CII. 13
again. But as time goes on, these motives will gradu-ally lose their effect and cease to operate.
There is also one more aggravation. So long asthere is a prospect of losses, the natural-rate of interestwill fall below its normal level, thus widening the gapbetween the natural-rate and the market-rate, andrequiring a reduction of the latter perhaps beyondwhat is practicable.
Finally, under the pressure of growing unemploy-ment, the rate of earnings—though, perhaps, only atlong last—will fall. This is the consummation of thewhole process of pressure, if we can assume—as ordin-arily we can—that the change in bank-rate had beendictated in the first instance by monetary reasons,local or international. For by this time two thingswill have occurred—the one sooner but temporarily,the other later but more permanently—which will tendto relieve the monetary situation and so permit, atlast, a reversal of the bank-rate policy ; and a thirdfactor may also be relevant.
In the first place the decline in output due to un-employment will reduce the requirements of the Indus-trial Circulation. Also the fall in prices will tend toimprove the foreign balance of the country and soenable it to retain or increase its gold. These thingswill happen quickly, and are real alleviations of thepurely monetary position, so long as they last. Theirmere occurrence is, therefore, often greeted with satis-faction, as though it were a final solution of theproblem. Yet it is evident that these occurrences areof illusory advantage if they are regarded as anythingmore than a stage in a transition. For they are un-reliable aids. If prices are low because entrepreneursare accepting losses and not because costs of produc-tion have been reduced, a continuance of them canonly result in a progressive increase of unemployment;and if the pressure on the supply of money has onlybeen relaxed by the expedient of reducing output and