Page:The Economics of Unemployment.djvu/56

lation of insurance and savings-bank funds is hardly affected at all by the rate of interest. I do not, of course, deny that falling interest will deter the, saving of considerable classes, especially when it is accompanied, as will usually be the case, with falling incomes from declining trade which makes the provision of any surplus over necessary expenditure an act of keener sacrifice. Declining trade, moreover, removes those tempting opportunities for highly profitable investment, which, far more than any consideration of average rate of interest, prompt the saving of ambitious, greedy, and speculative persons.

Hence it must be admitted that falling interest does on the whole cause, or is accompanied by, a reduction in the rate of saving. This reduction of the supply of new capital does tend to restore for a brief period the true equilibrium between spending and saving, production and consumption. But it does so in a very slow and wasteful manner, involving a long period of partial stoppage both of production and consumption. Moreover, as soon as the cycle of production has once more taken a more favourable turn, the normal tendency to try to save, invest, and employ productively as capital, a larger proportion of the general income than can actually function, again sets in, and a short spell of feverish industrial activity once more gives place to a period of depression.

The other check on which the classical economists relied, the effect of falling prices in stimulating demand, is subject to similar disabilities and qualifications. If every fall of prices, directly due to increased production and supply at the former price-level, did immedi-