II

INFLATION AND DEFLATION

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The first source of supply comes out of thesavings which we are now disbursing to paythe unemployed.

The second source of supply comes from thesavings which now run to waste through lackof adequate credit.

The third source of supply comes from a re-duction in the net amount of foreign lending.

Let us consider these in turn, beginning withthe first source. Individual saving means thatsome individuals are producing more than theyare consuming. This surplus may, and should,be used to increase capital equipment. But,unfortunately, this is not the only way in whichit can be used. It can also be used to enableother individuals to consume more than theyproduce.

This is what happens when there is unem-ployment. We are using our savings to payfor unemployment instead of using them toequip the country. The savings which Mr.Lloyd George’s schemes will employ will bediverted not from financing other capital equip-ment, but partly from financing unemployment.From the Unemployment Fund alone we are nowpaying out £50,000,000 a year; and this is notthe whole of the cost of supporting the unem-ployed.

In the second place, the savings of individualsdo not necessarily materialise in investments.The amount of investment in capital improve-ments depends, on the one hand, on the amountof credit created by the Bank of England ; and,