CHAPTER VII

THE DEMAND FOR LOANS BY THE STOCK MARKET

49. There are a considerable number of authors who regard the volume of loans to stockbrokers as a measure of the funds which have flowed onto the stock exchange or even as a measure of the funds that have been absorbed by the stock exchange. In actual fact it is neither of these things.

CHAPTER VIII

THE LIQUID FUNDS OF BEARISH SELLERS

59. The scare that an enormous volume of funds might be tied up in stock transactions was not taken seriously by many economists of repute. Their chief argument against this fear of absorption was that the “money work to be done” is not increased or not substantially increased by the turnover on the stock market, or that the effect of such an increase is minimized or compensated by the circumstance that the velocity of circulation of the funds used on this market is extremely high and, moreover, elastic.

CHAPTER IX

CAPITAL GAINS, SAVINGS AND A VICIOUS CIRCLE

65. In the course of the previous chapters we searched every nook and cranny of the stock exchange to see whether money, or capital, or credit might be hidden away there instead of passing straight on into the hands of producers who want it for investment purposes.

CHAPTER X

A DIGRESSION ON INTERNATIONAL SPECULATION

69. We are all familiar with the important rôle assigned to national boundaries in the analysis of economic matters. Trade in commodities, loan transactions and transfers of property between the citizens of different countries are usually treated separately, and from quite a different angle, from the same economic relationships between citizens of one and the same country.

CHAPTEE XI

THE SUPPLY OF CAPITAL AND INDUSTRIAL FLUCTUATIONS

72. It has been pointed out a number of times in the previous chapters that too easy conditions in the capital market produced by an expansion of bank credit, cause industrial investments to be undertaken which in the course of time will most likely turn out to have been misdirected. It is not my purpose to give a complete description of the way in which this comes about. The process has been analysed in the writings of Wicksell,1 Mises,2 Hayek,3 and others.

CHAPTER XII

CREDIT CREATION AND THE ATTEMPT TO DETERMINE ITS PROPER LIMITS

75. The view expressed here that credit expansion is liable to end with a crisis is not one that is shared by all economists.

CHAPTER XIII

WORKING CAPITAL AND SHORT-TERM LOANS

84. The thesis that the distinction made by the individual enterprise between working capital and fixed capital, and more especially the reasoning on which the distinction is based, cannot be directly applied to the sphere of general economic analysis, is not a new discovery. Unfortunately, however, there is a general tendency for concepts relating to the economic practice of individuals and firms to be misapplied to the analysis of the functioning of the economic system as a whole.

CHAPTER XIV

THE MONEY MARKET AND THE TRADE CYCLE

92. Our analysis of the nature of working capital, and of the demand for short-term funds, brought us to a number of conclusions. The original purpose of our investigation was to make it easier for us to make up our minds about the controversy “business credit versus stock exchange credit.” We shall defer the application of our conclusions to this problem until the next chapter. For the present we shall deal with certain by-products of our analysis.

CHAPTER XV

INDUSTRIAL INVESTMENT AND THE QUALITY OF CREDIT

97. We have still to give an answer to the question whether credit is liable to exert different effects, according to the purpose for which it is granted. It was necessary to clarify first the problems connected with the distinction between circulating and fixed capital. Now that we have progressed thus far, we may venture to comment on the effects of loans which are differentiated according to the kind of use to which they are put.

Are the effects of credit dependent on its use?

CHAPTER XVI

THE STOCK MARKET, EASIER CREDIT, DEARER CREDIT

101. Now that we have established that stock exchange loans are no more dangerous in their effect than other kinds of loans granted in the same volume, we must consider whether the volume of lending may not be influenced by the stock exchange, and whether this influence is not such as to tend to increase the total volume of credit.