Prosperity and Depression.pdf

Chap. 10 The Contraction Process 339than those who sell. To' be sure, the degree of pessimism willnever, be uniform; but the deflationary effect in no way dependson there being differences of opinion and therefore actual transactions.(If,the pessimistic expectations of one part of the publicare offset by the optimistic expectations of another part, thesituation is of course different. Our present case is, however,only one of clliferences in the degree of pessimism.)Some writers have tried to devise, a generalScales of formula for the motives which lie behind the variousliquidity.forms of hoarding that take place during a cyclicaldepression. They say that"liquidity preferences" in general rise.!Banks, business enterprises and private individuals tend toincrease their liquidity-that is; they ,wish to hold a larger partof their wealth in cash or in more liquid forms than before.The attempt has sometimes been made to set up typical cc scales ofliquidity"-i.e., to arrange the various types' of assets in theorder of their liquidity. If we start from the mOst liquid assetsand proceed to less and less liquid ones, we arrive approximatelyat the following scheme: gold, bank-notes, bank deposits, shorttermcredits, ,long-term credits, bonds, shares, real goods.I It is,however, impossible to regard such a scheme as invariable. Theorder will differ indifferent circumstances, and all kinds ofanomaliesmay, arise. In a state of high inflation, for 'instance, shareswill rank above' bonds, real property above bank deposits, andsoon.'It does not seem that such generalisations can add much "towhat is revealed by a detailed analysis such as has been attemptedin the previous pages.1 Cf. J. M. Keynes: The Geneyat Theoyy of Employment, Interest andMoney and the various comments ~hich this. book has evoked, especiallyfrom Professor J. Viner, " Mr. Keynes on ',the Causes of Unemployment.A ~eview "',in Quarterly jou'Ynal ot-Economics, Vol. 51, October1936, pages 147-168 passim.• Ct., e.g., Professor J. R. Hicks: Ie Glelchgewicht und Konjunktur ",in Zeitschrift fur Nationalokonomie, Vol. IV, 1933, page 441.• Cf. E. F~ 1\1:. Durbin: The Problem of Credit PoliC')! (1935), page 106.