Prosperity and Depression.pdf

Chap. 2The PurelY Monetary Theorycorresponding process of contraction unnecessarily far." Given,however, this slow response of the people's cash balances, "solong as credit is regulated with reference to reserve proportions,the trade cycle is bound to recur ".1 .Under the automatic working of the gold standard, " the lengthofthe cycle was determined by the rate ofprogress of the processeson which the cycle depended, the absorption of currencyduring the period of expansion and its return during the period ofcontraction ". 2Since 1914, the automatically working gold stan­No trade cycle dard has ceased to exist. After the war and post­Jince the war. war inflations, the gold standard--a managed goldstandard-was once more restored; but the firstmajor shock upset it. Therefore, according to Mr. HAWTREY, theformer marked regularity and periodicity in the alternation ofperiods ofprosperity and depression, ofexpansion and contraction,can no longer be expected and do not, in fact, any longer exist.cc For the time being there is no trade cycle " if by " cycle " ismeant a periodic movement of marked regularity. There are, ofcourse, periods ofprosperity and depression; for the credit systemis still inherently unstable and there are forces more powerfulthan ever, the operation of which makes for expansion or contraction.But the intricate mechanism which produced the formerregularity in the alternation of expansion and contraction iscompletely dislocated.Periodicity is not, however, essential for the purposes ofMr. HAWTREY'S theory. On the contrary, he is entitled to claimfor his theory that it does not postulate exclusively movementsof a definite length and regularity. The regular cycle can alwaysbe interrupted by non-cyclic forces. It must be admitted that anexplanation which is flexible in. this respect is preferable-if it istenable in other respects-to a more rigid one.1 Monetary Reconstruction, 2nd ed., London, 1926, page 135.• Currency and Credit, 3rd ed., page ISS.