Page:The Economics of Unemployment.djvu/81

The upshot of this discussion of the relation between the financial and industrial factors in trade fluctuations and depressions is to reduce the former to an ancillary and supplementary position. The part attributed to the swelling and collapse of credit is both misconceived and overstated. The real importance of the operation of credit as a factor in industrial fluctuations is derived from the maladjustment between production and consumption. For it is the ultimately futile and mischievous endeavour to apply to production an excessive proportion of the income derived from it that stimulates trade to a period of feverish activity followed by a period of depression and collapse. The rapid expansibility of purchasing power through the creation of bank credits serves, as we have seen, to facilitate both the boom and the collapse, and by its reactions upon prices and expectations to carry both processes farther and faster than they could go under a system of cash payments or of properly restricted credit.

It is idle to say that the existing operation of bank credits is essential to the elasticity of trade, when it is demonstrated that excessive credits are instrumental in expansions and subsequent contractions that are wasteful and dangerous in their working. The representation of cyclical fluctuations, as belonging to a necessary and even a beneficent order of nature, is quite the most impudent of all the fatalistic doctrines by which defenders of the present order endeavour to stop the wheels of progress.

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