VOLUNTARY SAVING

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the above conditions. What happens then? Howis the paradox explained?

Let us suppose that, instead of saving the neces-sary £1,350 million, the voluntary savings of thepublic are, in the first instance, only £700 million,and that they try to spend the rest of theirincomes, namely £3,900 million, on goods worthonly £3,250 million at pre-war prices. Obviouslyprices will have to rise 20 per cent which willequate supply and demand; for the goods willthen be worth £3,900 (£3,250+£650) million, whichis just equal to the desired expenditure. More-over, those who have sold for £3,900 million goodswhich only cost them £3,250 million will have thebalance of £650 million left over as extra unspentincome, just the amount the Government requires.

It soon appears, however, that this only solvesthe problem momentarily. For we have no reasonto expect that the whole of the unspent windfallprofits of £650 million will represent permanentsavings. A certain time will elapse before this sumreaches those who will be entitled to spend it.But in the next innings, so to speak, it will beadded to the total of potentially spendableincomes, so that we shall have incomes of £5,250million (£4,600+£650) facing goods which, afterallowing for the continuance of the 20 per centprice rise, are only worth £3,900 million. More-over, it will be impossible for the Government tokeep down the prices of its own purchases if openmarket prices have risen 20 per cent. Thus weshall soon find ourselves in much the same positionas before with a substantial discrepancy between