II

INFLATION AND DEFLATION

H5

vast scale on which new capital enterprise hasbeen undertaken in the last five years has some-what exhausted for the time being—at any rateso long as the atmosphere of business depressioncontinues—the profitable opportunities for yetfurther enterprise. By the middle of 1929 newcapital undertakings were already on an in-adequate scale in the world as a whole, outsidethe United States . The culminating blow hasbeen the collapse of new investment inside theUnited States , which to-day is probably 20 to30 per cent less than it was in 1928. Thus incertain countries the opportunity for new profit-able investment is more limited than it was;whilst in others it is more risky.

A wide gulf, therefore, is set between theideas of lenders and the ideas of borrowers forthe purpose of genuine new capital investment;with the result that the savings of the lendersare being used up in financing business lossesand distress borrowers, instead of financing newcapital works.

At this moment the slump is probably a littleoverdone for psychological reasons. A modestupward reaction, therefore, may be due at anytime. But there cannot be a real recovery, inmy judgement, until the ideas of lenders and theideas of productive borrowers are brought to-gether again; partly by lenders becoming readyto lend on easier terms and over a wider geo-graphical field, partly by borrowers recoveringtheir good spirits and so becoming readier toborrow.