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A TREATISE ON MONEY

BE. IV

(i.) The Standard Case

Let us begin by simplifying tbe problem so as toset out the essential mechanism (which, as we shallfind, is substantially similar in the more generalisedcases) in a manner which is free from non-essentialcomplications. Our initial assumptions, which will beremoved later on, are as follows:

Assumption Alpha. It is assumed that current sav-ings, exclusive of additions to the Income Deposits,are equal to the amount of net new investmentother than the addition to working capital re-quired to provide for the additional volume of em-ployment ; so that the additional working capitalcorresponds exactly to the amount of entrepreneurs’profits plus any additions to Income Deposits . 1Assumption Beta. It is assumed that the bankscreate just enough additional money for the In-dustrial Circulation, after allowing for any fluctua-tions in the amount of the Financial Circulation,to allow the absorption of the unemployed factorsof production into employment at a steady rate,so that the last unemployed factors will just havebeen brought into employment when one produc-tion-period has passed by. This amounts to thebank’s supplying the entrepreneurs with whateverthey require, over and above their profits, to paywages on the gradually increasing scale which isassumed and to increase their Business-deposits A.

Assumption Gamma. It is assumed that the whole ofthe increased employment is directed to the pro-duction of consumption-goods, and that the stocks,if any, of liquid capital are constant.

1 This implicitly assumes that entrepreneurs are, at the commencement ofthe period, making neither profits nor losses, but this assumption is notessential, and it is easy to adjust the argument to its absence.