11
interest payments not fed from additional output due to the credit
is also found in different cases: Consumer's credit and
government borrowing to finance armaments or social expenditure
wwhich as a direct effect increase effective demand. The shift in
distribution owing to the interest payments may and most probably
will,however, influence effective demand unfavorably if, as is
likely, the interest income is less readily spent than most other
incomes. In all cases the shift to interest receivers can be
avoided if the total income of society increases correspondingly
so that relatively speaking the position of rentiers is unchanged.
The aftereffects of a consumers'credit or a budget deficit will
become more inconvenient if the (net) borrowing is repeated, with
the object of holding effective demand on the same level. The
income is then shifted more and more to the rentiers.Since the
interest has to be paid out of the new credits these have either
to be increased or the effective demand created will decrease.
Similar effects will obtain in the case of continuing increase in
land or other asset prices.
If, in order to escape from these troubles, measures are taken to
reduce the debt then this will necessarily mean a corresponding
more or less drastic restriction of effective demand. The
experience of this is nowadays familiar to everybody in view of
the frequent instances of restrictive budget policies. The dilemma
is, however, the same for households and corporations.
JA LINKS TO THE THEORY OF INFLATION
/ _ (
We have drawn a parallel between the concepts of Investment and
Saving on the one hand and "Inflationary Spending" on Assets and
Realised Capital Gains on the other. Actually this parallel is
really hardly new or strange to the Keynesian tradition if we