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A TKEATISE ON MONEY

SK. IV

complete mobility of lending between the two ; lethim suppose further that this imaginary Australia has a sliding-scale tariff on most British goods basedon the difference between the costs of production inthe two countries, and that in this imaginary GreatBritain wages are virtually fixed in terms of money;and let him complete his imaginary picture by suppos-ing a Thrift Campaign in Great Britain which raisessavings to an unusual proportion of the national in-come, or, alternatively, a government ruled by financialvirtue which taxes heavily in order to raise to a highfigure the Sinking Fund for the extinction of theNational Debt . 1

Or let him take the case in which the CurrencyAuthorities of the countries to which gold flows somanage their currency systems that the inflow of goldis not allowed to have any effect on their bank-ratesor their volume of money.

All this, we must repeat, is subject to the assump-tion of a high degree of mobility of internationallending. Where this does not exist, disequilibria dueto changes in price-levels abroad may be more suddenand disagreeable than where it does exist (for changesin Bank-rate will not avail to break the impact) ; but,on the other hand, disequilibria due to changes ininterest-rates abroad will be of secondary importance.Moreover, even when there is a fairly high degree ofmobility of lending over long periods, our countryneed not necessarily subject itself—unless there are

1 The reader will readily perceive that in writing the above I have partlyin mind the position of Great Britain in 1929-30. I should, therefore, addthat, whilst I regard the relative attractiveness of foreign lending as a seriousaggravation of the difficulties, I do not regard this factor as so importanta cause of the disequilibrium between Foreign Lending and the ForeignBalance as the factors decreasing the volume of the latter, due to thefailure to deflate earnings and costs of production in as great a degree asthe international value of sterling had been raised in the period ending in1925. The actual situation was due to the combination of a tendency forforeign lending to increase, for long-period external reasons over whichwe had little control, with a tendency for the foreign balance to decreaseas a short-period result of our post-War monetary policy.