CH. 20

PURE THEORY OF THE CREDIT CYCLE 311

will have amounted to a .x

those responsible for the new volume of production,will have consumed exactly the same amount as before,namely, at the rate of a . t per week. For althoughrates of real wages will have been falling steadilythroughout, so that the old producers, excluding thoseresponsible for the new volume of production, willhave had their consumption curtailed, the new pro-ducers will have increased their consumption bythe same amount. 1 Thus these new producers willhave increased their aggregate earnings by a . x . r,

2t* — 2

and their income-deposits by a . x (1 + ^~\ m ) > an( ^

the aggregate profit accruing to the entrepreneurs

( ( 2r-2\ 1

this represents the excess of the value of investmentover the volume of saving. As we shall see below(p. 312 footnote), entrepreneurs will sacrifice a smallpart of their surplus in the 2rth week ; so that thetotal surplus accruing to them in the end will bea .x{r - (1 +m)}.

Working capital, output and employment havenow all been raised to their maxima with such riseof prices as is compatible with our assumptions, inparticular the assumption that the rates of money-wages are maintained at their previous levels.

This is the height of the boom and prices are attheir maximum. If the percentage of unemploymentamongst the factors of production requiring to beabsorbed was originally 10 per cent and t is 90 percent, prices will have risen by about 11 per cent. Thesecond act of the drama now begins—namely, theslump.

In the 2rth time-interval from the beginning of therevival in employment, available output begins toemerge at the rate a(t + x) instead of at the rate a . t,

1 The above argument excludes such contingencies as unemployed allow-ances, the effect of which is dealt with on p. 315 below.