oh. 15 INDUSTRIAL & FINANCIAL CIRCULATIONS 255

investment (relatively to saving) exactly balances theeffect of bullish sentiment. To diagnose the positionprecisely at every stage and to achieve this exactbalance may sometimes be, however, beyond the witsof man. Moreover it may happen in practice that arate of interest high enough to avoid future over-investment has the result of reducing present outputbelow the optimum ;—though I think this can onlyoccur through inaccurate forecasting, or from thedifficulties of changing over from one type of outputto another. In this event some disturbance to stabilitymay be inevitable. For there is then no way outexcept what has sometimes been attempted both inGreat Britain and in the United States, though withdubious success, namely to discriminate in the termsof lending (either in the rate charged or by rationingthe amount lent) between financial and industrialborrowers. If the terms of lending to both categoriesof borrowers have to be nearly identical, then, giveninaccurate forecasting by certain purchasers of securi-ties, it may be that a rate of interest high enoughto avoid prospective over-investment is calculated toproduce present unemployment.

We are left, therefore, with the broad conclusionthat the stability of purchasing power and of outputrequires that the total deposits should be allowedto rise and fall pari passu with any changes in thevolume of the Savings-deposits ; but that the termsof lending should be adjusted—to the extent that thisis practically possible—so as to balance the effect ofbullish or bearish sentiment in the financial marketson the rate of new investment.

In the long run the value of securities is entirelyderivative from the value of consumption-goods. Itdepends on the expectation as to the value of theamount of liquid consumption-goods which the securi-ties will, directly or indirectly, yield, modified byreference to the risk and uncertainty of this expecta-