II

INFLATION AND DEFLATION

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to the assistance of the producer proper by-taking over from him a part of his risk.

Now it follows from this, not merely that theactual occurrence of price changes profits someclasses and injures others (which has been thetheme of the first section of this chapter), butthat a general fear of falling prices may inhibitthe productive process altogether. For ifprices are expected to fall, not enough risk-takers can be found who are willing to carrya speculative “bull” position, and this meansthat entrepreneurs will be reluctant to embarkon lengthy productive processes involving amoney outlay long in advance of money re-coupment,—whence unemployment. The factof falling prices injures entrepreneurs; conse-quently the fear of falling prices causes themto protect themselves by curtailing their opera-tions; yet it is upon the aggregate of theirindividual estimations of the risk, and theirwillingness to run the risk, that the activity ofproduction and of employment mainly depends.

There is a further aggravation of the case,in that an expectation about the course of pricestends, if it is widely held, to be cumulative inits results up to a certain point. If prices areexpected to rise and the business world acts onthis expectation, that very fact causes them torise for a time and, by verifying the expectation,reinforces it; and similarly, if it expects themto fall. Thus a comparatively weak initialimpetus may be adequate to produce a con-siderable fluctuation.