286

A TREATISE ON MONEY

BK. IV

velocities of circulation as a result of the enhancedcost of maintaining balances (and a very slight changeof velocities will usually be enough), or—if we are con-cerned with a country which belongs to an inter-national system—by attracting gold from abroad . 1An expansion, however, of type (i.)—where the volumeof liquid goods coming on to the market is diminishedbecause more productive effort has been concentratedon capital-goods—can come about with only a slightalteration in monetary factors, and therefore requiresmore positive action on the part of the banks if it isto be avoided.

We may note in passing that where the price ofconsumption-goods is raised, not by a falling off intheir supply, but by an increase in the volume ofemployment not (immediately) compensated by anincrease of their supply, the volume of employmentwill, as a rule, increase gradually, and entrepreneurs,entering into plans for increased production, will beinclined to place their orders ahead for some part ofthe half-finished goods which they are going torequire. Thus the price of working capital, i.e. thewholesale standard, will tend to increase sooner andfaster than the consumption standard. Such anticipa-tory price-movements, however, are still part of thePrimary Phase.

We have taken as our standard case an increase ofinvestment uncompensated by increased savings. Butthe same arguments apply, mutatis mutandis, when aCredit Cycle has been initiated by a drop in savinguncompensated by decreased investment. This is notvery likely to occur in practice on an important scale,because the influences which determine the volume ofsaving are of such a kind that they are not so likely to

1 In countries (such as most of those on the continent of Europe), wherethe volume of money partly depends on the volume of suitable bills availableto be discounted at the Central Bank, an increase in the volume of output hasa direct tendency to produce some corresponding increase in the volume ofcirculating money.