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By Root 1241 0

of fluctuations in the objective exchange value of money. But every variation in the distribution of income and property entails variations in the rate of interest also. It is not a matter of indifference whether a total income of a million kronen is distributed among a thousand persons in such a way that a hundred persons get 2,800 kronen each and nine hundred persons 800 kronen each or in such a way that each of the thousand persons gets 1,000 kronen. Generally speaking, individuals with large incomes make better provision for the future than individuals with small incomes. The smaller an individual's income is, the greater is the premium which he sets on present goods in comparison with future goods. Conversely increased prosperity means increased provision for the future and higher valuation of future goods. [11]

Variations in the ratio between the stock of money and the demand for money can permanently influence the rate of interest only through the displacements in the distribution of property and income that they evoke. If the distribution of income and property is modified in such a way as to increase capacity for saving, then eventually the ratio between the value of present goods and future goods must be modified in favor of the latter. In fact, one of the elements that help to determine the rate of interest, the level of the national subsistence fund, is necessarily altered by the increase of savings. The greater the fund of means of subsistence in a community, the lower the rate of interest. [12] It follows immediately from this that particular variations in the ratio between the stock of money and the demand for money cannot be always accredited with the same effects on the level of the rate of interest; for example, it cannot be asserted that an increase in the stock of money causes the rate of interest to fall and a diminution of the stock of money causes it to rise. Whether the one or the other consequence occurs always depends on whether the new distribution of property is more or less favorable to the accumulation of capital. But this circumstance may be different in each individual case, according to the relative quantitative weight of the particular factors composing it. Without knowledge of the actual data it is impossible to say anything definite about it.

These are the long-run effects on the rate of interest caused by variations in the ratio between the total demand for money and the total stock of it. They come about in consequence of displacements in the distribution of income and property evoked by fluctuations in the objective exchange value of money, and are as permanent as these fluctuations. But during the period of transition there occur other variations in the rate of interest that are only of a transitory nature. Reference has already been made to the fact that the general economic consequences of variations in the exchange value of money arise in part from the fact that the variations do not appear everywhere simultaneously and uniformly, but start from a particular point and only spread gradually throughout the market. So long as this process is going on, differential profits or differential losses occur, which are in fact the source from which the variations in the distribution of income and property arise. As a rule, it is the entrepreneurs who are first affected. If the objective exchange value of money falls, the entrepreneur gains; for he will still be able to meet part of his expenses of production at prices that do not correspond to the higher price level, while, on the other hand, he will be able to dispose of his product at a price that is in accordance with the variation that has meanwhile occurred. If the objective exchange value of money rises, the entrepreneur loses; for he will only be able to secure for his products a price in accordance with the fall in the price level, while his expenses of production must still be met at the higher prices. In the first case, the incomes of entrepreneurs will rise during the transition period; in the second case, they will fall. This