CH. 16

CAUSES OF A DISEQUILIBRIUM

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money for income purposes, changes due to InvestmentFactors, and changes due to Industrial Factors influ-encing the volume of output and the demand for moneyfor income purposes.

I. Changes due to Monetary Factors

A state of disequilibrium may be said to have beeninitiated by monetary factors, if we have :

(i.) A change in the total quantity of moneywhich does not correspond to the seculartrend in general economic activity ; or

(ii.) A change in the proportion of the totalquantity of money needed to satisfy the re-quirements of Finance (i.e. the FinancialCirculation), due to a change of fin ancialsentiment or activity or of financial valuesrelatively to the price-level of output; or

(iii.) A change in the requirements of the IndustrialCirculation, owing to a change in the velocityof the Income-deposits or of the Business-deposits A or in the turnover of the IndustrialCirculation corresponding to a given volumeof Earnings, due to a change in the habits andmethods of the public or of the businessworld or to a change in the character (asdistinct from the volume) of output.

Changes of any of these types mean that the supplyof money available to entrepreneurs is no longer inequilibrium with the amount required by them tomaintain the current income and output of the Factorsof Production at their existing level. There will,therefore, be a tendency for a series of changes andadjustments to take place, of which a disturbance ofthe rate of investment is likely, as we shall see, to bethe first stage.