In this section, the author generalizes the effect of a change in interest rate, which was discussed in the previous section for a specific case. The previous section considered the interest rate for loans of a given duration, with all other rates of interest assumed to be unchanged. The current section generalizes this analysis "so as to give the effect of a general shift in interest rates." In general the effect is as follows:
If rates of interest per week fall for loans of all periods ... this in itself induces a direct tendency for substitution in favour of future surpluses, against the current surplus.
For example, in the context of production planning, a fall in interest rates would (other things being equal) make it more favorable to borrow today to make investments that would lead to a given increase in production at some future date. The author explains that the effect is not proportional for all future time periods; instead the effect would be compounded over time. "Thus we should expect to find the greatest expansion in those surpluses which are farthest away in time." He also notes that the effects of other surpluses may exhibit a negative effect ("a pull making for contraction") on a given surplus.
He summarizes the effect on surpluses as follows:
The whole effect on the stream of surpluses may be expressed by saying that it is given a tilt; it is lowered at one end and raised at the other; it is rotated, as it were, about some point in the middle.
He includes the following illustration to show the effect on output streams over time (starting with the current period):
Input streams, conversely, are affected in the opposite way, hence the following illustration:
The relative strengths of these tilting effects would depend on technical conditions present in each specific case.
The author mentions that a similar tilting effect on output streams was encountered in an earlier section. But the effect there (which arose in the context of a price rise assumed to be permanent) was one that was "owing to technical rigidities and the specificity of initial equipment." In the present setting the tilting effect arises instead from "the very nature of interest itself."
Although technical rigidities and other factors will have an effect here, any stimulus to current production will likely not be very significant. Therefore the author concludes the following:
The precise distribution over time of the new production plan depends upon technical conditions, for they decide when it will be possible to increase the futurity of output, and diminish the futurity of input. It is not possible to lay down any hard and fast rule about the output or input of any given date (or even the surplus of any given date); all we can say is that there must be an upward tilt to the stream of surpluses, in some broad sense or other.
In the next section, the author will begin to give an exact definition to this "broad sense."
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