II

INFLATION AND DEFLATION

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(ii) The Economy Report (Aug. 15, 1931)

The Report of the Economy Committee canbe considered from several points of view. It isan exceedingly valuable document because it is achallenge to us to make up our minds one way orthe other on certain vital matters of policy. Inparticular it invites us to decide whether it isour intention to make the Deflation effectiveby transmitting the reduction of internationalprices to British salaries and wages; though ifthis is our intention, it would be absurd to pre-tend that the process can stop with school-teachers and policemen. The Committee’sReport goes too far or not far enough. But thisis not the question which I wish to discuss here.I would like to confine myself to what has beenso far, as it seems to me, a neglected aspect ofthe Report.

The Committee show no evidence of havinggiven a moment’s thought to the possible reper-cussions of their programme, either on thevolume of unemployment or on the receipts oftaxation. They recommend a reduction of thepurchasing power of British citizens partly bythe reduction of incomes and partly by throwingout of work persons now employed. They giveno reason for supposing that this reduction ofpurchasing power will be offset by increasesin other directions; for their idea is that theGovernment should take advantage of the eco-nomies proposed, not to tax less, but to borrowless. Perhaps at the back of their heads they have