II

INFLATION AND DEFLATION

99

prices, that is to say of the comparative pricesof different commodities, ought to influence thecharacter of production, because it is an in-dication that various commodities are not beingproduced in the exactly right proportions.But this is not true of a change, as such, in thegeneral price level.

The fact that the expectation of changes inthe general price level affects the processes ofproduction, is deeply rooted in the peculiaritiesof the existing economic organisation of society.We have already seen that a change in thegeneral level of prices, that is to say a changein the measuring-rod, which fixes the obligationof the borrowers of money (who make thedecisions which set production in motion) tothe lenders (who are inactive once they havelent their money), effects a redistribution ofreal wealth between the two groups. Further-more, the active group can, if they foresee sucha change, alter their action in advance in such away as to minimise their losses to the othergroup or to increase their gains from it, if andwhen the expected change in the value ofmoney occurs. If they expect a fall, it maypay them, as a group, to damp productiondown, although such enforced idleness im-poverishes Society as a whole. If they expect arise, it may pay them to increase their borrow-ings and to swell production beyond the pointwhere the real return is just sufficient to re-compense Society as a whole for the effort made.Sometimes, of course, a change in the measur-