ch. 17 CHANGES DUE TO MONETARY FACTORS 271

import of gold. For—to take the case of an increasedsupply—the easier terms for lending will tend to in-crease Foreign Lending, whilst the Foreign Balance, sofar from increasing so as to balance this, will tend todiminish under the influence of the rising domesticprice-level.

Since the movement of gold will tend to reproduceabroad (though presumably on a relatively smallerscale) the same situation as at home, the effect of theabove will be to diffuse the effects of the change of thesupply of money over a wide area and so diminish theirdegree.

If, however, the increased supply of money is in factdue to an import of gold, resulting from a previousexcess of the Foreign Balance over Foreign Lending,then the changes at home, which this import of gold setsin train, will all be in the direction of restoring, insteadof disturbing, our country’s external equilibrium.

We may remark that there is an element of dis-equilibrium which may continue even when averageefficiency-earnings have been reduced to a level whichis in equilibrium with the reduced volume of money.If the money-rates of remuneration of the differentfactors of production could be reduced simultaneouslyand in an equal proportion, no one need suffer, whenonce this point has been reached. But there is gener-ally no means of securing this. The effect of contrac-tion is not to secure an equal reduction all round, but toconcentrate the reduction on those particular factorswhich are in the weakest bargaining position or havethe shortest contracts governing their rate of money-earnings. It may be a very long time before relativerates of efficiency-earnings are restored to their formerproportions. Nor is this an evil peculiar to deflation ;there is an analogous mal-distribution of earningswhich is equally characteristic of an inflation.

The essential awkwardness lies in the fact that achange in the total quantity of bank-money is alge-