ABSTRACT
Money and credit occupy such a central position in our economic system that it is almost certain that they play an important role in bringing about the business cycle, either as an impelling force or as a conditioning factor. The purely monetary explanation of the business cycle has been most fully and most uncompromisingly set out by Mr. R. G. hawtrey. For him the trade cycle is "a purely monetary phenomenon" in the sense that changes in "the flow of money" are the sole and sufficient cause of changes in economic activity, of the alternation of prosperity and depression, of good and bad trade. Changes in consumers' outlay are principally due to changes in the quantity of money. "Productive activity cannot grow without limit. As the cumulative process carries one industry after another to the limit of productive capacity, producers begin to quote higher and higher prices".
