CH. II THE CONDITIONS OF EQUILIBRIUM 153

of efficiency earnings of the Factors of Production ;whilst the actual Purchasing Power oscillates belowor above this equilibrium level according as the costof current investment is running ahead of, or fallingbehind, savings.

A principal object of this Treatise is to show thatwe have here the clue to the way in which the fluctua-tions of the price-level actually come to pass, whetherthey are due to oscillations about a steady equilibriumlevel or to a transition from one equilibrium to another.

By the scale and the terms on which it is preparedto grant loans, the banking system is in a position,under a regime of Representative Money, to determine—broadly speaking—the rate of investment by thebusiness world. At the same time the aggregateresult of the decisions of the members of the com-munity, as to how much of their money-incomes theyshall expend on consumption and how much theyshall save, is determining the rate of saving. Accord-ing, therefore, as the banking system is allowing therate of investment to exceed or fall behind the rateof saving, the price-level (assuming that there is nospontaneous change in the rate of efficiency-earnings)will rise or fall. If, however, the prevailing type ofcontract between the entrepreneurs and the factors ofproduction is in terms of effort-earnings W and not interms of efficiency-earnings W x (existing arrangementsprobably lie as a rule somewhere between the two),

then it would be - • P, which would tend to rise or fall,e

where, as before, e is the coefficient of efficiency.

But this disparity between investment and savingsets up a disequilibrium in the rate of profit. Thenext stage of the argument (to be developed in BookIV.) proceeds, therefore, to show how this profit-dis-equilibrium reacts—unless the banking system takessteps to counteract it—on the first term of the Funda-mental Equation, eventually causing the money-rate