CH. 12

SAVINGS AND INVESTMENT

181

interest are changing favourably or adversely to such )producers. It does not depend on whether the pro-ducers of consumable goods are making a profit or aloss.

Nevertheless, movements in our two types of price-level are connected at one remove and are, generallyspeaking, in the same direction. For if producers ofinvestment-goods are making a profit, there will bea tendency for them to endeavour to increase theiroutput, i.e. to increase investment, which will, there-fore, tend—unless savings happen to be increasing inthe same proportion—to raise the prices of consum-able goods ; and vice versa. If, on the other hand,producers of consumable goods are making a profit,but those of investment-goods are making a loss, thenthere will be a tendency for output to be changed overfrom the latter to the former, which will—unlesssavings happen to be decreasing in the same propor-tion—lower the price-level of consumable goods andobliterate the profits of the producers of such goods.Thus, whilst it is not impossible for the two types ofprice-level to be moving in opposite directions, it ismore natural to expect them to move in the samedirection.

Let us now move first of all forwards, and thenbackwards, in the causal sequence ; and for simplicityof statement let us restrict ourselves to the casewhere the two price-levels are moving in the samedirection.

If producers as a whole are making a profit, in-dividual producers will seek to enlarge their output soas to make more profit. They can do this by employ-ing more of the factors of production, either at theold rate of remuneration or at an enhanced rate. Weshall find in Book VI. that either of these thingsmeans an increase in the total cost of investment, sothat this effort of the producers to make more profitserves, at first at least, to aggravate the rising tendency