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the modern economic world the organisation of thecredit system is such that the “ speculators ” are thepeople into whose hands new money is most likely tofind its way in the first instance, Bank-rate playing anobvious part in this causal train. This seems to meto be the doctrine on which I was brought up, andwhich certainly did not bring home to my mind anyclear idea of the relationship between the volume ofearnings at any time, the volume of savings, and thevolume of goods coming forward available for con-sumption, or of the connection of these things withthe equilibrium between savings and investment.
When we come to the earlier writings of Mr. Haw-trey, we seem to get much nearer to the idea ofBank-rate as affecting the rate of investment; butthe whole emphasis is placed on one particular kind ofinvestment, namely, investment by dealers and middle-men in liquid goods—to which a degree of sensitive-ness to changes in Bank-rate is attributed which cer-tainly does not exist in fact. It will be necessary toquote a somewhat lengthy passage to make clear hisline of thought: 1
“ What precise effect will this rise in the rate of interesthave on the borrowers ? The two principal classes ofborrowers are the producers and the dealers. The pro-ducers will, of course, find the cost of production ofcommodities slightly increased. . . . But, in general,changes in the rate of interest such as we are consider-ing are too small to affect retail prices immediately. . . .But the dealers themselves will be influenced by therate of interest. One of the special functions of a dealeris to keep a stock or ‘ working balance ’ of the goods inwhich he deals. This is necessary to enable him to meetthe varied needs of his customers without delay. Now adealer borrows money to buy goods, and repays the moneyas the goods are sold. Consequently when his stocks arelarge, his indebtedness to his banker will be correspond-ingly large. The extent of the stocks which he sees fit to
VOL. 1
1 Good and Bad Trade (pp. 61-63).
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