Prosperity and Depression.pdf

Clap. 11The Up-turn: Revivaltechnical difficulties in extending· such a policy, at least so far asthe central banks are concerned, to other than Governmentsecurities. Apart from the initiative of the banks, anything thatremoves risks and strengthens general confidence will have anencouraging effect on the supply of capital.A change in the international economic situation of a countrywill often be a prerequIsite to any increase in the supply of capitalor reduction in the rates of interest. The existence of pricediscrepancies between countries and the consequent pressure on thebalance of payments in the high-cost country frequently block afall in the interest rates of the latter. The history of the post-warperiod and ofthe recent past offers plenty ofexamples ofthe variousdevices which may be employed to eliminate such price differences(e.g., devaluation of the currency), or to prevent them from havingan influence on the balance, of payments and the internal moneymarket (e.g., rigid exchange control), or to remove the causes forflight of capital from a country or to hinder it effectively. Thesevarious measures need not be discussed here in detail.We turn now to the discussion of factors exercisinga favourable influence on the demand forIncrease indemand for capital. Whilst it seemed necessary to show by ajlJ1)e.rtibJe detailed analysis why a partial disturbance, whichfunds. primarily affects production only in a particularbranch ofindustry, may under certain circumstancesproduce a temporary hold-up in the money stream and thusengender a general contraction, it would seem to be more obviousthat an event which leads to an increase in production in a particularindustry will in most cases also lift the total flow of money to ahigher level than it· would otherwise attain, if only the moneysupply is elastic. If in an individual firm or industry output isbeing expanded, workers must be hired, raw materials bought,machines and other equipment ordered. If for that purposemoney is used which would not be used otherwise, the moneystream swells and the demand for other goods rises. It is ofcourse immaterial whether new money is created by the banksor idle funds are utilised; in other words, whether the increasein total demand is financed by an increase in M or an increasein v. '