OH. 12

SAYINGS AND INVESTMENT

183

production tends to rise or fall according as entre-preneurs are making a profit or a loss ; and the price-level of the community’s output is the sum of theaverage rate of efficiency-earnings of the factors ofproduction and the average rate of profit of the entre-preneurs. Thus, to bring first and last together, theprice-level of output as a whole oscillates above orbelow the rate of efficiency-earnings, according as thebanicing system is causing the value of investment toexceed or fall short of the volume of savings ; andthe purchasing power of money oscillates below orabove the rate of efficiency-earnings according as thebanking system is causing the cost of investment toexceed or fall short of the volume of savings. x

This is not to assert that the banking system is theonly factor in the situation ;—the net result dependson the policy of the banking system in conjunctionwith all kinds of other factors. But, in so far as thebanking system is a free agent acting with design, itcan, by coming in as a balancing factor, control thefinal outcome.

If the banking system controls the terms of creditin such a way that savings are equal to the value ofnew investment, then the average price-level of outputas a whole is stable and corresponds to the averagerate of remuneration of the factors of production. Ifthe terms of credit are easier than this equilibriumlevel, prices will rise, profits will be made, wealth willincrease faster than savings as the result of the in-comes of the public being worth less—the differencebeing transferred into the pockets of entrepreneurs inthe shape of the ownership of increased capital; entre-preneurs will bid against one another for the servicesof the factors of production, and the rate of remunera-tion of the latter will be increased—until somethinghappens to bring the actual terms of credit and theirequilibrium level nearer together. And if the termsof credit are stiller than the equilibrium level, prices