II

INFLATION AND DEFLATION

I 4 I

the characteristic of a boom that their sale-proceeds exceed their costs; and it is the char-acteristic of a slump that their costs exceed theirsale-proceeds. Moreover, it is a delusion tosuppose that they can necessarily restore equi-librium by reducing their total costs, whetherit be by restricting their output or cutting ratesof remuneration; for the reduction of theiroutgoings may, by reducing the purchasingpower of the earners who are also their cus-tomers, diminish their sale-proceeds by a nearlyequal amount.

5. How, then, can it be that the total costs ofproduction for the world’s business as a wholecan be unequal to the total sale-proceeds? Uponwhat does the inequality depend? I think thatI know the answer. But it is too complicatedand unfamiliar for me to expound it here satis-factorily. (Elsewhere I have tried to expoundit accurately. 1 ) So I must be somewhat per-functory.

Let us take, first of all, the consumption-goods which come on to the market for sale.Upon what do the profits (or losses) of theproducers of such goods depend? The totalcosts of production, which are the same thingas the community’s total earnings looked atfrom another point of view, are divided in acertain proportion between the cost of con-sumption-goods and the cost of capital-goods.The incomes of the public, which are again thesame thing as the community’s total earnings,

1 [In my Treatise on Money .]