chapter
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EXCHANGE VALUE OF MONEY 167

Thus here also the rise in prices is, strictly speaking, primary and the increase of credit media secondary, and it is at least conceivable that under such circumstances any real superfluity of paper money, with a resulting fall in interest rates, will never occur. It actually happens, as Subercaseaux observes, that an inconvenient shortage of money often arises in countries with depreciated paper money, and business men besiege the Government with demands for increased note issues. We must, however, bear in mind that business men and manufacturers as a rule profit, or believe they profit, by a falling value of money, since during the period of a fall they can buy in a cheaper and sell in a dearer market. A fact which complicates this problem still further, and which in connection with a depreciated currency may be of practical importance, is that a rise in prices, when it begins to be regarded by the public as an habitual phenomenon, becomes itself the cause of a rise in interest rates, though at bottom only an apparent one, for 5 per cent interest on money which falls in value or purchasing power by 1 per cent per annum is quite the same as 4 per cent on a currency with a constant value both to the lender and to the borrower. In the same way an expected fall in commodity prices on the occasion of a withdrawal or rehabilitation of paper money will cause an (apparent) fall in interest rates.