Prosperity and Depression.pdf

Chap. 10 The Contraction Process 337have brought about the losses. We need not pause to discussthe likelihood of this rather artificial case. We may considerinstead the more general case where losses, however brought about,are covered by the sales of·assets.This case is very similar to the previous one but rather moregeneral. The idea is that a producer who is making losses doesnot cut down his expenditure (whether the expenditure. for hispersonal consumption or his disbursements for ·labour, rawmaterials, semi-finished products, etc.) to a corresponding extent,but keeps them up by selling assets to somebody else. His salesin such' case will certainly have an indirect deflationary influence,(as was pointed out in connection with the previous case) bydepressing the price of the' assets in question. But it is difficultto see how any more direct deflationary effect is produced. 1Money is transferred from a saver to the entrepreneur whoex hypothesi spends it in various ways. Hence the demand forgoods does not fall (except in so far as these transactions themselvesabsorb money temporarily). We may describe the process bysaying that the savings ofa part ofthe public are compensated bydissaving on the part of entrepreneurs. Savings are wasted tocover losses. The situation is one which cannot ofcourse continuefor long; but at any rate the·procedure is not directly deflationary.a1 This was pointed out by Professor F. A. Hayek: U Reflections onthe Pure Theory of Money of Mr. J. M. Keynes n. Part II in Eeonomiea,February 1932, page 29.i There may be in this respect a slight difference between the caseenvisaged by Mr. Keynes 'and Mr. Durbin (where an increase in the rateof saving is the cause of the losses) and the other case (where the lossesnave other causes). In the former case, it might be argued that thepath which the money has to travel from the moment when it becomesincome in the hands of the saver until it constitutes demand for goods islengthened, inasmuch as, I before people decide to save, the money isspent by them directly for consumers' goods. After they have decidedto save, it goes first through the capital'market buying old securitiesbefore it reaches the hands of the producers of consumption goods. Itsarrival at the final stage may be delayed en route-which is equivalentto a hold-up in the flow of money against goods. In the other case,where the losses are independent from the fact that somebody saves whohas not saved before, no turnover of money is interpolated, since thesums saved have in any ease to pass through the capital market before