II

INFLATION AND DEFLATION

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offset by the diminished yield of taxation andthe cost of the increased unemployment.

The actual figures I have used are, of course,guess-work. But (2) + (3) + (4) - (5) - (6) = (7),where (7) is the net reduction in the Govern-ment deficit, is a necessary truth—as neces-sary as 2 + 2 = 4. There is nothing rationalto dispute about except the size of the variousitems entering into this equation. It might beheld by some, for example, that there would bean increase under (6), instead of a decrease; andif there were a large increase of this item—which, however, could not, in my judgement, bemaintained with good reason—this would makeall the difference in the world to the expediencyof the policy proposed.

At the present time, all Governments havelarge deficits. For Government borrowing ofone kind or another is nature’s remedy, so tospeak, for preventing business losses from being,in so severe a slump as the present one, so greatas to bring production altogether to a standstill.It is much better in every way that the borrow-ing should be for the purpose of financingcapital works, if these works are any use at all,than for the purpose of paying doles (or veterans’bonuses). But, so long as the slump lasts onthe present scale, this is the only effective choicewhich we possess, and Government borrowingfor the one purpose or the other (or a diminishedSinking Fund, which has the same effect) ispractically inevitable. For this is a case, fortu-nately perhaps, where the weakness of human

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