The flooding of the operative circuits and the Redistributive Function with free money for Demand will, absent basic and surplus expansion of production, cause product prices to rise. This flooding of the economic process with non-productive money may be accompanied by a speculative boom in the stock market to further swell Demand and make the situation even worse.
It is to be recalled that the account given of the cycle of the basic price-spread ratio supposes (D’ – s’I’) to be zero throughout. A speculative boom in the stock market which encourages basic spending may be represented by a positive (D’ – s’I’); there is an excess release of money from the Redistributive Function to the basic demand function. Alternatively, it may be represented by an upward revision of the fractions wi of total current income going to basic demand, while the fact that the surplus final market suffers no contraction then results from the excess of the rate of new fixed investment over the rate of pure surplus income, so that D” is positive. In either case, a movement of this type with its basis in redistributional optimism will offset any tendency towards a contraction of the price spread and will reinforce any tendency of the price spread to expand. On the other hand, the subsequent stock market break intensifies the crisis of the circuits, removing the props that had hitherto swollen expansive tendencies, and leaving the system with a greater height from which to fall. (CWL 15 162 )