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affected by small changes in the rate of interest, e.g.\ per cent., which could not be supposed to affect themind of the speculator; that this increased investmentcauses an increased demand for actual goods for useand not for “ speculative ” purposes, and that it is thisincreased actual demand which sends up prices. 1
More recently a school of thought has been develop-ing in Germany and Austria under the influence ofthese ideas, which one might call the neo-Wicksell school, whose theory of bank-rate in relation to theequilibrium of Savings and Investment, and the im-portance of the latter to the Credit Cycle, is fairlyclose to the theory of this Treatise. I would mentionparticularly Ludwig Mises’ s Geldwertstabilisierung undKonjunkturpolitik (1928), Hans Neisser, Der Tausch-wert des Geldes (1928), and Friedrich Hayek , Geld-theorie und Konjunkturtheorie (1929). 2
4. There is a fourth factor by reference to whichsome writers (e.g. Professor Pigou ) reinforce such otherexplanation as they may offer of the influence ofbank-rate on the price-level, namely its psychologicaleffect. But the fact of the expectation of lower pricesaroused by a rise in bank-rate scarcely constitutes anindependent explanation of why a higher bank-rateshould cause prices to fall. For such an expectationcould not persist year after year, as a mere illusion, ifit was, in fact, groundless. Business men would bequite capable of entertaining the opposite expectation,
1 Qeldzins und Oiiterpreise, pp. 82-84.
2 I should have made more references to the work of these writers iftheir books, which have only come into my hands as these pages are beingpassed through the press, had appeared when my own thought was at anearlier stage of development, and if my knowledge of the German languagewas not so poor (in German I can only clearly understand what I knowalready !—so that new ideas are apt to be veiled from me by the difficultiesof language). I find Dr. Neisser ’s general attitude to monetary problemsparticularly sympathetic, and am hopeful that he may feel the same aboutmy work. There are also some other recent German writers covering thesame line of country, whose work I have only glanced at.