CH. 18

INVESTMENT FACTORS

291

which had permitted a certain augmentation of theearnings-bill, will have come to the end of their tether.It may be that their tendency will be actually reversed,—for example, velocities of circulation may tend backto normal; and, if the Commodity Inflation has spreadto other countries, or for other reasons, the existinglevel of bank-rate may cease to draw gold or may evencease to retain the existing stock. More probably,however, the potentialities of the factors of expansionwill become exhausted rather than—in the first in-stance at least—reversed. For, as the Credit Cycleproceeds, the windfall profits of entrepreneurs will becontinuously stimulating them to bid against oneanother for the services of the factors of production,so that the Profit Inflation will gradually pass overinto an Income Inflation and, in proportion as it doesso, more and more money will be required for the sup-port of the Industrial Circulation.

A point will come, therefore, when the effort toexpand or to maintain the volume of the IndustrialCirculation will drive the effective bank-rate to a levelwhich is, in all the circumstances, deterrent to newinvestment relatively to saving. At this point theslump sets in. The reaction from the boom will notmerely have brought back prices and profits to thenormal, but an era of business losses and sub-normalprices will have commenced.

All this presumes of course that the BankingSystem has been behaving according to the principleswhich have in fact governed it hitherto, and that itlies either outside its purpose or outside its power so tofix and maintain the effective bank-rate as to keepSaving and Investment at an approximate equalitythroughout. For if it were to manage the Currencysuccessfully according to the latter criterion, the CreditCycle would not occur at all.

I have in this Chapter described the genesis andlife-history of the Credit Cycle in the most general