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A TREATISE ON MONEY

BK. IV

amount of credit available in tbe bands of tbe banks,as a result of these repayments of old loans, where-with to make new loans to business, is worth corre-spondingly less.

(iii.) The Normal Course of a Credit Cycle

Having emphasised sufficiently the endless varietyof the paths which a Credit Cycle can follow, we mayallow ourselves, by way of simplification, to pick outone path in particular which seems to us to be suffi-ciently frequented to deserve, perhaps, to be calledthe usual or normal course.

Something happens—of a non-monetary character—to increase the attractions of investment. It maybe a new invention, or the development of a newcountry, or a war, or a return of “ business confi-dence ” as the result of many small influences tendingthe same way. Or the thing may start—which ismore likely if it is a monetary cause which is playingthe chief part—with a Stock Exchange boom, be-ginning with speculation in natural resources or defacto monopolies, but eventually affecting by sympathythe price of new capital-goods.

The rise in the natural-rate of interest, correspond-ing to the increased attractions of investment, is notheld back by increased saving; and the expandingvolume of investment is not restrained by an adequaterise in the market-rate of interest.

This acquiescence of the Banking System in theincreased volume of investment may involve it inallowing some increase in the total quantity of money ;but at first the necessary increase is not likely to begreat and may be taken up, almost unnoticed, out ofthe general slack of the system, or may be suppliedby a falling off in the requirements of the FinancialCirculation without any change in the total volumeof money.