CH. IO
THE FUNDAMENTAL EQUATIONS
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the public’s demand curve for savings-deposits atdifferent price-levels of other securities. 1
There may also be the case, as we shall see inChapter 15, where “ two opinions ” develop betweendifferent schools of the public, the one favouringbank-deposits more than before and the other favour-ing securities. In this case the result depends on thewillingness of the banking system to act as an inter-mediary between the two by creating bank-deposits,not against securities, but against liquid short-termadvances.
Without forgetting that we are dealing with a caseof multiple equilibrium in which each element affectsevery other element more or less, and, without antici-pating unduly the subject-matter of Chapter 15, wemay sum up the matter thus.
The price-level of investments as a whole, andhence of new investments, is that price-level at which \the desire of the public to hold savings-deposits isequal to the amount of savings-deposits which thebanking system is willing and able to create. 2
On the other hand—as we have already seen—the price-level of consumption-goods, relatively tothe cost of production, depends solely on the resultantof the decisions of the public as to the proportionof their incomes which they save and the decisionsof the entrepreneurs as to the proportion of theirproduction which they devote to the output ofinvestment-goods—though both of these decisions,and particularly the latter, may be partly influencedby the price-level of investment-goods.
It follows that the price-level of output as a wholeand the amount of total profit depend on all fourfactors—(1) the rate of saving, (2) the cost of new
1 The rate of interest offered by the banking system on savings-depositsalso comes in, of course, as a factor influencing their relative attractiveness.
2 I am ignoring here the complications, which do not affect the essenceof the argument, arising out of the possibility of transferences between thesavings-deposits and the cash-deposits. We shall come to these later.
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