288

A TREATISE ON MONEY

BR. IV

stocks—which they can now realise at an unusuallysatisfactory price—below their normal level. To theextent that this occurs it operates, indeed, by reducinginvestment in one particular kind of working capital,as a partial offset to the excessive investment inother directions. But the almost inevitable result ofprofits on current output and the visible depletion ofstocks is to encourage manufacturers of consumption-goods to strain their efforts to increase their output.We thus have, under the influence of the windfallprofits accruing from the price-rise consequent onthe Primary Phase of the Credit Cycle, a secondarystimulus to an increased volume of production—which,this time, is of an all-round character and affects alltypes of goods which are the object of general con-sumption.

This secondary phase is even more likely than theprimary phase to involve some measure of IncomeInflation as well as of Commodity Inflation. For theattempt to increase still further the volume of employ-ment will probably have the effect of stiffening the atti-tude of the factors of production and enabling them toobtain a higher rate of remuneration per unit of out-put. Moreover, in certain cases specialised factors ofproduction will be fully employed, with the result thatthe emergence of profit will cause entrepreneurs tobid against one another for such supply of these factorsas is available, thus raising the rate of remunerationin these particular cases. With the progress of IncomeInflation the surplus bank-resources which gave thestimulus to entrepreneurs to extend their activitiesfade away (because of the increasing demands of theIndustrial Circulation), but so long as any element ofCommodity Inflation is still present the stimulus con-tinues. Furthermore, in so far as a further rise of pricesis expected, there may set in a tendency to hoard liquidgoods, which aggravates the excess of investment oversaving, and so precipitates the very rise in question.