The Stock Market, Credit and Capital Formation

INDEX OF SUBJECTS.

Absorption of capital—

meaning of, 5–7; through increase in stock prices, 7, 120n, 148–153; through real investment, 30, 39, 288; through consumption of profits, 32–34, 54, 63

Absorption of circulating media—

analogous to hoarding, 41; by speculators’ transactions, 44, 55, 78, 87, 289; conditions for, 47–48; by chains of transfer payments, 50, 88, 93, 113, 289; due to lack of new issues, 52, 289; by the stock exchange, 67–78, 86–88, 93–96, 289, 312; by brokers’ transactions, 73–77, 289; as a localization of an inflation, 94; by bearish sellers, 129–145, 290; in sayings deposits, 132–137, 143

Agricultural credit, 260n, 282, 294

Amortization (see replacement fund)

Anti-pyramiding zone, 268

Balance of payments, international 157–162, 317

Bank deposits (see demand deposits, savings deposits, &c.)

Banking Act of 1933, 111n, 314

Banking school, 106, 190, 191

Bank reserves—

ratio of—to deposits in England, 132n; not affected by rise in savings deposits 134; hundred per cent., 240, 296; controlled by monetary authorities, 265, 268, 292; not affected by stock exchange turnover, 303 (see also excess reserves)

Barometer of markets, 95n, 299

Bear position—

and liquid funds, 129–145, 291; defined, 131; not always deflationary, 139–142; and liquidity preference, 141

Brokerage deposits—

as substitutes for bank deposits, 55, 87, 289–290, 307–310, 326; defined, 87n, 307; circulation of, 87–88, 307–310, 325; brokers’ loans, customers’ loans and, 101, 104, 303–306, 319–321; transformed into loans to brokers, 119; statistics of, 319–321, 372–374, 386–393

Brokers’ bank balances, 77, 87, 100n, 106, 289, 303, 307, 318–326, 372–375, 383–385

Brokers’ loans—

a safe bank asset, 64n; on account of others, 92n, 111–128, 290, 303–306, 313–314; mechanism of—illustrated, 97–128; a multiple of the funds involved, 112, 114, 117, 290; repaid by various methods, 115, 116, 122, 123, 290; financed out of sales proceeds, 118–121, 126, 128, 140–144, 313; affecting lending capacity of banks, 119, 283–284, 313; excessive—dangerous for market stability, 120; causes of rise of—listed, 125–127; rise of—related with bear position, 136, 145; watched by monetary authorities, 296–299; daily changes in—examined, 303–306; statistics of, 311–315, 319, 321, 329, 331–345, 372–374, 399–400

Bull sentiment—

and easy money, 48, 55; without easy money, 90; inflationary effect of, 131, 266

Business cycle (see fluctuations)

Call loan rates—

effects of—on security prices, 91, 234, 275–276; high—attract loans from stock sellers, 109, 136; low—make for idle funds, 144–145, 319; seasonal fluctuations of, 232, 234–235; and commercial banks, 259; rise with security issues, 280; low—due to large short-term funds, 285, 286; statistics of, 280, 315, 346–347, 394–399 (see also short-term funds)

Call loans—

satisfying liquidity preference, 140–141, 291; statistics of, 329, 394–399 (see also brokers’ loans)

Capital concepts, 8–19

Capital consumption (see consumption of capital)

Capital disposal, 10–14, 17–18, 36n, 165 (see also money capital)

Capital formation (see formation of capital)

Capital gains—

consumption of, 32–33, 54, 64, 66, 107, 125, 151, 288; and national income, 61, 149, 153, 291; considered a part of savings, 149–153 (see also profits)

Capital goods (see real capital)

Capital issues (see issues of securities)

Capital losses (see loss of capital)

Capital movements—international, 155–163, 317–318, 371

Capital optimum, 281

Capitalization—

rate of, 254n, 274–276, 281

Cash balances—

of bearish sellers, 39, 126, 129–145, 318, 319; and liquidity preference, 50, 140–145; of speculators, 55–87, 318, 319; of brokers, 77, 87, 106, 289, 303, 307–310, 318–326, 372–375, 383–385; of savers, 84, 135; of consumers, 84, 224; cancelled through debt repayment, 64, 101, 119, 124, 283; and time deposits, 138–139; of vertically integrated industries, 187, 229, 245; and population growth, 188–189, 291; temporarily inactive, 211–230, 233–248; a part of business capital, 212, 228, 230; dishoarding of idle (see dishoarding) piling up idle (see hoarding) (see also surplus cash balances)

Cession payments (see transfer payments)

Circulating capital (see working capital)

Clearing—

arrangements of stock exchanges, 47, 55; may reduce demand for money, 72–73, 245; balances not a function of turnover, 75–77, 289, 322; statistics of stock exchange, 77, 322–324, 377–385; balances need not affect brokers’ loans, 98–99, 106, 289, 323; and velocity of circulation, 324–325

Coefficient—

of money transactions, 54n, 187n, 229, 297; of industrial differentiation, 187n; of concurrent deviations 321, 324

Collateral of bank loans, 265–270, 311, 312

Commercial and Financial Chronicle, 364

Commercial bank credit, 190–193, 259, 265, 278, 292 (see also quality of credit)

Consumption—

of capital gains, 32–33, 54, 64, 66, 107, 125, 288; financed by created credit, 54, 177–178; of capital, 57–58, 63–64, 169–170; financed by brokers’ loans, 107, 125ff, 178; affects investment demand, 148, 178, 254–255; increased—may reduce investment, 170, 178; production of goods, 191–192, 207; postponement of (see temporary saving refraining from; saving)

Control of credit—

quantitative v. qualitative, 5, 96, 200, 260, 269, 292, 294, 296, 300 (see also monetary policy; margin requirements; quality of credit)

Corporate saving, 170, 186, 208

Cost of production—

reduced through technical progress, 177; marginal—hardly affected by interest rate, 254; reduced as recovery policy, 295

Creation of credit—

politically controlled, 4, 263ff; increases supply of money capital, 14–18, 53, 92, 171, 179, 229, 289; affects interest rates, 54, 174–176, 180, 195, 198, 252, 279, 286–287; financing consumption, 54, 177–178, 254, 291; to meet cash requirement of stock exchange, 69; supports stock market boom, 92–94, 259, 289, 290; stopped short, 96; through brokers’ loans, 104, 116; in United States, 1926–1929, 137, 279; and increase in savings deposits, 137–139; and industrial fluctuations, 164–173, 177–182, 194–199, 286, 294; financing capital production, 164–173, 177–178, 252–256, 286, 291; changes production structure, 171–173, 175, 192, 194, 198, 207, 209, 252, 295; liable to end with a crisis, 173, 291, 294–295; affects price level, 174–182; to stabilize price level, 177, 179–182, 291, 295; to compensate for hoarding, 183–184, 197, 199, 291; to compensate for increase in money work, 187–188, 229, 291; with growth of population, 188–189; through self-liquidating loans, 190–193, 206, 265, 291; to meet needs of trade, 190, 265; to provide working capital, 192, 200, 202–208, 252–255, 291; to reduce unemployment, 194–198, 295; to finance public works, 194–197; checked through qualitative control, 200, 260, 269, 292, 500; for unknown uses, 201, 251, 256–257, 292; contrasted with transfer credit, 224, 231–232, 237–239 292; out of surplus cash balances, 227, 232, 236, 244, 292, 296; to ease seasonal swings in money rates, 235, 243; barred by 100 per cent. reserves, 240, 296; not necessary for explanation of upstart, 244, 247, 292; caused by stock market boom, 266; by brokers, 310, 325–326

Credit expansion (see creation of credit)

Credit policy (see monetary policy)

Critical payments days, 221, 235, 242, 248, 296

Cumulative—reversive movement, 171, 199

Day loans to New York brokers, 99n, 327

Day-to-day money rates, 394–399 (see also call loan rates; brokers’ loans deflation)—

through spontaneous hoarding, 26, 183, 199; loss to society due to, 42; caused by stock exchange losses, 63, 64; caused by absorption of money, 70; caused by bearishness, 132–145; due to increase in savings deposits, 133–139; through foreign lending, 159; through foreign withdrawals, 160; through excess of saving over investment, 168, 183; offset by credit creation, 183–184, 199, 291; due to increase in money work, 187–188, 229, 291; due to population growth, 188–189; avoided by lending surplus funds, 223–227; not easily controlled, 264; of costs as recovery policy, 295

Delaware Charter, 115

Demand deposits—

included in money concept, 15; switch from savings deposits to, 131; switched to savings deposits, 132–145; nature of, 237–239 (see also cash balances; creation of credit)

Demand for credit—

elasticity of—for long term, 49–54, 317; and interest rates, 59, 246; by the stock market, 97–128, 286; confused with demand for money, 228–230; elasticity of—for short term, 233–234; elasticity of—for working capital, 253; is no “cause” of supply of credit, 263

Demand for money, 67–73, 84, 228–229, 242, 289 (see also absorption of circulating media)

Depreciation allowances (see replacement funds)

Derived demand—

for fixed capital, 148, 196, 254–256; for working capital, 254–256

Derivative deposits, 240, 307, 325

Discounting commercial paper, 190–193, 259, 265, 278

Dishoarding—

a source of money capital, 14–17, 286; demand for securities financed by, 89–90, 116, 124; combined with deposit cancellation, 124; through security purchases by savings depositors, 131, 144; shown by increased velocity, 132n, 138–139; if idle deposits make room for active ones, 139; and interest theory, 176n; balanced by hoarding, 184; through use of surplus cash balances, 212–214, 219–224, 227, 228n, 230n, 233, 236–240, 244, 246–248, 291, 296; encouraged by short bank loans, 234–235, 242–243; occurring once or recurring cyclically, 245–246, 247n, 292

Distribution—

of credit, 3, 4, 178, 291; of income, 42, 59, 156; of fictitious profits, 58; of brokers’ business, 76, 289, 323; geographical—of bank deposits, 319

Duplication—

of investable funds, 219–222, 241; of credit security, 270–272

Durable goods, 12–16, 200, 202ff, 253–258

Easy money—

policy, 48, 108, 268, 300; to stimulate private investment, 195 (see also creation of credit; interest rates)

Elasticity—

of demand for credit, 49–50, 90, 233–234, 253, 317; of credit supply, 92, 235, 270

Enterpreneur—

the shareholder as, 22

Equilibrium rate of interest, 176, 180, 247–248 (see also natural rate of interest; excess reserves)—

of U.S. banks, 101, 124, 132n, 134n, 138, 265, 268, 299, 313

Exchange rates (see foreign exchange rates)

Exchange equalization account—

British, 161

Expectations as to security prices, 130, 133, 142n, 266, 276

Ex-post savings, 185

Federal Reserve Board—

report of, 93n, 160n, 268n, 273n; statistics of, 137n, 313, 319, 321, 333, 337, 343, 345, 347, 348, 374, 376, 385, 393; regulation by, 268, 269

Financial circulation, 130, 133, 143, 327

Fiscal savings, 15

Fixed capital, 12–16, 200, 202–205, 253–258

Flexible exchange rates, 161

Flotations (see issue of securities)

Fluctuations—

in security prices, 23–25, 234, 275–276, 330; in interest rates, 91n, 232–235, 241–248, 275–277, 285–287; in supply of money, 160–162, 222, 228; in foreign exchange rates, 161; in industrial investment, 164–173, 177–182, 194–199, 209, 220, 241–248; trade, 164–173, 177–178, 181, 194–199, 220, 241–248, 294, 295; in capital requirements, 209–221, 226–230, 242–248, 291; in inventories, 211–212, 215–222; in surplus cash holdings, 211–213, 219–230, 241–248; in velocity of circulation, 213, 222, 228, 240n, 247n; in capital issues, 330

Forced saving, 172, 181–182, 185 (see also credit creation, investment, saving)

Foreign exchange rates, 161

Foreign lending and foreign capital, 157–163

Formation of capital, 12, 17, 19–21, 25–29, 35, 37–39, 65, 150, 164–173, 286, 288 (see also fixed capital; investment; saving)

Free money capital (see money capital)

Frivolous cycle theory, 295

Future goods (see investment; saving; money capital; period of production; production, &c.)

Gold inflation, 263

Gold production, 245, 263

Gold sterilization, 160

Gold standard, 161, 263, 297, 298

Guides to credit policy, 193, 296–300

Habits of payment, 84, 245

Hoarding—

by savers, 26, 135, 183; by security sellers, 39, 97n, 126, 129–145; effects of, 41–43; as increase in liquidity preference, 50, 130, 140–145; through increase in savings deposits, 132–139, 143; not implied in saving, 168; offset by credit creation, 183–184, 199, 291, 297; offset by public works, 197

Hot money, 162

Hundred per cent, reserve, 240, 296

Idle balances (see cash balances; surplus cash balances; hoarding; dishoarding; liquidity preference)

Income—

change in distribution of, 42, 59, 156; capital gains considered as, 61, 66, 149–153, 291; real—increased with more employment, 176n, 186; new—to buy new production, 192; increased through investment, 197, 254, 264

Income-velocity of circulation, 71

Industrial circulation, 133, 142

Industrial credit, 250, 278, 293

Industrial fluctuations, 164–173 (see also fluctuations; investment)

Inflatiometer, 298

Inflation—

from credit creation and dishoarding, 15, 17; causes excess supply of money capital, 53, 92–96, 172; localized on stock exchange, 94–96; checked, 96, 264–265, 292, 296, 300; boom may be due to foreign, 163; as excess of investment over saving, 183; healthy if compensatory, 184–189, 291; true, 195, 198; of velocity of circulation, 213, 222–223; due to utilization of surplus cash balances, 213, 220–223, 227, 292; of credit contrasted with transfer of credit, 236–240; definition of, 239n, 262, 297; a factor in trade cycle theory, 247–248; has political causes, 263–264; caused by stock speculation, 266; of, 1927–1929, 279–280; money market first easy then tight through, 286–287, 293; as recovery policy, 295; indexes of, 297–298; prejudices pro and con, 298n (see also creation of credit; dishoarding; interest; money capital)

Inter-broker loans, 312, 334–335

Interest rates—

and free money capital, 18; and liquidity preference, 50, 140, 176n; and credit creation, 54, 108, 174–176; 180, 195, 198, 239, 252, 279, 286–287; and security prices, 57, 59, 90, 92, 108, 234, 275; affected by voluntary saving, 91n, 176n, 279–280; seasonal fluctuations of, 91n, 232–235, 243; expectations as to, 142n; and price level, 174–182; and structure of production, 176, 252; depend on flow, not stock, of money, 176n; and commercial discounts, 191, 259; and private investment, 195; reduced along with wage rates, 198; short-term—nearly zero, 246; in cycle theory, 247–248; and marginal borrower, 252; and fixed capital, 252–255; as cost element, 254; and inventories, 255; short-term—raised, long-term—lowered, 273, 277–287, 293; raised by security issues, 277, 280.

International capital movements, 155–163, 317–318, 371

International speculation, 154–163

Inventories—

as working capital, 14, 28–29, 202–206; seasonal fluctuations in, 211–212, 215–222; affected by interest rates, 255

Investment—

misdirection of, 20, 57, 59, 164, 168, 256; financed by new issues, 25–30, 125, 311, 315; financed by selling old securities, 34–35, 125, 289, 299, 315; merely financial, 37–38; encouraged by high stock prices, 49, 108, 279; and technical progress, 58, 248; excess of saving over, 147; affected by consumers’ demand, 148, 178, 254–255; of capital gains, 150–153; foreign, 155–163; reduced through foreign withdrawals, 160; financed by credit creation, 164–173, 177–178, 252–256, 286, 291; reduced with ended credit expansion, 173, 186, 291; equal to voluntary saving, 176, 183; equal to ex-post saving, 185; increases income, 186, 197, 264; private v. public, 194–198, 251; in working capital, 200, 202–208, 252–255, 291; out of surplus cash balances, 212, 220, 241–244, 246–248; short-term, 228, 230, 233; independent of quality of credit, 249–261 (see also formation of capital; real capital)

Investment trusts, 25, 37–38, 299

Issues of securities—

as bonds or shares, 22; by investment trusts, 25, 37–38; for real investment, 25–30, 37–39, 125, 311, 315; held by jobbers, 35; lagging behind credit supply, 48, 52–53, 89, 316–317; called forth by higher security prices, 48–49, 90, 107–108, 266, 316–317; tend to depress security prices, 91–92, 285; financed by inflationary credit, 92, 266; financed by brokers’ loans, 105, 107, 110, 113–115; proceeds from—finance brokers’ loans, 111, 114–115, 140, 315; proceeds from—kept idle, 126, 140; foreign, 157; as industrial credit, 250; raise interest rates, 277, 280, 285; compete with short borrowing, 281–287; watched and controlled by authorities, 299–300; statistics of, 315–317, 330, 348–370, 394–399

Jobber, 24, 35, 47, 77

Lending capacity—

of banking system affected by stock exchange loans, 19, 283–284; increased through cancellation of deposits, 124, 309, 310; of English banks, 132n, 134n; increased through shifting to time deposits, 138

Lengthening of the production period—

(see period of production; structure of production)

Liquid funds—

(see cash balances; liquidity preference; money capital; surplus cash balances)

Liquidation—

of fixed capital, 13, 16, 29; of working capital, 14, 16, 28–29, 37, 203–207, 253, 291; of security holdings, 23–24, 33–34, 121–124, 140, 144; of stock exchange loans, 115–116, 121–124, 144, 290; and re-investment, 165–167, 208; of temporary savings, 33–34, 225; of a crisis, 246, 292

Liquidity—

of securities, 23–24, 36, 250; of call loans, 140–141; rules of banking, 191, 206; of commercial loans, 191–193, 206–207; of working capital, 192, 202–207, 253, 291; of a business firm, 202; of short-term capital, 230, 251–254; tests on critical days, 243; of bank assets, 257

Liquidity -preference—

and stable security prices, 24n; and hoarding, 50, 132, 135, 140–144; and interest theory, 91n, 176n; and rising stock prices, 130–133, 140; satisfied by holding call loans, 140–141, 144; bear position and, 141; satisfied by debt payments, 144; reduced—supports stock boom, 260

Loan value of securities, 266–272

Loanable funds—

and interest rates, 18, 176n (see also creation of credit; interest rates; money capital; surplus cash balance)

London Stock Exchange, 98n, 329–330

Long-term credit—

made out of short-term funds, 23, 250–251, 258; from temporary savings, 24, 33, 65, 225; may move inversely with short-term credit, 280–287, 293 (see also interest rates; investment; saving)

Loss of capital—

potential—through hoarding, 41–42; causes of—listed, 57–59; in security speculation, 57–66, 289, 294; of banks, 64; leading to make-up saving, 65–66; invested in fixed equipment, 256

MacMillan Report, 401

Make-up savings, 65

Malinvestment (see investment)

Marginal borrower, 201, 251, 252, 257

Marginal cost (see cost of production)

Marginal productivity—

of capital, 18, 42, 59, 252; of labour, 42, 166n; investment period affects, 166n, 212

Margin loans, 101–104, 110–112, 117–128, 260, 266–269, 272, 309–310, 319–320, 325, 372–374

Margin requirements, 267–269, 292, 300

Methodology, 264n

Minimum cash reserves, 187, 188

(see also cash balances; surplus cash balances)

Monetary policy—

credit control a means of, 95, 260; concerning international capital flows, 160–162; guides of, 193, 290–300; to secure full employment, 194–198; to avoid cycles, 199, 294; motives, not causes, of, 263–264; regulating bank reserves, 265, 268, 292, 299; objectives of, 294 (see also control of credit)

Money capital—

defined, 9–10; sources of, 12–17, 92, 286; transfer of, 25, 31; destinations of, 28–30, 37; absorbed in chains of transactions, 44, 50, 55; excess supply of, 49–50, 52–54; disappeared, 62, 146; no boom without abundant, 90, 290; elasticity of supply of, 92; loaned to foreign countries, 157; fluctuating supply of foreign, 159–160, 317–318; and production structure, 164–173, 176; decline in—causes collapse, 166–170, 291; newly created credit as, 171–173, 175, 229; from dishoarded surplus cash balances, 212, 219–220, 241–244

Money market, 25, 37, 161, 231–248, 284–287, 292–293 (see also call loans; call loan rates; day-to-day money rates; brokers’ loans; short-term funds)

Natural rate of interest—

defined, 54; raised with technical progress, 248 (see also equilibrium rate of interest)

Needs of trade, 190, 265

Neutral money, 81–82, 193

New York stock clearing corporation, 322, 323, 327, 377, 378–385 (see also clearing)

New York stock exchange, 98n, 100n, 142—

statistics of, 312, 326n, 333, 335, 377, 382, 385, 393; Bulletin, 313

Obsolescence, 16

Obviation of check payments through clearing, 322, 325n, 377–382 (see also clearing)

Offsetting policy, 160–162

Opportunity cost of holding cash, 140

Overconsumption, 170

Overinvestment—

with stable price level, 177; aggravated by secondary saving, 186; financed by surplus cash balances, 213, 246

Partnerships—

obtaining loans, 271; getting new partners, 282

Passive inflationism, 248

Period of production—

controversy about, 165n; lengthening of the, 166n, 209–213 (see also structure of production; roundaboutness of production)

Price level—

affected by credit creation, 174–177, 239n; stabilizing the 177, 179–182, 193, 291, 295; and increased productivity, 177, 190, 298; lowered through security speculation, 70–72, 82; and transfer payments, 80–83, 85n; as guide to monetary policy, 193, 297–298; of securities (see security prices)

Price payments, 80–82

Producers’ goods (see fixed capital; working capital; investment; structure of production)

Production, volume of—

reduced through hoarding, 26–27, 41–42; impaired by reduced capital supply, 33, 159, 165–168; and monetary circulation, 189–190; increased through credit creation, 194–198, 254–255; and liquidity of short-term capital, 208, 291; and surplus cash balances, 227, 292

Productivity—

controversy on, 2–4; and price level, 177, 190, 298 (see also marginal productivity; technical progress)

Professional speculators, 8, 23–25, 34–36, 55, 77, 92–93, 234 (see also jobber)

Profits—

consumption of, 32–33, 53–54, 64, 288; business—and share prices, 57–58, 90, 317; saving out of, 16, 170, 186, 208; withdrawn from stock market, 107; stock exchange—counted as income, 31n, 149–153; loan margins increased through, 267; loans repaid from, 208 (see also capital gains)

Profit inflation, 186

Propensity to consume, 197

Public works—

financed by created credit, 194; to replace private investment, 195–197, 251; to offset private hoarding, 197

Pyramiding of margins, 267–268

Quality of credit, 191, 199–201, 249–261, 269, 292, 297, 300

Real capital—

contrasted with money capital, 9–14, 17–18; depreciation of, 12–14, 16, 57–59; and interest theory, 18; formation of, 26–29, 35, 37–39; loss of, 57, 63; combined with other factors, 165 (see also fixed capital; working capital; inventories; investment)

Refunding, 25, 108, 315

Replacement fund—

current—free for reinvestment, 12–17, 166; ultimately collected from consumer, 13; a factor determining natural rate of interest, 54n; used for capital consumption, 58; inelastic supply from, 92; production kept up through reinvestment of, 166–167, 208; may make up for fall in saving, 169n; seldom passes through credit market, 170; gradually collected and reinvested, 204

Reserve ratios (see bank reserves; excess reserves)

Return, rates of—

negative—on investment, 194

Rigid prices and wages, 26, 42, 183, 190n

Risk—

increased—reduces private investment, 196; reduced—permits use of surplus cash balances, 246

Roundaboutness of production, 18n, 165, 167, 173, 177, 207, 212, 220, 223n, 241 (see also period of production; structure of production)

Sadistic cycle theory, 295

Saving—

current voluntary—as supply of money capital, 12, 15–18; fiscal—and compulsory insurance funds, 15n; as demand for securities, 24, 27, 70, 84, 112, 311; and investment or hoarding, 26, 41; temporary, 33, 65, 225; to buy old securities, 35; and the natural rate of interest, 54n; to make up for capital losses, 65; without delay in transfer of funds, 84; cannot cause a boom, 91, 279, 290; and the interest rate, 91n, 176n; inelastic supply of funds from, 92; distinguished from inflationary funds, 94; margin loans repaid through, 115, 123; and idle savings deposits, 135; in excess of investment, 146–153, 183; capital gains included in, 149–153; and underconsumption, 168; depression due to decline in, 168–169; corporate, 170, 186, 208; forced, 172, 181–182, 185; long-run investment determined by voluntary, 173; increases with employment, 176n, 186; investment in excess of, 183; ex-post—equals investment, 185; out of inflated profits, 186; in U.S., 1927–1929, 279

Savings deposits—

and liquidity preference, 130–145; competing with securities, 131; funds switched from demand deposits to, 132–139; reserve ratios for, 134n, 138n; in U.S., 1926–1929, 137; replaced by call loans, 140–145; time deposits as, 237–239

Seasonal fluctuations—

in production period, 209; of capital requirements, 209–221, 291; of inventories, 211–212, 215–222; in surplus cash holdings, 211–213; 219–230, 241–243, 291; of volume and velocity of circulation, 222–223, 228; in turnover of goods, 230; of money market rates, 232–235, 241–243, 292; in security prices, 234

Secondary saving, 186

Securities and Exchange Act, U.S., 268

Security capitalism, 24

Security issues (see issues of securities)

Security loans, 259, 311–312, 315 (see also brokers’ loans; margin loans; margin requirements)

Security method of raising capital—

function and advantages of, 21, 23, 33; causing duplication of credit, 270–272; competing with other methods, 282.

Security prices—

absorption of funds seen in rise of, 46, 120n, 148; high—attract new issues, 48–50, 52, 90, 107–108, 266, 289, 316–317; high—mean cheap money for industry, 49, 140, 278–282, 293; rise in—leads to profit taking and consumption, 54, 107; reasons for fall of, 57–59; losses due to fall of, 57–66; rise not at expense of commodity prices, 70–72; clearing balances independent of, 75; payments of—are like transfer payments, 82; boom in—needs support by abundant credit, 90–92, 279, 290; and interest rates, 90, 91n, 108, 234, 274–277; brokers’ loans and rise of, 102, 106–107; and bear position, 131–133, 135, 139, 141; rise in—regarded as income, 152n, 153; no seasonal fluctuations in, 234; and loan margins, 266–269; among the guides to monetary policy, 296, 298–299; index of, 316–317, 321, 329–330, 365–370, 375–376, 394–399

Self-liquidating loans, 191, 204, 206

Self-finance of industry, 170 (see also corporate saving)

Service balances with banks, 77n, 325n

Settlement (see clearing)

Settlement days, 98n, 99n, 100n

Short-term capital—

international movements of, 155, 159–163, 317–318, 371; working capital versus, 202–230; no suitable investment for, 207, 233, 249; liquidity of, 230n, 254n; shortage of, 244 (see also working capital; investment)

Short-term credit—

no short-term investment for, 202–230; inelastic demand for, 233, 253; leads to fixed investment, 249–257, 292; transformed into long-term credit, 23, 250–251, 258; affected by movement in long-term credit, 280–287, 293 (see also money market; call loan rates; temporary saving; liquidity)

Sieve analogy, 78

Specificity of equipment, 203, 256

Stability—

of foreign exchange rates, 161–162; of capital supply, 165–173, 185; of price level, 177, 179–182, 193, 291, 295; of employment, 193, 195–198, 297; versus progress, 294

Stages of production, 13, 166–168, 173, 198, 204, 205–207 (see also structure of production)

Standard Statistics Co., 321, 370

Statistics—

for United States, 311–328, 331–387; for United Kingdom, 329–330, 388–395

Statistical proofs—value of, 139

Stock exchange clearing (see clearing)

Stock exchange credit (see broker’s loans; margin loans; margin requirements)

Stock exchange speculation (see security prices; expectations; bear position; bull sentiment; loss of capital; margin requirements)

Stock prices (see security prices)

Structure of production—

affected by supply of money capital, 164, 166–169, 210; affected by increase in consumption, 170; affected by credit creation, 175–177, 194–195, 198, 291, 295; and liquidity of short-term capital, 205; affected by use of surplus cash balances, 212–213, 241–242 (see also period of production; roundaboutness of production)

Supply of money capital (see money capital; saving; creation of credit; dishoarding)

Surplus cash balances, 15–17, 212–230, 233–248, 291–292, 296 (see also cash balances; dishoarding)

Technical absorption of funds, 129–130

Technical progress, 58, 177, 248, 298

Temporary capital requirements, 209–221

Temporary savings—

available for long-term investment, 24, 33, 65, 225; withdrawal of, 33, 38, 225; withdrawal made impossible, 65–66; suitable investment for, 191, 205–207; contrasted with temporary cash surpluses, 224–227

Temporary surplus cash balances (see surplus cash balances)

Theory and practice, 293

Time deposits—

reserve requirements for, 134n, 138n; nature of, 135, 237–239; rise of—in U.S., 1926–1929, 136–139

Time element in market analysis, 43, 51, 83–85

Trade credit, 214, 257

Trade cycle (see fluctuations)

Transactions motive—

of holding cash, 176n; of holding brokerage deposits, 307

Transactions velocity of circulation, 71, 84 (see also velocity of circulation)

Transfer credit—

defined, 224n; contrasted with inflationary credit, 224–225, 227, 292; as one of three types of credit, 231–232, 236–239

Transfer of money capital, 27–28, 40, 43, 50, 171, 238, 288

Transfer payments—

defined, 79n; theory of, 79–83; delays due to, 83–85; chains of, 50, 86–89, 93, 95, 113, 290

Transfer problem—international, 155

True inflation, 195, 198

Under-consumption theories, 168

Unemployment—

due to hoarding, 27, 42; and interest theory, 176n; and healthy inflation, 183, 193–198; reduced through credit creation, 186, 194, 295; and dishoarding, 212; and production structure, 194–195, 198; reduced through lower wages rates, 197–198

Velocity of circulation—

assumed as constant, 71–72; compensating for change in money work, 84; of funds on stock market, 129–130, 324–325, 327, 383–385; showing hoarding or dishoarding, 132n, 138–139; increased during 1927–1929, 138–139, 280; inflated through use of surplus balances, 213, 226n, 245; seasonal fluctuations of, 222; cyclical fluctuations of, 228n, 246, 247n; and 100 per cent, plan, 240n; of brokerage deposits, 307, 308

Vertical integration of industry, 187, 229, 245

Voluntary saving (see saving)

Wage rates—

rigidity of, 26, 42, 183, 190n; and capital supply, 166; and interest rates, 176n, 198; credit expansion, employment and, 194, 197–198;

Widening of the market, 24

Working capital—

currently liquidated, 13–15; contrasted with other funds, 16–17; liquidation of, 28–29, 37, 203–207, 253, 291; reinvestment of liquidated, 166, 208; financed by created credit, 192, 200; definition of, 202; contrasted with fixed capital, 202–203; and short-term loans, 202–230; elasticity of demand for, 252–256; financed by long-term capital, 281