CHAPTER 19

SOME SPECIAL ASPECTS OP THE CREDIT CYCLE

(i.) The “Justification” op Commodity Inflation

The experiences of the post-war period led many ofus to advocate stability of the price-level as the bestpossible objective of practical policy. Amongst otherthings, this would mean an attempt on the part of thebanking authorities to eliminate the Credit Cycle at allcosts. This advocacy has led to criticism, of which Mr.D. H. Robertson (in his Banking Policy and the PriceLevel) is the main author, to the effect that the CreditCycle, though guilty of disastrous excesses and gravecrimes, has a part to play in a progressive society, andthat an attempt to check it altogether might producestagnation as well as stability. It may be convenient,therefore, to examine at this point how much forcethere is in Mr. Robertson’ s contentions.

The main basis of Mr. Robertson’ s argument is thatthe Commodity Inflation phase of a Credit Cycle, solong as it lasts, causes the wealth of the community toincrease faster than would otherwise be the case. Thisis undoubtedly true. The result of Commodity Infla-tion is to cause the current output of the community toexceed its current consumption to a greater extentthan would be the case otherwise ; whilst, on the otherhand, the higher real wages which are enjoyed duringa slump are at the expense of normal capital accumu-lation. The amount of the excess due to a Commodity

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