ABSTRACT
Since Bank rate worked by deterring traders from holding goods, it would be a rise in the rate rather than a high rate that would be felt, and similarly it would be a fall in the rate rather than a low rate that would encourage traders to add to their stocks and so would stimulate business. For so long as the rate, whether high or low, remained unchanged, traders would adapt the size of their stocks to it, and, the adaptation once completed, no further effect was to be expected. But though the direct effect of the rise or fall of the rate on stocks of goods would be exhausted, the tendency once started, might be prolonged and amplified by the vicious circle of contraction or expansion. Thus it was a matter of chance whether the effect was anything more than transitory.
