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A TREATISE ON MONEY

BK. Ill

investment, (3) the “ bearishness ” of the public, (4)the volume of savings-deposits ; or, if you like, onthe two factors—(1) the excess of saving over cost ofinvestment, and (2) such excess of bearishness onthe part of the public as is unsatisfied by the creationof deposits by the banking system.

Thus given the rate of new investment and thecost of production, the price-level of consumption-goods is solely determined by the disposition of thepublic towards “ saving And given the volume ofsavings-deposits created by the banking system, theprice-level of investment-goods (whether new or old)is solely determined by the disposition of the publictowards “ hoarding ” 1 money.

I hope I have made clear the distinction betweenthe two types of decision which the earning andwealth-owning public is being constantly called on tomake. But however clear we may be about the dis-tinction, it is nevertheless difficult to keep the causesand the results of the two types of decision dis-entangled, since they act and react on one anotherin a most perplexing way. For the amount of savingand the amount of investment, and consequently thedifference between them, partly depend on the price-level of investment-goods relatively to their cost ofproduction; and at the same time the attitude of thepublic towards savings-deposits and other securitiesrespectively may be partly influenced by expectationsas to the price-level of consumption-goods relativelyto their cost of production. In particular, a changein the disposition of the public towards securitiesother than savings-deposits, uncompensated by actionon the part of the banking system, will be a mostpotent factor affecting the rate of investment relativelyto saving and a cause of disturbance, therefore, to thepurchasing power of money.

1 Using this term, for once, to mean their scale of preference for savings-deposits and other securities at different price-levels of the latter.