extension has no aggregate industrial effect. This secondary effect of credit inflation may be very considerable and is always present in brisk times. It is commonly obvious enough to be accounted the chief characteristic of a period of " prosperity ." For a theory of industry this indirect effect of credit inflation would be its main characteristic, but for a theory of business it occupies the place of a corollary only.
To the view set forth above, — that borrowed funds do not increase the aggregate industrial equipment, — the objection may present itself that jail funds borrowed represent property owned by Bome one (the lender or his creditors), and transferred, in usufruct, by the loan transaction to the in /uanr ^^''^'"^^ ' ^^"^ ^^^^ these funds can, therefore, be ■jtefMft^ converted to productive uses, like any other funds, "'""' ^ ,_by drawing into the industrial process, directly or ^^^^ ^. indirectly, the material items of wealth whose fluent form these funds are.' The objection fails at two points : (n) while the loans may be covered by property held by the lender, they are not fully
1 CI. Laughlln, Princifla of Honey, cb. IV.
THE USE OF LOAN CREDIT 101
covered by property which is not already other- 1 wise engaged ; and even if such were the case, it . would (b) not follow that the use of these funds , would increase the technical (material) outfit of industry.
As to the first point (a): Loans made by the financial houses in the way of deposits or other advances on collateral are only to a fractional extent covered by liquid assets ; ' and anything but liquid assets is evidently beside the point of the present question. An inconsiderable fraction of these loans is represented by liquid assets. The greater part of the advances made by banking houses, for instance, rest on tlie lender's presumptive ability to pay eventually, on demand or at maturity, any claims that may in the course of business be presented against the lender