Prosperity and Depression.pdf

Chap. 2.The PurelY Monetary Theoryinfluencing working capital rather than through stimulatinginvestment in fixed capital. We shall have to come back to thisproposition because it conflicts sharply with the theories ofmany other writers, with which we shall have to deal.In his earlier writings Mr. HAWTREY had alreadyA credit mentioned the theoretical possibility of a completedeadlock. credit deadlock arising. That is a situation whereeven exceedingly low interest rates fail to evoke anew demand for credit. In such a situation, the ordinary meansof bank policy prove wholly ineffective. In his Good and BadTrade l he ascribes this phenomenon to the fact that (C the rate otdepreciation of prices" may be so rapid that" nothing that thebankers can do will make borrowing sufficiently attractive" tolead to a revival in the flow of money.In more recent publications, under the impression of the slumpof the nineteen-thirties, Mr. HAWTREY has modified his views tosome extent. 2 He now doubts whether it can be legitimatelyassumed that "the expectation of falling prices is (always) theresult of a preceding experience of a prolonged actual fall "8 andthat such a condition of stagnation is. not possible except in thecourse of a reaction from a riot of inflation. 4He still believes that" a failure of cheap money to stimulaterevival " is cc a rare occurrence ", but he admits that cc since 1930,it has come to plague the world and has confronted us with problemswhich have threatened the fabric of civilisation with destruction". 0These admissions and qualifications go a long way to meet theobjections of those who do not share Mr. HAWTREY'S unshakableoptimism regarding the efficacy of the traditional methods ofbanking policy for bringing about a revival,1 1913, page 186.• ct. his T'Yade Dep'Yession ana the Way Vut, 200 ed., pages 29-31 and133-1351 Capital and Employment, pages 85-87, " A Credit Deadlock" ;and his contribution to The Lessons of Moneta'Yy E~pe'Yience (edited byA. D. Gayer), " The Credit Deadlock ", pages 129-145.• The Lessons 01 Monetary Experience, page 131., Ibid., page- 131, and Moneta'Yy Reconstruction, page 133.• Capitq,l and Employment, page 86.