CH. 21

INTERNATIONAL DISEQUILIBRIUM

349

other counterbalancing advantages to be gained—toa high degree of short-period mobility of internationallending. If short-period mobility is absent, thenshort-period changes in interest-rates abroad needoccasion no serious inconvenience. Methods of damp-ing down an excessive short-period mobility of inter-national lending will be discussed in Vol. ii. BookVII. Chapter 36.

The seriousness of the changes which are set upas the result of International Disequilibrium lies partlyin their inevitability. If we are dealing with a closedsystem, so that there is only the condition of internalequilibrium to fulfil, an appropriate banking policy isalways capable of preventing any serious disturbanceto the status quo from developing at all. If the rate ofcreation of credit is so regulated as to avoid ProfitInflation, there will be no reason for the PurchasingPower of Money and the money-rate of efficiencyearnings ever to be upset. But when the condition ofexternal equilibrium must also be fulfilled, then therewill be no banking policy capable of avoiding disturb-ance to the internal system.

This is due—quite apart from changes in the valueof the international standard—to the lack of uni-formity between home and abroad in respect of thedemand schedules of borrowers. These schedules, forhome and foreign borrowers respectively, can anddo change differently from one another. When thishappens, the existing rate of foreign lending is upset.Unless, therefore, a country is prepared to acceptfrom time to time large quantities of gold and atother times to part with large quantities withoutmodifying the terms and volume of lending at home—and in any case this cannot continue indefinitely—changes in foreign conditions are bound to set updisequilibria in home conditions. If, moreover, thereis a high degree of mobility of foreign lending, a lowdegree of mobility of home wage-rates, an inelasticity