Page:The Economics of Unemployment.djvu/70

current low production is insufficient to meet an early, expected, effective demand at the existing level of prices. Credit operates to stimulate the rate of production by putting an increased quantity of existing but idle producing power into the hands of business men, who will apply it in causing more productive energy to function in the fundamental and instrumental industries. It acts, in other words, as the instrument for correcting a condition of under-production, by throwing a quantity of unemployed labour and plant into the supply of increasing quantities of raw materials and other capital goods.

This is in effect a stimulation of saving. For a larger proportion of the increased volume of purchasing power thus created is applied to pay for the production of more capital goods, and a smaller proportion is applied to the purchase of final commodities for consumption. While, then, during the depression the proportion of saving to spending was kept abnormally low, so as to let out the previous accumulations of unmarketable goods, the revival of trade is initiated by financial measures which force more saving and so reinvigorate the productive processes.

Since the use of the new credits involves increased employment of labour and a larger aggregate wage-bill, a good deal of the enlarged volume of purchasing power will soon begin to operate at the other end of industry in a growing demand for consumable commodities. But the early normal effect of a trade revival through expanding credit will be a rise of prices and an enlarged sale of materials and semi-