Prosperity and Depression.pdf

42.2. Nature and .Causes of the Cycle Part IIof credit may easily have the effect of hindering the spread of aboom by hindering the boom itself. 1The disparate organisation of the world capitalInternational market opens up a new series of possible repercustransferssions from changes which involve a transfer ofOJ demand. demand from one country to another. The unequaldevelopment of credit in different parts of theworld means that any movement of the balance of trade in favourofa country with~ a relatively highly developed credit structure will,&eteris paribus, have a net inflationary effect in the world as a whole. •Butt apart from this unevenness in the development of credit,a movement of funds from one ·national credit market to anotherbrought about through changes in commercial currents will belikely to have a net effect. Whether this effect is expansionary ordeflationary will depend on central-bank policy, confidence andliquidity of the banks, elasticity of the industrial demand forcredit-all of which conditions are themselves largely dependenton the phase of the cycle in which the countries concerned findthemselves when the change in demand occurs. In particular,any very violent diversion of demand between countries, such asmay occur in the course of a world business cycle or as a result ofwar or large-scale harvest fluctuations, will probably be deflationaryin its effect. The country losing money may be forced to contract,while the country gaining money will be unable at first to employits new funds in investment.aFor the purposes of our exposition, we have soSectional far contrasted two extreme cases: viz., a state ofmobility 'affairs with no international lending and investmentof capital. at all on the one hand, and a world economy inwhich there. are no hindrances to the flow of investiblefunds from anyone area to any other. In reality, of course,1 Here the Neo-Marxian Theory of Imperialism referred to on page 85comes to the mind.• Ct. especially Viner, loco cit.• This factor, which is probably of very great practical importance,has been analysed with great force by Dr. Thomas Balogh, U SomeTheoretical Aspects of the Central European Credit and Transfer Crisis ttin International AUairs (Jopmal of the Royal Institute of InternationalAfiairs), Vol. II, May 1932 •