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A TREATISE ON MONEY

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Costs of Production and of the phases of the CreditCycle proper. In common usage the term Credit Cyclehas been applied to this complex phenomenon ; andit will often be convenient to follow this looser usage—provided that the initial impulse comes from invest-ment disequilibria and the changes in the Costs ofProduction are a reaction to these disequilibria andnot to some independent or lasting change in themonetary situation.

We shall see that there is an appropriateness inusing the term Cycle in this connection, because anexcess movement in one direction tends to bring intooperation not only its own remedy but a stimulus to anexcess movement in the other direction, so that theswing of the pendulum is positively to be expectedunless something occurs to interrupt it. Moreoverthe time-interval between the beginning of an upwardswing on one side of the equilibrium position and thebeginning of the reaction will sometimes depend onphysical facts connected with the average duration ofproductive processes, whilst the interval between thebeginning of a downward swing on the other side ofthe equilibrium position and the beginning of the re-action may be connected with the length of life ofimportant capital-goods and, more generally, with theduration of the existing contracts between entre-preneurs and the factors of production ; so that acertain measure of average regularity in the time-phases of the so-called cycle is not inconsistent withwhat we might expect on d priori grounds.

Nevertheless, we should not overstate the trulycyclical character of these phenomena. Credit Cyclescan be of many distinct types and many disturbancescan arise to interrupt their course. Above all, thebehaviour of the banking system can always inter-vene to mitigate or aggravate their severity.