CHAPTER 3

I

CHAPTER 4

I

CHAPTER 5

I

I

The assertion that saving renders the purchasing power of the consumer insufficient to take up the volume of current production, although made more often by members of the lay public than by professional economists, is almost as old as the science of political economy itself. The question of the utility of “unproductive” expenditure was first raised by the mercantilists, who were thinking chiefly of luxury expenditure.

This book owes its existence to an invitation by the University of London to deliver during the session 1930–31 four lectures to advanced students in economics, and in the form in which it was first published it literally reproduced these lectures.

LECTURE 1

He realized well that the abundance of money makes everything dear, but he did not analyze how that takes place. The great difficulty of this analysis consists in discovering by what path and in what proportion the increase of money raises the price of things.

Richard Cantillon (died 1734) Essai sur la nature du commerce en général, II, 6

LECTURE 2

LECTURE 3

The first effect of the increase of productive activity, initiated by the policy of the banks to lend below the natural rate of interest is... to raise the prices of producers’ goods while the prices of consumers’ goods rise only moderately. ... But soon a reverse movement sets in: prices of consumers’ goods rise and prices of producers’ goods fall, i.e., the loan rate rises and approaches again the natural rate of interest.