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A TREATISE ON MONEY

bk. m

—avoidance of loss is impossible for entrepreneursas a whole, however much they cut costs and reduceoutput, if the excess of saving over investment dulymaterialises.

Furthermore, widely held anticipations will tendfor a short time to bring about their own verification,even if they have no basis outside themselves. For areduced activity of entrepreneurs will diminish thevolume of working capital required and so reduceinvestment; whilst an increased activity will havethe opposite effect.

All the same, accurate forecasting in these mattersis so difficult and requires so much more informationthan is usually available, that the average behaviourof entrepreneurs is in fact mainly governed by currentexperience supplemented by such broad generalisa-tions as those relating to the probable consequencesof changes in bank-rate, the supply of credit andthe state of the foreign exchanges. Moreover, actionbased on inaccurate anticipations will not long surviveexperiences of a contrary character, so that the factswill soon override anticipations except where they agree.

Thus when I say that the disequilibrium betweensaving and investment is the mainspring of change,I do not mean to deny that the behaviour of entre-preneurs at any given moment is based on a mixtureof experience and anticipation.

There is another matter which deserves a word inpassing. When for any reason an entrepreneur feelsdiscouraged about the prospects, one or both of twocourses may be open to him — he can reduce hisoutput or he can reduce his costs by lowering hisoffers to the factors of production. Neither course,if adopted by entrepreneurs as a whole, will relievein the least their losses as a whole, except in so faras they have the indirect effect of reducing savingsor of allowing (or causing) the banking system torelax the terms of credit and so increase investment