Prosperity and Depression.pdf

3 00 Nature and Causes of t~ Cycle Part IIThe clause ceteris paribus calls to mind the limi­Movements tations of our elasticity concept. If we say thatalong, and the supply has a certain elasticity, this refers to amOV6Jnents of, point or short period oftime. But what we wantthe ctltlJes. is an analysis in time; we have to compare whathappens in successive periods of time. This wecan accomplish with our apparatus of demand and supply curvesby introducing movements of these curves in time. We substitute,so to say, a cine-camera for a simple snapshot camera : thatis, we take pictures of our demand and supply schedule at successivepoints oftime and watch the movements of the curves. Thiswill become clearer when we proceed to put our simple analyticalinstrument to work. It is hoped that it will enable us to describemore precisely and simply the processes and relationships whic~have been analysed in theliterature in terms ofdifferences betweenthe money or market rate ofinterest on the one hand and the naturalor equilibrium rate on the other. It is hoped, furthermore, thatit will be possible with the help ofour method to dear: up a numb("rof difficulties and paradoxes which have not been adequatelyexplained so far.It shouJd, however, be kept in mind that thereSubdivisions. are other difficulties which are not removed by ourof the capital treatment of the matter. We speak of the rate ofmarket. interest for investible funds, whereas there are inreality a multitude of rates with complicated interrelations-shott-termand long-term rates with intermediate ratesand a great variety of gradation according to the standing of theborrower, the nature of his business, the possibilities of furnishingsecurity, the risk involved, etc. The assumption of a homogeneouscapital market is a drastic simplification. For the timebeing, we try to overcome this difficulty by interpreting the marketrate of which we speak as somehow a properly weighted averageor composite ofthe existing rates. If we say the rate has risenor fallen, we mean the complex ot the rates which we find in themarket. l1 Compare especially R. M. 'Bissel : "The Interest Rate" in AmericanEconomic Review, Supplement to Vol. XXVIII, 1938, pages 23 et seq.