CH. 18

INVESTMENT FACTOES

289

C. The Collapse

Now whether or not the primary phase containswithin it the seeds of a reaction, the secondary phasenecessarily does. If the primary phase is caused by anincreased production of capital-goods, the higher pricelevel will continue so long as this capital output con-tinues—which, in appropriate conditions, might be along time, though the incentive to an increased outputof capital-goods should diminish, just as the incentiveto the production of consumption-goods increases.But if it is caused by an increased production of con-sumption-goods, then, after an interval governed bythe length of the process of production, the supply ofsuch goods coming on to the market will be increasedfully in proportion to earnings. Thus there will nolonger be any occasion for the higher price-level, andprices will drop back to their former figures. Only inso far as Income Inflation has occurred can a higherlevel be maintained. Now, since the secondary phasenecessarily stimulates the production of consumption-goods, it follows that even where the primary phaseis caused by an increased production of capital-goods,the secondary phase brings with it the seeds of a re-action, which will germinate as soon as the increasedsupply of consumption-goods is ready for the market.Thus, sooner or later, consumption - goods will becoming on to the market which can no longer be soldat the previously ruling price; so that the downwardprice phase of the Cycle now commences.

This downward price-movement, whilst obliterat-ing in whole or in part the windfall profits which hadbeen ruling previously, should not, taken by itself, in-volve entrepreneurs in an actual loss ; and, indeed, solong as any element of over-investment continues,some degree of profit will still remain. For, providedsaving does not exceed investment, entrepreneurs canVOL. i u