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A TEEATISE ON MONEY

BK. IV

A phenomenon partaking of the characters of (i.),(ii.) and (iii.), in varying degrees may also be com-plicated by the presence of some measure both ofIncome Inflation ( i.e. of rising costs of production)and of Capital Inflation (i.e. a rise of the price-levelof new investment-goods relatively to their cost ofproduction).

The occurrence either of a Commodity Inflationor of a Capital Inflation will tend to cause a ProfitInflation; and a Profit Inflation will bring aboutan Income Inflation through the eagerness of entre-preneurs to secure the services of the factors of pro-duction. But—theoretically at least—it is possibleto disentangle from these complications the elementof Commodity Inflation which constitutes a CreditCycle. Moreover, a Commodity Inflation of Type (iii.)above may be considered as the most characteristic ofa Credit Cycle, because—as we shall see—all CreditCycles tend to end up, however they may begin, withan admixture of this type.

The possible varieties of the paths which a CreditCycle can follow and its possible complications are sonumerous that it is impracticable to outline all ofthem. One can describe the rules of chess and thenature of the game, work out the leading openingsand play through a few characteristic end-games ;but one cannot possibly catalogue all the games whichcan be played. So it is with the Credit Cycle. Wewill begin, therefore, by examining the three openingsand then proceed to an analysis of the characteristicsecondary phase.

A. The Primary Phase

(i.) Let us suppose that circumstances have comeabout which lead entrepreneurs to believe that certainnew investments will be profitable; for example, a newtechnical discovery, such as steam or electricity or the