[Sraffa-Hayek: 2/3] [Reading Hayek's] Money and Capital: A Reply (1932)

• 출처: “Money and Capital: A Reply,” Economic Journal , vol. 42, June 1932, pp. 237–249.
• 자료: Some PDF(p.210~-PDF.13~) ; 다른자료: [구글도서] Contra Keynes and Cambridge ...
• 지은이: F. A. Hayek

※ Sraffa-Hayek exchange: Sraffa(1st of 3), This one is the 2nd of 3, Sraff(3rd of 3)

※ This is just a reading note with some annotations and remarks of this reader added in his trying to understand the article. Please refer to the above link to see the original.

* * *

1. With an article devoted to a critical discussion of my Prices and Production, Mr. Sraffa has recently entered the arena of monetary controversy.[2] There is no denying the fact that reviewing books on money, at a time when monetary theory is in a state of violent fermentation, is not an easy, and perhaps not even a pleasant, task. I can easily understand Mr. Sraffa being a little upset at having spent so much time on a work from which he has obviously derived no profit and which appears to him merely to add to the prevailing confusion of thought on the subject. But it seems to me that, in expressing indignation without making his own position quite clear, he has run the risk of doing himself less than justice and of taking up a position which is, to say the least, somewhat confused. I am not anxious to indulge in controversy for its own sake. But it seems to me that, in replying to Mr. Sraffa's stricutres, I may be able not only to defend myself against what appear to me to be needless misunderstandings but also to make clearer certain matters which do present, to use Mr. Roberton's phrase,, "appalling intellectual difficulty".[*] Hence I have asked the Editors of this journal to give me space for reply.

  Mr. Sraffa objects that I tried to say too much in four lectures, but his criticism really demands that I should have said a great deal more. In fact, many of his objections concern points which are implied rather than specifically developed in Prices and Production, this being partly due to the fact that I had discussed them in some detail elsewhere and partly to the fact that I thought that they must be sufficiently clear to an economist without further elaboration. In a short reply it is obviously impossible to discuss the relations between the general theory of equilibrium and the theory of moneyㅡone of the points on which Mr. Sraffa disagrees with my method of approach. Fortunately, however, a translation of my earlier treatment[*] of these prolegomena to a discussion of the role of money in the theory of industrial fluctuations has just been completed, and will be published before very long; so that I hope I may be permitted to refer Mr. Sraffa to this book[Monetary Theory and the Trade Cycle (English translation of my book, Geldtheorie und Konjunkturtheorie)] for a reply to his methodological criticisms, and to ask him to return to the points which I do not discuss here should he still feel dissatisfied.

  If he does so, I should also like to ask him to define his own attitude to these problems more clearly than he has yet done. From his article one gains the impression that his attitude is a curious mixture of, [:]

• on the one hand, an extreme theoretical nihilism which denies that existing theories of equilibrium provide any useful description of the non-monetary forces at work; 
• and, on the other hand, of an ultraconservatism which resents any attempt to show that the differences between a monetary and a non-monetary economy are not only, and not even mainly, “those characteristics which are set forth at the beginning of every textbook on money”. 

I am, however, not quite sure whether Mr. Sraffa has perceived that the refutation of this idea is one of the central theses of my book. What he certainly has not seenㅡthough I should have thought that this was a rather obvious pointㅡis where the essential differences between monetary and a non-monetary economy are to be sought. I have been assuming that the body of existing pure economic theory demonstrates that so long as we neglect monetary factors, there is an inherent tendency towards an equilibrium of the economic system; and what I tried to do in Prices and Production, and in certain earlier publications, was to show that monetary factors may bring about a kind of disequilibrium in the economic systemㅡwhich could not be explained without recourse to these monetary factors. I do not quite understand whether Mr. Sraffa thinks that, in order to show this, it would have been necessary first to restate the whole of equilibrium economics. I thought that this was not only impossible within the limits of a small book, but also quite unnecessary.

  Mr. Sraffa's suggestion that I am surreptitiousy shifting my position from the theoretical analysis of “neutral” money to the defence of one particular maxim of monetary policy is entirely due to his misunderstanding of this point. I am, indeed, assuming that it is generally desirable to avert any developments which lead the system away from an equilibrium position, and which, therefore, make a revulsion inevitable sooner or later. But there is no justification for the suggestion that after this, my exposition illegitimately takes certain aims of economic policy for grantedㅡwhich I assume "will be found desirable by every right-thinking person". However, I must not devote too much space to these general methodological questions, but must turn now to Mr. Sraffa's criticism of more specific points in my theory.

  Before it is possible to reach the central point, however, it will be necessary to discuss two closely related questions which are essential to understanding of the main problemㅡin spite of the fact that Mr. Sraffa considers them to belong to the "preliminaries" which he thinks "so utterly irrelevant" that he relegates them two footnotes.[*] In Prices and Production I have used the concept of the proportion between the demand for consumers' goods and the demand for producers' goods in two sensesㅡa “real” and a monetary one. This procedure was justified by a special simplifying assumption, on which the greater part of the argument was based, and which made the two proportions identical.

• In the real sense, the concept of this proportion corresponds[8] to the concept of the average investment period, as is easily seen when we regard all goods and services which are already within a unit period of time of becoming ripe for consumption, as consumers' goods; and all other unfinished goods and services as producers' goods. 
• Then the proportion between the amount of consumers' goods and the amount of producers' goods existing at a moment of time (required in order to continue production by the same method) will correspond (except for a small difference which stands in a definite relationship to the arbitrary unit period chosen) to the average investment period measured in the same units. 

The proportion between the demand for both types of goods and services, as exercised in the form of money offered for them, will correspond to the real proportion only under the special assumption made for convenience of exposition in the earlier parts of Prices and Production, viz., that all goods and services used in the process of production are exchanged against money every time they advance one unit period of time nearer to the consumption stage. That this is a case which is hardly ever likely to occur in the real world is obvious from the fact that it could never occur where any of the durable goods used last for more that one unit period of time. And I think that I have amply indicated in Prices and Production that, in the real world, the monetary proportion will be very different from the real proportion.[*]

  But the first essential point which Mr. Sraffa seems to have overlooked is that there is some relations between the monetary and the real proportion in the sense that a change in the former will tend to bring about a like change in the latter. Of the fact that, when once this simplifying assumption, made in the earlier part of Prices and Production, is dropped out, this relation becomes extremely complex, nobody could be more conscious than I am. But how Mr. Sraffa, in view of the discussion of this point on pp. 104-106 of Prices and Production, could suggest that I have overlooked it, is beyond my comprehension. In any case, it is the demand as expressed in money which determines the prices of goods in the successive stages of production, and it is these relative prices which determine the physical quantities of goods directed to the several stages.

  The second essential point on which Mr. Sraffa has obviously misunderstood me concerns the reasons why these proportions (in the first instance the monetary proportionㅡwhich will lead to a similar change in the real proportion) may alter.

• The monetary proportion (for the system as a whole) is the proportion between the sum of the amounts spent by individuals on consumers' goods and the sum of the amounts spent by them on producers' goods; 
• and it may therefore alter either (1) in consequence of a change in the proportion of their income which individuals devote to each of these objects of expenditure, or (2) in consequence of change in the relative amount which the different individuals have to divide, i.e., a change in the distribution of purchasing power. 

Mr. Sraffa must have overlooked this when he accused me of making contradictory statements in connection with the questions as to whether it is the decisions of entrepreneurs or those of consumers (or both) which determine the changes in the proportion.

• In fact, of course, entrepreneurs are also consumersㅡthough not all consumers are entrepreneursㅡand[,] individuals of both groups may changes their proportions[11] (by saving or consuming capital); 
• but the social  proportion may be affected not only by the decisions of individuals, but also by changes in the buying power of different groups of individualsㅡdue to additions of new money. 

Now the essential point to note here is that the additional money is, in the normal course of things, lent to somebody who, at that lower rate of interest, is willing to invest more money than beforeㅡand to borrow for this purpose.[12] As I think I have sufficiently emphasized in Prices and Production,[13] it is the fact that, when additional money is lent at interest to the highest bidder we are able to draw certain general conclusions as to where it will be used, which enables us to analyse the effects of the increase of money beyond mere generalities. If it is usedㅡand in this case there is every likelihood that it will be so usedㅡto purchase more producers' goods, a further train of effects will inevitably follow, which may be summarised as temporary forced saving, with a subsequent destruction of at least part of the capital so accumulated; or as a misdirection of production with a consequent crisis.

[11] I do not understand why Mr. Sraffa should suggest that a consumer who is not an entrepreneur will not affect the proportion between the demand for consumers' goods and the demand for producers' goods by his decision to save. It is certain that when he invests his savings by lending them out at interest he is instrumental in directing part of his money income to the purchase of producers' goods, without himself becoming an entrepreneur.

[12] I do not suggest, and my argument does not rest on the assumption, as Mr. Sraffa believes, that the banks have “the power to settle the way in which money is spent” (op. cit., p. 49). The only essential assumption which I actually make is that money lent at interest will normally, for the reasons discussed in the text, go to the purchase of producers' goods. It is, however, possible that the loans are made in such a way that they are used to increase the demand for consumers' goods: e.g., when they are made to the government in order to increase the salaries of civil servants. That I do discuss the case of consumers' credits separately is due to the fact that it has actually been suggested that we should “maintain purchasing power” by financing consumption in this way.

3. To simplify matters for the analysis of the process of “forced saving”, it is expedient to start from a situation where no new savings are accumulated and where, therefore, the proportion is entirely determined by what is necessary to maintain the existing capital. This means that persons who possess capital must consume only their net income from that capital, and re-invest such parts of their gross receipts [as] are necessary to keep the capital intact.

• Now, if, through a relative lowering of the money rate of interest, people who find it profitable to invest at that rate borrow additional money from the banks (i.e., money which has not been saved but which is the product of credit expansion), then (ⅰ) the proportion of expenditure on producers' goods to the expenditure on consumption goods will be raised, (ⅱ) prices of producers' goods will rise and (ⅲ) their production will increase relative to that of consumption goods. 

• (a) Every individual entrepreneur can increase his real capital only by spending on more on capital goods and less on labour[14] used in current production (or, what amounts to the same thing, more on labour which is invested for a relatively long period). (b) He can, however, spend more on capital goods than on wages only so long as wages have not risen in proportion to the additional money which has become available for investment. 

※ (b): 저리의 신용공급으로 통화량이 늘어나는 비율만큼 임금이 상승하면(여기선 임금률 상승을 뜻하는 듯), 새로 공급된 통화량 중 자본재 구매에 들어가는 돈과 임금 지불에 들어가는 돈이 같아진다. 그러므로 임금이 통화량 증가 속도만큼 오르지 않아야만 자본재 구매량이 이전의 비율(자본재지출/소비재지출)보다 높아진다. 이런 이야기인가?

• (c) Ultimately, incomes must rise in that proportion, since even the money used for the purchase of new capital goods must ultimately be paid out to the factors which make these new capital goods.[15:  Except for such amounts as may be absorbed in cash holdings in any additional stages of production. ] 

※1: 하지만 종국적으로 소득은 통화량이 늘어난 비율만큼 상승할 수밖에 없다. 왜냐하면 새 자본재 구매에 들어간 돈이 결국에는 새로 구매되는 자본재의 생산요소들에게 지불될 수밖에 없기 때문이다.[15: 단, ‘additional stages of production(저리 신용공급→통화량 증가→자본재 구매를 통해 새로 가동된 우회도가 높은 신규 생산단계들)’의 cash holdings로 흡수되는 돈(such amounts as...)의 경우는 그 생산단계들의 요소에게 지불되지 않는다. (??)]

※2: (b)에서 임금(wages)이 자본재 구매 속도보다는 느리게 증가한다. (c)에서는 이 wages를 incomes으로 간주하는 것으로 이해해야 할 듯. 이 임금소득이 자본재 구매 속도보다는 더디지만 차츰 늘어나다가 종국에는 통화량이 증가하는 비율에 해당하는 수준까지 늘어난다(여기서는 임금률의 상승을 말하는지, 추가된 생산단계의 고용 증대를 통한 임금량의 증가를 말하는지 불분명해 보이지만, 임금률의 상승에 더하여 고용량의 증가가 겹쳐지는 사태로 이해함이 원만할 듯) .

※3: 늘어난 통화량이 자본재 생산에 들어가는데, 그렇게 새로 주입되는 돈 중에 ‘새 생산단계들의 cash holdings로 흡수되는 돈(such amounts as may be absorbed in any additional stages of production)’: ??. 새로 추가된 생산단계에서 임금으로 지출되지 않고 그 생산단계들의 기업가들이 보유하는 cash라고 이해해야 ‘the money (...) must ultimately paid out (...). Except for...’.의 문장 간 문맥과 합치될 것이다.

[각주:14] The term "wages" is used throughout this discussion as a short term for the remuneration of all the original factors of production used.

[이하 계속 이어지는 문단]

But they[=incomes] will rise to the full extent only when all the new money has passed backwards through the successive stages of production until it is finally paid out to the factors.

• There will, therefore, always be (a) a considerable lag between the increase in the money used for productive purposes and the corresponding increase in the incomes of the factorsㅡand consequent increase in the demand for consumers' goods. And, (b) so long as money keeps on increasing (and for some time afterwardsㅡbecause of this lag), the demand for producers' goods will be increased relative to the demand for consumers' goods. 
• But (c1) as the effect of this rise in wages is no longer compensated by new money becoming available for investment, (c2) a point must come when the proportion of his money receipts which is left to every individual entrepreneur to spend on capital goods is no greater than before.

※1: (a) (기업가들이 생산적 목적에 지출하는) 통화량의 증가와 (그들의 투자에 동반하는) 요소소득의 증가 사이에 시간차가 생긴다. 따라서 애초의 신용팽창에 따른 통화량의 증가와 소비재 수요의 증가 사이에도 시간차가 생긴다. (b) 따라서 통화량이 계속 증가하는 동안에는 생산재 수요가 소비재 수요보다 더 많이 증가한다. 

※2: (c1) 그러나 [결국 한발 늦게 시작되지만] 점차로 임금이 오른다. [암묵적 문맥: 따라서 기업가들이 임금에 지출하는 비율이 점차로 늘어날 것이다.] 그러므로 새로운 신용공급으로 통화량이 계속 늘어나서ㅡ늦게 상승하기 시작해 결국 통화량 증가분만큼 오르는ㅡ임금 상승분을 상쇄해주지 않으면(as the effect of this rise in wage is no longer compensated by new money becoming available for investment), (c2) 기업가들이 자본재 구매에 지출할 수 있는 돈의 비율이 전보다 더 높아지지 못하는 시점이 다가올 수밖에 없다.

[새 문단]

(a) This is modified only to the extent that entrepreneurs may not consume part of the extra profit made during that period, but many invest it. (b) In such a case, the shift of incomes from a class less inclined to save to a class more so inclined will ultimately have produced some real saving. (c) But, as Mr. Sraffa rightly remarks, it is not necessarily true that the persons who now possess more capital will, in consequence, get a greater proportion of the total real income,[16] and, in any case, (d) the effect of this can hardly ever be sufficient to prevent any increase in the relative demand for consumers' goods.

※1: (a) 기업가들이 새로 버는 이윤의 일부를 consume하지 않고 유보해둔다면 임금이 오르더라도 자본재에 투자할 여윳돈이 남을 테지만 많은 기업가들이 추가적 이윤을 invest해버린다. [여기서 하이에크가 consume capital(혹은 profit)을 invest capital(혹은 profit)과 같은 의미로 썼음을 알 수 있다. 즉 consume은 현대적 영어의 ‘소비’라기보다 ‘유보해두지 않다(not reserve, not retain)’의 의미다. 다른 문맥에서는 아마도 ‘소모하다’의 의미로 쓰였을 수도 있다.

※2: (b) & (c) (... 여차저차해서...)

※3: (d) the effect of this(기업가들이 추가적 이윤을 유보해둠에 따른 자본재 투자 여력)은 소비재의 상대적 수요가 늘어나는 것을 막을 만큼 충분하기 어렵다.

[16] See footnote, p. 47. [This volume, chapter 7, note 12ㅡEd.] {"See footnote, p. 47"은 Sraffa 최초 리뷰의 47쪽을 말하는 듯. 그리고 "chapter 7 of this volume note 12"에서 12가 아니라 13인 듯}

※ Sraffa 리뷰의 해당 본문:

(...) That the position reached as the result of "voluntary saving" will be one of equilibrium (under Dr. Hayek's tacit assumption that the consequent fall in the rate of interest is irrelevant to the equilibrium) is clear enough; though the conclusion is not strengthened by the curious reason he gives for it.[해당각주]

[스라파의 해당각주] The reason given is that “since, after the change had been completed, these persons[i.e. the savers] would get a great proportion of the total real income, they would have no reasons” to consume the newly acquired capital(Hayek, p. 52). But it is not necessarily true that these persons will get a greater proportion of the total real income, and if the fall in the rate of interest is large enough they will get a smaller proportion; and anyhow it is difficult to see how the proportion of total income which falls to them can be relevant to the "decisions of individuals." (...)

[새 문단]
Now, (a1) before wages rose in proportion to the increase in money (and, (a2) therefore, all the time when money kept on increasing at a constant or increasing rate), (a3) although the increased amount of money capital in the hand of entrepreneurs had put them in a position to buy (or produce) more capital goods than before, and so to increase their equipment and stocks; yet (b1) as soon as the competition of entrepreneurs for the factors of production has driven up wages in proportion to the increase in money, and (b2) no additional credit are forthcoming, (c) the proportion which they are able to spend on capital goods must fall.

※1:  Now[(a1) 임금이 통화량 증가 속도만큼 상승하지 못하는 단계는 (a2) 통량이 계속 증가하는 내내 유지되며, (a3) 이 기간 동안 기업가들은 자기 수중의 늘어난 화폐자본으로 자본재를 더 많이 구매해서 시설투자를 늘린다]와 같은 상황이 된다. yet[하지만] (b1) (자본재 생산이 늘어남에 따른) 기업가들의 요소 확보 경쟁으로 말미암아 임금 상승이 통화량 증가 속도를 따라붙게 되고 (b2) 이에 더하여 신규 신용이 더 공급되지 않게 되면, (c) 기업가들이 자본재를 지출하는 비율이 하락하게 된다.

[이어지는 문단]
(d) This means, however, not only that they must stop adding to the existing capital, but also that they will be unable to maintain and replace all the capital which is the product of the forced saving. (e) Except in so far as they are able, and find it profitable, to make up for this at the expense of their own increased income,[17] they will be able to replace their capital only at the same rate as before the forced saving took place, and (f) their capital will, therefore, be gradually worn down to something approaching it former state.

※1: (d) 기업가들의 이미 마련해둔 자본량을 더 늘리지도 못할 뿐 아니라 기존 자본을 유지보수할 수도 없게 된다. (e) ... ;

※2: (d)와 (e)로 말미암아 (f) 자본이 서서이 강제저축 이전 상태와 근접한 수준으로 줄어든다.

[17] See p. 215 (이 책자의 이 쪽 번호는 Hayek의 이 반론에서 바로 이전 쪽을 가리킨다)

To describe in detail the process by which the additional capital is consumed would be a lengthy task, which I hope to undertake soon in another place. Here it must suffice to point out that [:]

• if entrepreneurs in one stage of production find it impossible or unprofitable to replace for example their machines, then this will cause the capital instruments which are devoted to the production of these machines to lose their value. 
• That the physical quantity of these capital goods will, for some time, continue to exist unchanged does not mean that their owner have not lost the greater part, or all, of their capital. It is of very little use for the machine manufacturer to hold on tight to his capital goods when the producer who used to buy the machines is either unable, or finds it unprofitable at the higher rate of interest, to do so now. Whether he likes or not, the actions of other people have destroyed his capital.[18]

[18] He does not, of course, necessarily lose all of it. So far as he has definitely committed his capital to the purpose in question, he will write off part of it and will go on producing and selling below cost, thus transferring part of the loss to his competitors who, perhaps, have not profited from the inflation.

It is a surprisingly superficial objection to this analysis to say simply that “one class has, for a time, robbed another class of a part of their incomes; and has saved the plunder. When the robbery comes to an end, it is clear that the victims cannot possibly consume the capital which is now well out of their reach.”[19: Sraffa의 비판, op.cit., p.48]

• Is Mr. Sraffa really unfamiliar with the fact that capital sometimes fall in value because the running costs of the plant have risen; or does he belong to the sect which believes in curing such a situation by stimulating consumption? And would he really deny that, by a sudden relative increase in demand for consumers' goods, capital may be destroyed against the will of its owners? 
• Surely the case which we are discussing is just the same: (a) As incomes rise in consequence of the preceding credit expansion and the mass of consumers, who under our assumption spend all their income on consumption goods, increase their expenditure accordingly, (b) while the money available for investment in capital goods does not increase any longer, (c) the value of some capital goods produced under the inducement of a relatively stronger demand for such goods will fall below their cost of production.

It is difficult to understand why Mr. Sraffa thinks that it is a contradiction to say that an inflation for productive purposes will cause little permanent[20] increase of capital, while an inflation for consumptive purposes will actually cause a consumption of capital. The fact is simply this, [:]

• that any increase of incomes used for consumptive purposes relatively to the sums available for productive purposes, will tend to decrease the “purchasing power” of these sums (i.e., the purchasing power of money-capital); [※ 여기서 구매력이 감소하다는 얘기는, 화폐가 생산적 자본에 투자되어서 이윤을 만들어내지 못하고 그냥 소비적 목적에 투입되어 버리면 애초에 늘어난 통화량의 실물 구매력이 자본에 투자되는 경우보다 줄어든다는 뜻으로 보임.]
• and that, whereas in the former case[of productive purposes], where the relative rise of incomes follows only a preceding relative rise in the demand for capital goods, only part of the capital created by the inflation is destroyed again, in the latter case[of consumptive purposes], the destruction of capital is not offset by any preceding gain.

Finally, Mr. Sraffa levels against this part of my argument the further objection that “if the banks increased the circulation but apportioned the additional money between consumers' and producers' credits so as not to disturb the initial proportions, nothing would happen.” I wonder whether this curious "objection" is not the product of an unconscious recollection from the German edition of Prices and Production, of which Mr. Sraffa has made so ingenious a use at the end of his article. There I have stated explicitly that a stabilization of incomes “without causing a misdirection of production, could be effectual only if it were possible to inject the additional quantities of money required for that purpose into the economic system in such a way that no change in the proportion between the demand for consumers' goods and the demand for producers' goods would be brought about.”[22] In any case, I welcome Mr. Sraffa's endorsement of one of the obvious corollaries of my theory of the influence of the money stream on the structure of production. But if he accepts this, how can he reject the other corollary, that if the increase in circulation is not so disturbed then changes in the time structure will result?  And how can he ignore the fact that an expansion of credit via the Bank Rate mechanism will not “apportion to the additional money between consumers and producers so as not to disturb the initial proportion”, but will certainly favour the "higher" stages at the expense of the "lower".[23]

4. I have occupies a relatively large amount of space in demonstrating the way in which at least part of the forced savings are lost because, as I have already stated, this point seems to me to be the most fundamental. I can, however, deal much more briefly with the second main point raised by Mr. Sraffa, since his confusion here must have been obvious to most readers. [:]

Mr. Sraffa denies that the possibility of a divergence between the equilibrium rate of interest and the actual rate is a peculiar characteristic of a money economy. 

And he thinks that “if money did not exist, and loans were made in terms of all sorts of commodities, there would be a single rate which satisfies the conditions of equilibrium, but there might, at any moment, be as many ‘natural’ rates of interest as there are commodities, though they would not be ‘equilibrium’ rate.” 

I think it would be truer to say that, in this situation, there would be no single rate which, applied to all commodities, would satisfy the conditions of equilibrium rates, but there might, at any moment, be as many “natural” rate of interest as there are commodities, all of which would be “equilibrium rates”; and which would all be the combined result of the factors affecting the present and future supply of the individual commodities, and of the factors usually regarded as determining the rate of interest. There can, for example, be very little doubt that the "natural" rate of interest on a loan of stawberries from July to January will even be negative, while for loans of most other commodities over the same period it will be positive.

The interrelation between these different rates of interest is far too complicated to allow of detailed discussion within the compass of this reply. It becomes particularly complex when we take into account the fact thatㅡas Mr. Sraffa points outㅡany single one of these rates may be out of equilibrium, just as any price may be out of equilibrium. But the only essential point at issue here is whether {the fact that any of these "natural" rate, in terms of a single commodity, may be out of equilibrium in consequence of a disparity between the supply of and demand for this particular commodity} can have effects which are anything like those of a divergence between the actual money rate and the equilibrium rate which is due to an increase in the quantity of money. I certainly believe that it is possible in this case to change "artificially" the rate of interest in a sense in which this (with the exception of one particular case which I shall mention) cannot be said of any commodity.

Let us take Mr. Sraffa's case in which the farmers "arbitrarily changed" the quantity of wheat producedㅡwhich I understand, from what follows, to mean that they, for example, so increased the supply of wheat that its price fell below its cost of production and, as a consequence of its temporary abundance, loans of wheat were made at a much lower rate of interest than loans of other commodities. But would that fall in the rate of interest on wheat-loans cause anyone to start roundabout processes of production for which the available subsistence fund is not sufficient? There is no reason whatever to assume this. In so far as people live on wheat, they will actually be provided with food for a longer period; and in so far as the lower price of wheat will induce people to eat more of itㅡinstead of something elseㅡthese other goods will also be available for a longer period of time, and interest in terms of these goods will also fall. The effects will be just the same as if a corresponding amount of wheat had been saved, and when as a consequence of the fall in the price of wheat , its output falls again, the accumulation of capital made possible by the surplus of wheat will simply cease.[25]

The case would, however, be different if the actual supply of wheat were not changed, but if, under the mistaken impression that the supply of wheat would greatly increase, wheat dealers sold ^short^ greater quantities of future wheat thatn they will actually be able to supply. This is the only case I can think of where, in a barter economy, anything corresponding to the deviation of the money rate from the equilibrium rate could possibly occur. And if we assume that, in the community where this happens, wheat is the most important consumption good, then the consequences might be similar to those which occur when the money rate is below the equilibrium rate. The relatively low price at which (for example, in terms of machines) consumers' goods are offered for the immediate future will, in this case, make in worthwhile to secure sufficient supplies of them to start longer proceses of production. But a time must come when the error is noticed, prices of consumers' goods rise, and it becomes obvious that it is not possible to wait as long as had at first seemed practicable for the product of the investment. Although I am tempted ot follow the example further, I must leave it here, and trust that this sketch outline will be sufficient to show the main difference between this and the former case.

If we generalise this second case, and assume that it is not the promise of a particular kind of consumers' good, but the claim on present goods in general which is offered in exchange for promises of future goods in excess of present goods available for that purpose, then we have the case of an increase of money by means of additional loans for investment purposes. Investment will exceed saving; i.e., processes of production will be started which will be longer than is justified by the available subsistence fund, and which must, therefore, be discontinued as soon as consumers in general are no longer "robbed" by means of more and more issues of new money. The further effects of such a process have already been discussed in the preceding section.

Mr. Sraffa, it appears, sees no reason why the demand for new capital should be limited to the amount provided by saving, and he obviously sees only one reason why the rate of interest should not be lowered to zeroㅡviz., the danger of a general rise of prices. But this is not surprising as coming from an author who considers a discussion of the real aspects of the capitalistic structure of production as being "utterly irrelevant" to the problems of money and inflation.

5. So far, Mr. Sraffa' criticisms, although they seem to me to be based upon a misconception of the problems at issue, are fairly intelligible. But in the last paragraph of his article he adds some remarks which I confess I find it more difficult to follow. They begin with the paragraph at the bottom of p. 52, where Mr. Sraffa tries to make use of the fact that, at one part of my exposition, I useㅡfor want of a better expressionㅡthe phrase "supply of real capital" for that part of the total money stream available for investment which comes from real sources (saving or the amortisation of existing capital), and not from additinal credits, in order to prove that I  confound or define as synonyms, real capital and money capital. He does so in spite of the fact that, at the point at which I do this, a footnote expressly warns the reader that "'real capital' stands here as the only short (but probably misleading) expression which I can find for that part of the money stream which is available for the purchase of producers' goods ^and which is composed of the regular receipts of the turnover of the existing producers' goods (i.e., in the case of durable goods, the reserves accumulated to make up for the depreciatin) plus new savings".[27] Mr. Sraffa quotes part of this footnote. But he omits the essential part, which I have italicized here, and thus makes my use of the term look entirely silly, though the term "real", in this connection, has a perfectly definiteㅡeven if not quite usualㅡmeaning. I cannot believe that Mr. Sraffa wants to misrepresent me, but I confess I find it difficult to understand the state of mind in which he singles out this footnote and then leaves out the qualifying phrase, the inclusion of which would deprive his criticism of its point. Can it be that Mr. Sraffa does not understand that that part of the money stream I thus single out must necessarily have a special economic significance? Certain of his remarks about forced saving lead me to suspect that this may be the case.[28]

But in the spectacular conclusion of his article Mr. Sraffa makes an even more absurd suggestion. In the discussion which followed the delivery of my English lectures, I became aware that, obviously owing to the influence of Mr. Keynes, the term "saving" was frequently understood in a sense different from the one in which I employed it. As a consequence, when, a few months later, I prepared for the press the German edition of ^Prices and Production^, I inserted, among other additions which were intended to clear up the more difficult points, a paragraph which, I hoped, would mark of my concept of saving from, for example, that used by Mr. Keynes. Nothing could have surprised me more than that this attempt to make the difference between Mr. Keynes's theory and my own more clear should be interpreted by anyone as "landing me right in the middle of Mr. Keynes's theory". (That I meant it in this sense is obvious from the fact that I quoted this paragraph against Mr. Keynes in my Rejoinder to his Reply to my criticism of his ^Treatise^[29]) I venture to believe that Mr. Keynes would fully agree with me in refuting Mr. Sraffa' suggestion. That Mr. Sraffa should have made such a suggestion, indeed, seems to me only to indicate the new and rather unexpected fact that he has understood Mr. Keynes's theory even less than he has my own.[30]

[30] [With Professor Hayek's permission I should like to say that, to the best of my comprehension, Mr. Sraffa has understood my theory accurately.ㅡJ. M. Keynes.] [This last note was added by Keynes, who was at that time an editor of the ^Economic Journal.^ㅡEd.]