oh. 17 CHANGES DUE TO MONETARY FACTORS 265

the first instance no change in the rates of efficiencyearnings, i.e. where entrepreneurs do not improve theiroffers to the factors of production, the whole of theinitial rise in prices is due to the second term, i.e. to thestimulus to investment caused by the easier conditionsof borrowing. It may even be that in the first instancethere will be no change either in the rates of efficiency-earnings or in the volume of employment, so thatis unaltered, the initial effect of the new money onprices operating wholly through the stimulus to in-vestment. In this case it is probable that compara-tively little new money will be needed to augment theIndustrial Circulation, and any surplus beyond thiswill have to be temporarily absorbed by a decrease ofVelocities or an increase in the Financial Circulation.

But the consequence of a change in prices due to theinequality of I and S is, as we have seen in Chapter 11,to give a windfall profit to entrepreneurs. Under thestimulus of this profit the secondary phase of thetransition is introduced. For the stimulus of profitinfluences entrepreneurs to bid more eagerly for theservices of the factors of production, and so causes

the rate of efficiency - earnings to increase,

whether or not this has already occurred to a certainextent in the primary phase.

So far we have assumed that the supply of moneyhas been increased and that the terms of lendingare easier. But the same argument applies mutatismutandis where it is a case of a diminished supply ofmoney and stiffer terms for lending.

(ii.) The Diffusion of a Change in the TotalDeposits between the Different Kindsof Deposits

We may now—at the expense of some recapitula-tion—consider in more detail by what routes an in-