It has been frequently assumed that V is constant; and this indeed is the cornerstone of the quantity theory of money. But it seems fairly obvious that the velocity of circulation in fact depends on the short-term rate of interest.
Armaments and wars, usually financed by budget deficits, are also a source of this kind of profits.
In any case of the budget deficit the private sector of the economy receives more from government expenditure than it pays in taxes.
Generally speaking, changes in the prices of finished goods are cost determined while changes in the prices of raw materials inclusive of primary foodstuffs are demand determined.
It is indeed paradoxical that, while the apologists of capitalism usually consider the 'price mechanism' to be the great advantage of the capitalist system, price flexibility proves to be a characteristic feature of the socialist economy.
It may thus be concluded that in the absence of 'development factors' the system lapses into a stationary state. These factors thus appear to be a prerequisite of a steady growth.
It should first be stated that a joint-stock company is not a 'brotherhood of shareholders' but is managed by a controlling group of big shareholders while the rest of the shareholders do not differ from holders of bonds with a flexible rate of interest.
It is the export surplus and the budget deficit which enable the capitalists to make profits over and above their own purchases of goods and services. The connection between 'external' profits and imperialism is obvious.
Capitalist savings 'lead' profits. This result may appear paradoxical. 'Common sense' would suggest the opposite sequence-namely, that savings are determined by profits. This, how ever is not the case.
Thus, even with relatively heavy damping such shocks generate fairly regular cycles. The result is of considerable importance.
An increase in the number of paupers does not broaden the market.