264

A TREATISE ON MONEY

BK. IV

(iii.) Certain entrepreneurs may now be willing toincrease their output even if this means making higheroffers than before to the factors of production because(as the ultimate result of the influx of new money)they foresee profits.

Thus in all three cases there will be, sooner or later,an increase in the value of new investment, whether inthe form of fixed capital or of working capital; and,probably, an increase in output as well. Yet there isno reason to suppose that the effect of a change in thequantity of money on the rate of saving will be such asto compensate the change in the rate of investment.There is, indeed, a general presumption that the effecton saving, if any, will be opposite in direction to theeffect on investment, the easier terms to borrowersmeaning less satisfactory terms to lenders, so thatwhat stimulates the one retards the other. Therefore,whatever rise of prices takes place as a result of arise, if any, in the rate of earnings, a further rise,superimposed on this, must occur as the result of anincrease of investment relatively to saving. In otherwords, whether or not the aggregate of 0 is increased,the part of 0 which consists in the output of availableincome will not be increased as much as the part ofMi V* which is spent on the purchase of available

income, so that P will rise in excess of

MjV,

0

by an

amount which, as we have seen, is measured by

F-S0 ’

whilst IT will rise by an amount which is measured

by

I-S,0 ■

In the most straightforward case where there is in

1 In this and the succeeding chapters I shall sometimes ignore the dis-tinction between the purchasing power of money and the price-level ofoutput as a whole, and the extra complication due to the fact that I andI' are not necessarily equal. But where the essence of the argument isaffected, I shall, of course, draw attention to this.