Prosperity and Depression.pdf

Nature and Causes of the CyclePart IImoney or an increase in the .velocity of circulation which willtake place. if the money flowing into the central bank comes outof hoards. This happens sometimes on a large scale after aperiod of panic which has led to a· great drain of cash out of thebanking system-e.g., in the United States after the bank suspensionin 1933.Active deflation on the part of the central bank is nowadaysalmost always the consequence of a disequilibrium in the internationalbalance of payments of a country, which may be due to thewithdrawal offoreign credits, the cessation ofthe inflow ofcapital,a flight of domestic capital or a deficit in the balance 'of paymentson current account because of a relatively high price and incomestructure (over-valuation of the currency).An outright reduction of central-bank money is, however, notan invariable feature of every ~epression : at least, it is usually notpursued right through the whole course of the depression. Itis a common experience at the beginning of the depression, orduring the finaDcial'