In chapter 11, we depicted the workings of the monetary system of a purely free market. A free money market adopts specie, either gold or silver or both parallel, as the “standard” or money proper. Units of money are simply units of weight of the money-stuff. The total stock of the money commodity increases with new production (mining) and decreases from wear and tear and use in industrial employments. Generally, there will be a gradual secular rise in the money stock, with effects as analyzed above.

We have already seen in chapter 8 what happens when there is net saving-investment: an increase in the ratio of gross investment to consumption in the economy. Consumption expenditures fall, and the prices of consumers’ goods fall. On the other hand, the production structure is lengthened, and the prices of original factors specialized in the higher stages rise.

In the previous section we have presented the basic process of the business cycle. This process is often accentuated by other or “secondary” developments induced by the cycle. Thus, the expanding money supply and rising prices are likely to lower the demand for money. Many people begin to anticipate higher prices and will therefore dishoard. The lowered demand for money raises prices further.

In recent years economists and journalists alike have been heavily emphasizing a new concept—”growth,” and much economic writing is engaged in a “numbers game” on what percentage, or “rate of growth,” “we” should have next year or in the next decade. The discussion is replete with comparisons of the higher rate of country X which “we” must hurriedly counter, etc. Amidst all the interest in growth, there are many grave problems which have hardly been touched upon.

In the early part of the twentieth century, the main indictment of the capitalist system by its intellectual critics was the alleged pervasiveness of “monopoly.” In the 1930’s, mass unemployment and poverty (“one third of a nation”) came to the fore. At the present time growing abundance and prosperity have greatly dimmed the poverty and unemployment theme, and the only serious “monopoly” seems to be that of labor unionism. Let it not be thought, however, that criticism of capitalism has died.

Before ending our discussion of specific governmental activities, we may note in passing a curiously popular form of government expenditure: “social security.” Social security confiscates the income of wage earners, and then, most people presume, it invests the money more wisely than they could themselves, later paying out the money to the former wage earners in their old age. Considered as “social insurance,” this is a typical example of government enterprise: there is no relation between premiums and benefits, the latter changing yearly under the impact of political pressures.