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In this article, the author discusses about foreign-loan guarantees and intertemporal substitution of investment in Texas and Chile. The investment booms were made possible by government guarantees on foreign loans extended to the economies. Government foreign-loan guarantees potentially are useful instruments for the fiscal management of financial losses suffered by banks and firms. If financial claims against domestic assets increase in riskiness as a result of an external shock, a problem of under-investment in an economy may occur. Although foreign-loan guarantees in the aftermath of an external shock encourage foreigners to lend to financially distressed banks and firms, this paper will explore the possibility that these loan guarantees may also distort an economy's macroeconomic adjustment by permitting a postponement of the liquidation process. Examples of financial collapse in Chile and Texas involved loan guarantees to external lenders of the domestic banking systems. Examples suggest that the stronger is the lender of last resort to a banking system, the greater will be the ability of the system to attract external funds in the aftermath of an external shock.

Alfred Marshall, the venerable dean of English economists, forms a bond between the later nineteenth and the early twentieth century economics, and by his remarkable talent for eclecticism probably embodies and exemplifies better than any one else the more generally prevailing uncritical opinion among English and American economists. There is, indeed, a thoroughgoing inconsistency in Marshall's views as to the central aim of economics, On the one hand he would aim to be a welfare economist. He aspires to make economics a study of real human welfare. But Marshall has also another aspiration, which is constantly tempting him to think and speak as a price economists rather than as a welfare economist. Thus he is led to abandon welfare as the center of economic study and to make money "the center around which economic scene clusters" and to use it as the one convenient means of measuring human motive on a large scale." He finds other difficulties when he attempts to make price the measure of motives as between men of different incomes ; equal sums of money are sought as general purchasing power by different persons for the most diverse motives "high as well as low, spiritual as well as material."

The article deals with the functional relation between national income and saving or consumption as derived from statistical analysis of data for the United States covering the past two decades. One may gain a much better understanding of how the yearly equilibrium of total saving and investment happens to have been struck at the levels of gross national income prevailing during each of the past twenty years if the component elements of investment and how they are related to income and other factors are deeply analyzed. It has also been investigated that what investment would be likely to be more under stable conditions if the economy operates at a steady increasing rate of production and income. The article concluded that the phase of the housing cycle is a major factor related to the amount of investment and is at least a minor factor related to the level of the saving function. The quantity of current income spent privately for permanent capital goods under conditions of fluctuating activity has responded to previous profits, but has been conditioned by the current level of income, while the income spent for temporary private investment has been related to the direction and extent of change of the level of income.