284

A TREATISE ON MONEY

BK. IV

about by the new entrepreneurs attracting factors ofproduction to themselves by bidding up the rate ofearnings. In this case earnings being increased fromthe very start out of proportion to output, the Con-sumption Price-level will rise proportionately to theamount of Income Inflation. But however large orsmall the amount of the Income Inflation, the effectsof the Commodity Inflation will be superimposed on itand will essentially consist in a rise of prices relativelyto costs and earnings. After the necessary intervalof time has elapsed, the available output coming onto the market will be diminished and real earningsmust fall, i.e. the Consumption Price-level must risemore than earnings. Income Inflation, however great,leaves the equilibrium of earnings, costs and pricesjust where it was; it is only Commodity Inflationwhich can disturb this equilibrium. The commonestform of Type (i.) in practice is an Income Inflation,possibly slight in degree, brought about by the in-sistence of new producers, followed by a CommodityInflation after an appropriate interval. In any casethe characteristic conclusion of the Primary Phase ofa Credit Cycle consists in a rise of the ConsumptionPrice-level out of proportion to costs.

(ii.) Type (ii.), however, is the more usual, namely,that in which the increased investment is accompaniedby an increase in the total volume of production ; i.e.where there is from the outset a growth of workingcapital not balanced by additional saving. For theincreased production of capital-goods is more likely tobe additional to, than in substitution for, the previousproduction of consumption-goods ; if only because thefactors of production engaged on the latter are noteasily turned over to the former at short notice. Thisassumes, of course, that the factors of production arenot fully employed at the moment when the Cycle be-gins its upward course ; but then that generally is thecase, whether as the result of the slump which had