OH. 19

ASPECTS OF THE CREDIT CYCLE

303

At this stage the output and price of capital-goodsbegin to rise. Employment improves and the whole-sale index rises. The increased expenditure of thenewly employed then raises the price of consumption-goods and allows the producers of such goods to reapa windfall profit. By this time practically all cate-gories of goods will have risen in price and all classesof entrepreneurs will be enjoying a profit.

At first the volume of employment of the factorsof production will increase without much change intheir rate of remuneration. But after a large propor-tion of the unemployed factors have been absorbedinto employment, the entrepreneurs bidding againstone another under the stimulus of high profits willbegin to offer higher rates of remuneration.

All the while, therefore, the requirements of theindustrial circulation will be increasing—first of all tolook after the increased volume of employment andsubsequently to look after, in addition, the increasedrates of remuneration. A point will come, therefore,when the Banking System is no longer able to supplythe necessary volume of money consistently with itsprinciples and traditions.

It is astonishing, however,—what with changes inthe Financial Circulation, in the Velocities of Circu-lation, and in the reserve proportions of the CentralBank —how large a change in the Earnings Bill can belooked after by the Banking System without an ap-parent breach in its principles and traditions.

It may be, therefore, that the turning-point willcome, not from the reluctance or the inability of theBanking System to finance the increased Earnings Bill,but from one or more of three other causes. The turnmay come from a faltering of financial sentiment, dueto some financiers, from prescience or from their ex-perience of previous crises, seeing a little further aheadthan the business world or the banking world. If so,the growth of “ bear ” sentiment will, as we have seen,