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A TREATISE ON MONEY

BK. Ill

between the selling price of the investment-goods,whatever this may be, and their actual cost of pro-duction . 1 Thus whatever the price-level of invest-ment-goods, the amount forthcoming for their pur-chase, out of current savings augmented by theprofits or diminished by the losses on current produc-tion, will be exactly equal to their value.

The question, what does determine the price of newinvestment-goods, we shall consider in a moment.Our present conclusion is, in the first place, thatprofits (or losses) are an effect of the rest of the situa-tion rather than a cause of it. For this reason itwould be anomalous to add profits to (or subtractlosses from) income ; for, in that case, savings couldnever fall off, however great the expenditure of thepublic on current consumption, and equally savingscould never be increased by a reduced expenditureon consumption ; provided merely that entrepreneurswere continuing to produce the same output of invest-ment-goods as before.

But, in the second place, profits (or losses) havingonce come into existence become, as we shall see (forthis will be the main topic of several succeedingchapters), a cause of what subsequently ensues; indeed,the mainspring of change in the existing economicsystem. This is the essential reason why it is usefulto segregate them in our Fundamental Equation.

(iii.) The Price -level op New Investment-goods

When a man is deciding what proportion of hismoney-income to save, he is choosing between present

1 If entrepreneurs producing investment-goods are spending part oftheir profits on consumption, this must necessarily mean that entrepreneursproducing liquid consumption-goods will have an extra profit accruing tothem available for the purchase of investment-goods ; so that the netresult is the same as if the entrepreneurs producing investment-goods werespending these profits on the purchase of investment-goods.

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