Two Decades of Decadence in Economic Theorizing
THE CONSTANTLY PROLIFERATING TREE of economic theory has various branches. In this pap -r, attention will be devoted not to all the branches but only to that which is concerned with monetary theory, and especially with monetary theory as it relates to the fluctuations of business, to the alternation of "prosperity" and "depression." An understanding of the way in which restriction of the circulating medium conduces to business depression can probably best be reached if we begin with the simplest possible case. Let us assume, therefore, an economy in which there are no banks and in which all transactions are carried on by the use of money. There is, as in the world we know, buying and selling of commodities, borrowing and lending of money, leasing of land and buildings and the hiring of labor. Let us assume that the amount of money in circulation in 1928 and until (say) June 30th of 1929 was 21 billions of dollars, that trade has been and is active and that employment is steady and high. But immediately thereafter the quantity of money decreases, and rather quickly, to 14 billion dollars. In order that our illustration may more closely simulate the conditions often occurring in the contemporary world, we shall assume the decrease in money to occur in such a way that almost no one has any realization of what has occurred to others than himself and that, in any case, few would understand its significance or anticipate its consequences. Through one or another circumstance, each person has lost (on the average)