CH. 19

ASPECTS OF THE CREDIT CYCLE

301

not drawing on their previous deposits for purposes ofconsumption, it is not with their existing deposits thatthey are paying for their consumption, but with theircurrent income. This leads us to the correct answer.What the rise of prices diminishes is the value of allcurrent incomes payable in cash. That is to say, theflow of purchasing power in the hands of the rest ofthe community is diminished by an amount equal tothe fresh purchasing power obtained by the aforesaidborrower. Furthermore, as we have seen, a benefitexactly equal to this loss in the value of currentincome accrues in the shape of profits to the entre-preneurs who are able to sell their current output atthe enhanced price. Thus the increment of capitalacquired by the new borrowers by means of the loansaccorded to them is at the expense of recipients ofcurrent income ; but this increment of wealth, orrather the loan which it secures, belongs not to thoseat whose expense it has been built up but, directly orindirectly, to the entrepreneurs who have made wind-fall profits by being able to dispose of their output atan enhanced price.

To whom, on the other hand, has there accruedan increment of wealth corresponding to the loss ofwealth of the depositors ? Obviously to the oldborrowers— i.e. to the borrowers who have borrowedat the previous lower price-level but will be able torepay at the new higher price-level. But this trans-ference, whilst it is a transference of wealth—not onlybetween bank-depositors and bank-borrowers but be-tween all classes of lenders and borrowers in terms ofmoney—is not a transference which serves in any wayto augment the stock of capital. For whilst theborrowers can repay when the due date of their loanarrives by parting with less purchasing power thanwhat they had expected to part with, and thereforeretain additional purchasing power which they mayor may not employ to replenish working capital, the