HKB
of her economic life in any greater degree than is bound to result in any case from the gradual economic recovery of so formidable a trade rival as pre–war Germany.
Whilst I make these observations in the interests of scientific accuracy, I admit that projects, for insisting on payment in kind may be very useful politically as a means of escaping out of our present impasse. In practice the value of such deliveries would turn out to be immensely less than the cash we are now demanding; but it may be easier to substitute deliveries of materials in place of cash, which will in practice result in a great abatement of our demands, than to abate the latter in so many words. Moreover, protests, against leaving Germany free to pay us in cash by selling goods how and where she can, enlist on the side of revision all the latent Protectionist sentiment which still abounds. If Germany were to make a strenuous effort to pay us by exploiting the only method open to her, namely, by selling as many goods as possible at low prices all over the world, it would not be long before many minds would represent this effort as a plot to ruin us; and persons of this way of thinking will be most easily won over, if we describe a reduction in our demands, as a prohibition to Germany against developing a nefarious competitive trade. Such a way of expressing a desirable change of policy combines, with a basis of truth, sufficient false doctrine to enable The Times, for example, to recommend it in a leading article without feeling conscious of any intellectual inconsistency; and it furnishes what so many people are now looking for, namely, a pretext for behaving sensibly, without having to suffer the indignity and inconvenience of thinking and speaking so too. Heaven forbid that I should discourage them! It is only too rarely that a good cause can summon to its assistance arguments sufficiently mixed to insure success.
EXCURSUS IV
The gold value of a country’s inconvertible paper money may fall, either because the Government is spending more than it is raising by loans and taxes and is meeting the balance by issuing paper money, or because the country is under the obligation of paying increased sums to foreigners for the purchase of investments or in discharge of debts. Temporarily it may be affected by speculation, that is to say by anticipation, whether well or ill founded, that one or other of the above influences will operate shortly; but the influence of speculation is generally much exaggerated, because of the immense effect which it may exercise momentarily. Both influences can only operate through the balance of debts, due for immediate payment, between the country in question and the rest of the world: the liability to make payments to foreigners operating on this directly; and the inflation of the currency operating on it indirectly, either because the additional paper money stimulates imports and retards exports, by increasing local purchasing power at the existing level of values or because the expectation that it will so act causes anticipatory speculation. The expansion of the currency can have no effect whatever on the exchanges until it reacts on imports and exports, or encourages speculation; and as the latter cancels out, sooner or later, the effect of currency expansion on the exchanges can only last by reacting on imports and exports.