IJO

ESSAYS IN PERSUASION

PART

relative positions of those who possess claimsto money and those who owe money. For, ofcourse, a fall in prices, which is the same thingas a rise in the value of claims on money, meansthat real wealth is transferred from the debtorin favour of the creditor, so that a larger pro-portion of the real asset is represented by theclaims of the depositor, and a smaller propor-tion belongs to the nominal owner of the assetwho has borrowed in order to buy it. This,we all know, is one of the reasons why changesin prices are upsetting.

But it is not to this familiar feature of fallingprices that I wish to invite attention. It is toa further development which we can ordinarilyafford to neglect but which leaps to importancewhen the change in the value of money is verylarge —when it exceeds a more or less deter-minate amount.

Modest fluctuations in the value of money,such as those which we have frequently ex-perienced in the past, do not vitally concern thebanks which have interposed their guaranteebetween the depositor and the debtor. For thebanks allow beforehand for some measure offluctuation in the value both of particular assetsand of real assets in general, by requiring fromthe borrower what is conveniently called a“margin.” That is to say, they will only lendhim money up to a certain proportion of thevalue of the asset which is the “security”offered by the borrower to the lender. Ex-perience has led to the fixing of conventional