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A TREATISE ON MONEY

BK. IV

II. Changes due to Investment Factors

The market-rate of interest may come to divergefrom the natural-rate on account of :

A. A change in the market-rate, resulting from

altered conditions in the loan market due to achange in Monetary Factors, uncompensatedby a change in the natural-rate.

B. A change in the natural-rate, occasioned by a

change in the attractiveness of Investment orin that of Saving, uncompensated by a changein the market-rate ;

C. A change in the market-rate, occasioned by the

necessity of maintaining equilibrium betweenthe rate of Foreign Lending and the ForeignBalance, uncompensated by a change in thenatural-rate.

III. Changes due to Industrial Factors

There may be a change in the quantity of moneydemanded by entrepreneurs for the Industrial Circula-tion due to a change—away from the secular trendwhich we have already allowed for in our hypotheticalconditions of equilibrium—in the volume of CurrentOutput or to a change in its Cost of Production, dueeither to an “induced” or to a “spontaneous” change(see p. 166 above) in the rate of earnings.

These different types of disturbance can exist simul-taneously with one another and they can tend to pro-duce one another; but they are independent in the sensethat their effects are superposable, the effect of oneaggravating or counterbalancing the effect of another.

Now it is the argument of this Treatise that dis-turbances to the pre-existing position of equilibriumdue to changes of Type I. normally work themselvesout via changes of Type II. ; that disturbances due