In this section, the author goes through the exercise that he previewed at the conclusion of the previous section -- namely, setting up "a particular case of the temporary equilibrium system which has the same formal properties as the static systems already known to be stable" to see whether it passes the same set of stability tests as the static systems.
To set the context, he begins by noting that the main difference between these two types of systems is the presence of the buying and selling of securities in the dynamic case (and of course its absence in the static case). Because securities are a kind of commodity, their presence in a temporary equilibrium model "only changes the formal properties of the system in so far as this special kind of commodity fails to observe the static rules of behavior."
The author notes that a key condition, identified earlier, for the static system stability rules to hold is that preferences between commodity choices are independent of the scale of prices. And he goes on to explain that "This condition will continue to hold, even in a dynamic system, so as long as elasticities of expectations are zero, that is to say, so long as all price-expectations and interest-expectations are given." Under these conditions, securities will behave exactly like ordinary commodities.
The author next goes into an explanation of this principle, using an example economy in which all lending is of one short duration, namely one week. If expected prices are given, and expected interest rates are given, then discounting prices to the current week (which involves multiplying them by the discount ratio) leaves the ratios of any two prices unaffected. This enables us to have a commodity we may call 'securities' whose price is the discount ratio for one week and which behaves the same as any ordinary commodity.
He then argues that the same conclusions hold in an economy with long lending. Rates of interest will adjust, and there will be new income effects based on past lending contracts, but he concludes that none of these effects would be "seriously destabilizing."
The author sums up this section by concluding that "So long as elasticities of expectations are zero, the temporary equilibrium system works exactly like a static system and is as stable as that is. ... So long as all changes in current prices are regarded as being temporary changes, any change in current prices will induce very large substitution effects in a large number of markets ... [These effects] will be strongly stabilizing ... indeed, the forces making for stability are likely to be so potent that it will take a very violent disturbance of data to have any considerable effect on the price-system at all."
