary the supply ofinvestible fundsin the fa""e ofvariations in demand and in the rate ofinterest whichthey can obtain.In the case ofthe third source-hoards of firms and individuals--the situation is more involved. All the considerations whichhave been put forward in recent times under the head of"liquiditypreferences ", " liquidity motives" and "propensity to hoard orclishoard" and the like are relevant here. In a general way, wemay assume that, ceteris paribll.f, the higher the rate of interestthe greater the temptation to dishoard-that is, the largerthe supply of investible funds ,coming on the market from thissource.1 Compare Chapter 8, § 3, and this chapter,:§ 6, below.