142

A TREATISE ON MONEY

BK. Ill

return to be obtained from savings-deposits and fromother securities respectively, which is obviously affectedby the price of the latter—and also by the rate ofinterest allowed on the former. If, therefore, the price-level of other securities falls sufficiently, he can betempted back into them. If, however, the bankingsystem operates in the opposite direction to that of thepublic and meets the preference of the latter forsavings-deposits by buying the securities which thepublic is less anxious to hold and creating againstthem the additional savings-deposits which the publicis more anxious to hold, then there is no need for theprice-level of investments to fall at all. Thus thechange in the relative attractions of savings-depositsand securities respectively has to be met either by afall in the price of securities or by an increase in thesupply of savings-deposits, or partly by the one andpartly by the other. A fall in the price-level ofsecurities is therefore an indication that the “ bearish-ness ” of the public—as we may conveniently desig-nate, in anticipation of later chapters, an increasedpreference for savings-deposits as against other formsof wealth and a decreased preference for carryingsecurities with money borrowed from the banks—hasbeen insufficiently offset by the creation of savings-deposits by the banking system—or that the “ bull-ishness ” of the public has been more than offsetby the contraction of savings-deposits by the bankingsystem.

It follows that the actual price-level of investmentsis the resultant of the sentiment of the public and thebehaviour of the banking system. This does not meanthat there is any definite numerical relationship betweenthe price-level of investments and the additional quan-tity of savings-deposits created. The amount by whichthe creation of a given quantity of deposits will raisethe price of other securities above what their pricewould otherwise have been depends on the shape of