210

A TREATISE ON MONEY

BK. Ill

consumption-goods to reduce in-put—the latter notforeseeing the falling-off in the demand for their goodswhen the increased rate of saving, which is beinganticipated, duly matures. Thus some fluctuationsmay be—practically speaking—unavoidable.

2. When there is a need to change the rate of earn-ings because some change is occurring which affects theStandard of Value, there is no ready means of doingthis except by a change of bank-rate which is deliber-ately designed to provoke a (temporary) disequilibriumbetween Saving and Investment, in order that in thisway entrepreneurs may be induced by abnormal profitsto raise the money-earnings of the factors of productionor—if a fall in the price-level is the objective—byabnormal losses to reduce the money-earnings of thelatter. When, that is to say, we want to effect aquasi-permanent change in the purchasing power ofmoney—which is the same thing as to alter the money-rates of efficiency-earnings of the factors of production—we can, in the existing economic system, only dothis by allotting to entrepreneurs abnormal profitswhich will stimulate them to bid against one anotherfor the services of the factors of production and soraise the money-rate of efficiency-earnings, or ab-normal losses which will depress them into withdraw-ing offers of employment and so, by the pressure ofunemployment, into (ultimately) reducing efficiency-earnings in terms of money. And our means foreffecting this temporary stimulus or depression is torupture the equilibrium between Savings and Invest-ment by establishing a bank-rate which purposelycauses the market-rate of interest to differ from thenatural-rate.

3. There is often a confusion as to the way in whicheasier terms of credit affect different classes of entre-preneurs. Since cheaper borrowing lowers the cost ofproduction of all types of entrepreneurs, it is often sup-posed that it stimulates all alike to increase their out-