these terms serve, can only be usefully studied as statistical facts and forces. The natural predilection for exactitude which, as has already been pointed out, is part of the mental equipment of scientific students, has thus been strengthened by the instability of money, credit, prices, and exchange in the post-War world.
Mr. R. G. Hawtrey is the most authoritative exponent of purely monetary explanations of our economic troubles.
“The real answer to all the non-monetary explanations of the depression is that they are merely particular cases of the monetary explanation. If they do not explain the shrinkage of demand, they do not explain the depression. And the shrinkage of demand is simply a shrinkage of the flow of money.”[1]
It is, of course, true that in every depression there is a “shrinkage of demand” and “a shrinkage of the flow of money.” This last Mr. Hawtrey attributes to something he calls “the inherent instability of credit” without explaining why this instability is “inherent.” For why does the flow of money, i.e. credit, shrink at certain places in the trade cycle? Apart from “shrinkage of demand” in general, there may occur misapplications of demand. If, as I contend, such misapplication occurs in normal periods of
- ↑ Trade Depression, p. 100.
