184

A TREATISE ON MONEY

BK. Ill

will fall, losses will be made, wealth will increaseslower than savings by the extent of the losses, un-employment will ensue, and there will be a pressuretowards a reduction of the rate of earnings of thefactors of production—until something happens tobring the actual terms of credit and their equilibriumlevel nearer together.

Booms and slumps are simply the expression of theresults of an oscillation of the terms of credit abouttheir equilibrium position.

When the comparative simplicity of a closed sys-tem is replaced by the complexity of an internationalsystem, the effect is—as we shall see—that the neces-sity of preserving international equilibrium may forcethe domestic banking system to establish terms ofcredit which diverge from their domestic equilibriumlevel. Thus the conditions of international equilibriummay be incompatible for a time with the conditionsof internal equilibrium ; and it is necessary for therestoration or maintenance of complete equilibriumthat two elements in the domestic situation should bemobile—not only the terms of credit, but also themoney-rate of efficiency-earnings of the factors ofproduction.