312

A TEEATISE ON MONEY

BK. IV

and continues steadily thereafter at this increasedrate. The price-level is, therefore, diminished in the

CO

proportion - by which the available goods on the

market are now increased. That is to say, since inthe 2rth interval the expenditure is a(t + x) and the

available goods coming on to the market ^(t + x),

the price-level abruptly falls to its initial value p. 1

It will be noticed that the increase in the flow ofavailable output just balances the fall in prices, sothat income - deposits, at their increased figure of&i . a(l + x), are still in equilibrium with the newsituation.

Under our present assumptions the slump is purelya price slump and carries with it no reaction in thevolume of employment. The new position is one ofequilibrium at the same price-level and the samewages-level as before the expansion of production,but with working capital, production and employ-ment all increased in the proportion x.

(ii.) Eight Epilogues

Before we abate the rigour of our assumptions,there are several points, most of them already madein previous chapters, which are worth repeating withspecial reference to the present case :

(1) The same result could have been brought aboutby keeping prices stable and progressively reducingmoney-wages in the same proportion as, in the above,prices have been supposed to rise ; except that in this

1 This is not strictly accurate. For the carry-forward at the end of the2rth interval, namely, a(l + x) (1+ m), will be greater than at the end of the

2r — 2

(2r - l)th interval, namely, a(l + m) + a.x(l + ——- . m), so that this addition

to the carry-forward will bring the fall of prices temporarily below p in tho2rth interval, so that they will not settle down at p until the (2 r+ l)thinterval.