OH. 21

INTERNATIONAL DISEQUILIBRIUM

347

population has ceased to expand rapidly, the rate ofinterest at which borrowers for home investment areable to absorb home savings must necessarily decline.Meanwhile in the new countries the rate will be main-tained, and as these countries get over their earlypioneer difficulties, the estimated risks of lending tothem—provided they are careful about their reputa-tion as borrowers—will decline. Consequently the oldcountry will tend to lend abroad an ever-growingproportion of its total savings. This will be partlycared for by the interest on its previous foreign lending.But for the rest its costs of production must fall soas to stimulate its exports and increase its favourablebalance on trading account. If there is a resistanceto this fall, gold will flow, bank-rate will rise andunemployment become chronic. This is particularlylikely to happen if the prevalence of tariffs againstmanufactured goods (and a readiness to raise themwhen imports of such goods are increasing) renders theforeign demand for the old country’s exports inelastic,whilst at the same time Trade Unions in the oldcountry present great obstacles to a reduction ofmoney-wages.

I leave it to the reader to work out in detail whata pickle a country might get into if a higher rate ofinterest abroad than can be earned at home leads tomost of its savings being lent abroad, whilst at thesame time there are tariffs abroad against most of itsexports and a tendency to raise these tariffs from timeto time to balance the gradually rising level of costsin the protected countries due to the outflow of goldfrom the lending country.

Let him take, for example, as his imaginary case,a Great Britain where neither the government norindividuals are prepared to invest at home at a higherrate of interest than 5 per cent, and a socialisedAustralia where the government is ready to developat 6 per cent, both on a gold standard and with