198

A TREATISE ON MONEY

BE. Ill

(measured in accordance with the definitions of Chapter10 above), then it is true that, so long as the money-rate of interest is held at such a level that the valueof Investment exceeds Saving, there will be a rise inthe price-level of output as a whole above its cost ofproduction, which in turn will stimulate entrepreneursto bid up the rates of earnings above their previouslevel, and this upward tendency will continue indefi-nitely so long as the supply of money continues to besuch as to enable the money-rate to be held below thenatural-rate as thus defined. This means, in general,that the market-rate of interest cannot be continuallyheld even a little below the natural-rate unless thevolume of bank-money is being continually increased;but this does not affect the formal correctness ofWicksell ’s argument. Professor Cassel’s belief, thatWicksell was making a very odd mistake in arguingin this way, 1 may be justified by the incompletenessof Wicksell’ s expression, but it probably indicatesthat, whilst Wicksell was thinking along the same linesas those followed in this Treatise, Cassel is not,—inspite of the fact that Cassel expresses h im self elsewherein practically the same terms as Wicksell, namely thatthe true rate of interest is that at which the value ofmoney is unchanged. 2

At any rate, whether or not I have exaggerated thedepth to which Wicksell’ s thought penetrated, 3 he wasthe first writer to make it clear that the influence ofthe rate of interest on the price-level operates by itseffect on the rate of Investment, and that Investmentin this context means Investment and not speculation.On this point Wicksell was very explicit, pointingout that the rate of investment is capable of being

1 Vide his Theory of Social Economy (Eng. trans.), p. 479.

2 E.g. op. cil. p. 480 ; Fundamental Thoughts on Economics , p. 129.

3 There are many small indications, not lending themselves to quotation,by which one Vriter can feel whether another writer has at the back of hishead the same root-ideas or different ones. On this test I feel that what Iam trying to say is the same at root as what Wicksell was trying to say.