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A TREATISE ON MONEY

BK. IV

in the demand-schedule for our country’s exports anda high elasticity in the demand for borrowing for homeinvestment, then the transition from one position ofinternal equilibrium to another required by the neces-sity for preserving external equilibrium may be diffi-cult, dilatory and painful.

Even where a change in Bank-rate is only requiredas a temporary corrective to the rate of foreign lending,so as to preserve external equilibrium, it cannot beprevented from reacting on the rate of home lending,and, therefore—over a period too short to effect theestablishment of a lower wage-level—on the volume ofoutput and employment. Thus, what we have claimedin Chapter 13 as a virtue in Bank-rate regarded asan instrument for restoring long-period equilibrium—namely, that it works both ways, tending to decreaseforeign lending and also to increase the foreign balance—becomes a vice, or at least an awkwardness, whenwe use it to check foreign lending, the excessivenessof which may be due to temporary causes withoutour having any wish to go through the painful re-adjustment of the wage-structure which must precedea material increase of the foreign balance. Since theinfluence of Bank-rate on foreign lending is both quickin taking effect and easy to understand, whereas itsinfluence on the internal situation is slower in operationand difficult to analyse, the awkwardness of h andlingsuch a double - edged weapon is being but slowlyrealised.

(v.) The same Phenomena under Gold-ExchangeManagement

The virtue of gold movements under an old-fashioned international gold standard, not merely asan expedient, but as a stimulus towards the restora-tion of international equilibrium, has been rightlyextolled as lying in their double effect—both on the